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Grain Supply Update: Aug 2
Grain Supply Update: Aug. 2
Grain Price Plunge Premature?
© Geri Guidetti, 1996
The month of July was certainly a volatile one for corn with prices
soaring to $5.54/bu. earlier in the month and plunging to about
$3.20/bu as August approached. The higher prices were a full 71%
steeper than the average price for corn in July ’95. Plunging corn
futures prices reflected optimism by traders that three weeks of good
corn growing weather would reverse dismal crop predictions that were
based on earlier, bad weather. In fact, some analysts have gone so far
as to suggest that this year might yield a bumper crop of corn.
Wheat prices, too, have fallen, largely based on the rejection, by
China, of several large shipments of U.S. wheat found to be contaminated
with the TCK (smut) fungus. China has quarantined all grain suspected
of containing the fungus, and U.S. Agriculture Undersecretary, Gene
Moos, said that it would be impossible to guarantee shipments would be
free of the organism. The cost of a bushel of wheat had risen earlier
this season to well over $7, yet by the end of July, September wheat
was priced at $4.38. In fact, the commodities’ price reversals fueled
the Federal Reserve’s recent decision not to raise short-term interest
rates, according to some analysts, noting that rising inflation due to
high food prices would be less likely.
Declining grain prices obviously reflect renewed optimism that supplies
will be plentiful this year due to
three weeks of better weather in the Corn Belt states and lower,
international demand for wheat. Are we really out of the woods on the
food front? Is the 4 - 6% food inflation rate recently predicted for
this year now unlikely? It is far too early to assume that supplies
will be plentiful this year, and especially next year, based on a few
weeks of favorable weather in corn country and the fears of decreasing
global demand for wheat. If we have learned one lesson about the
dramatic weather swings of the past few years, it is (or should be) to
expect the unexpected. The only thing certain these days is
uncertainty.
The big weather and food picture argues against unwarranted optimism.
Weather extremes continue to wreak havoc in the crop-growing regions of
Southern Russia, the Ukraine, Kazakhastan, North Korea, parts of South
Korea, North Vietnam, the Philippines, parts of South America, China,
Northeast Mexico and the United States. From typhoons, droughts and
floods of historical proportions, to the unexpected cold, diseases and
freezes of past weeks, nature continues to challenge our efforts to
raise enough food to feed burgeoning global populations.
Despite China’s rejection of several fungus-infected U.S. wheat
shipments, global demand for wheat and corn continue to grow
dramatically with each passing year. If China turns to Canada or
Australia to meet its wheat needs this year, demand for U.S. wheat will
remain high as other countries rush in to fill the temporary demand
vacuum. Whenever global harvests are not sufficient to easily meet
growing global demand, prices are going to rise despite three weeks,
three months or three years of favorable weather in the U.S. The
long-term outlook for sufficient grain supplies is down. The long-term
outlook for grain prices is up. As goes grain, so goes much of the rest
of the global food supply chain, as so much of it is grain-dependent:
meats, eggs, oils, dairy, eggs and secondary products.
Fruits, vegetables, nuts and beans are similarly in jeopardy as a result
of weather extremes, rapidly dropping water tables in global growing
regions dependent on irrigation, the decimation of bee populations by
Varroa mites and our growing impact on agricultural habitat.
Despite Wall Street’s glowing reaction to good weather, the week of July
22 - 28 saw corn development still 1-2 weeks behind normal, some fields
still flooded from the torrential, up to 17 inch rains of the previous
week, and others now showing signs of heat stress. Corn growth was
generally slowed during this cool, wet period. It is critical, this
year, for the corn crop not to be late in maturing. There is little
leeway should fields get hit with an early frost because successful
planting was achieved so late this year due to unfavorable weather.
Soybeans were still 11 percent behind the average blooming for this
week, and were in mostly good to fair condition. But blooming in Indiana
and OH was 40 points behind average. Illinois and Michigan were 30
points behind normal. Many Arkansas soybean fields were found to be
infested with worms.
Bottom line thinking should be big picture thinking for those interested
in the outlook for global food supplies. The future—maybe sooner than
we all hope or think—will be plagued by food shortages and famines,
increasingly expensive food, food distribution disruptions, and an
increasing focus on food by the world’s populations and political
systems. Food will become a powerful bargaining chip at international
conference tables and, yes, may even become regarded as the ultimate
weapon of political persuasion. Remaining entirely dependent on
complex national and international production and delivery systems for
every bite we put into our mouths is simply not prudent. Becoming,
individually, as food self-sufficient as possible would be an
intelligent goal. Teaching our children the wisdom of such
self-reliance and the danger of blind dependence should be one of our
greatest legacies.
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Build Your Ark! How to Prepare for Self-Reliance in Uncertain Times…
Book I: Food Self-Sufficiency http://www.lis.ab.ca/walton/geri.html
Grain Supply Updates: http://www.lis.ab.ca/walton/geri1.html
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