Demand Outlooks - Wednesday, 25 November 2015

 

Commodity prices are the main topic of conversations this time of year, not only about when to sell or how much, but also input costs and corn vs. soybean acres for the 2016 growing season.  We all have a variety of “experts” that we tend to follow from week to week so today I decided to bring you a small collection of ideas about global supply and demand from a few of the “experts”.  We can stick our heads in the sand and try to ignore what is happening with market prices or we can try to understand it and the more information you’re armed with the better decisions you can make. 

Jeff Beal, from The Gulke Group believes that the USDA has “struggled in the last couple of years in realizing the magnitude of demand and thus, final ending stocks.”  Demand levels fluctuate over time and while production around the globe has created an additional 3.2 billion bushels of corn and 2.4 billion bushels of corn, the majority of it has been eaten up by growing demand.  Demand is strong, what went wrong was production grew a little quicker than the demand did.  He also points out that it would only take a small issue to reignite the grain markets again.  An unexpected 200 to 500 million bushel fall in corn or soybean production would be enough to get “carryout projections to a level that the market would need to incentivize more U.S. acres next year.”

Bill Biedermann of Allendale, Inc. feels that demand is strong.  The issue we now face is how to get our share of that market.  The strength in the Dollar, as we know, makes it tougher for us to compete with our rivals around the globe.  Japan has been our best customer in the past but lately they have not shown much interest in U.S. grains.  Weather in Asia and South America is important and being watched very carefully right now for signs of production issues, El Niño has already caused some concerns for production in Malaysia and Indonesia.

Richard Brock of Brock and Associates believes that building demand takes a long time and we can never be certain of where new demand may come from.  He also states that “markets peak quickly and bottom over a long time frame.  The cure for low prices is low prices and while that’s not what producers want to hear, in order to build demand that is what will be necessary.”  He used the Ukraine as an example of this, back when corn hit $6.00 production was ramped up in Ukraine but now with lower crop prices and political uncertainty they, along with several other countries with marginal quality land, will cut back on production.

Bob Utterback of Utterback Marketing Services. The top corn producers on the globe today are the U.S. and China, we are also of greatest concern then when production problems arise.  We currently have an El Niño weather pattern in place that is causing weather issues around the globe, there is also some talk now that we could possibly progress into a La Niña pattern by next spring. He advises producers to use these marketing opportunities to your advantage.

The maps below bring some good news for us in the northern “icebox” region of the U.S.  According to the Climate Prediction Center we may see a break from the traditional cold weather, the outlook looks to remain very much the same as December for the 90 day outlook that takes us through February, 2016.

 

 

 

The U.S. has seen an extraordinary jump in railroad usage since shipments of crude oil out of North Dakota began, which has made it difficult for the movement of grain by rail.  From 2009 to 2013 the volume of oil moving by rain increased from 10,000 cars to about 400,000 cars each year which has caused a jam for grain shippers.  Commodity market analyst, Elaine Kub recently prepared a study for the American Farm Bureau Federation that determined producers in the Upper Midwest states have been negatively affected by this increase in crude oil shipments.  The U.S. Department of Agriculture has estimated that “grain producers in the Upper Midwest states may have received $570 million less for the crops they marketed in 2014 than they could have earned in a normal freight environment because of congested rail traffic.”  Elaine Kub recently testified before the Iowa Utilities board that the construction of oil pipelines such as the Bakken pipeline would “free up the railroad industry to carry shipments of commodities.”

       

All of us at Ag Performance would like to wish you and your families a wonderful and blessed Thanksgiving Holiday!!

 

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