That’s the headline from Dan Basse, an economist and founder of AgResource Company. He says that 2016 was another great year._x000D_
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“We had record soybean yields and record corn yields,” he says. “It was really farmers only profit source if they were able to squeeze any out this year.”_x000D_
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Basse attributes this to what he calls globalization of the world. World agriculture this year looking at the three principle crops (corn, soybeans and wheat) was a record large crop for the third consecutive year, he says._x000D_
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Total world grain supplies were up 95 million metric tons, which increased global grains stocks 24 million metric tons. “The world today is awash in grain,” he notes._x000D_
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The landscape for farmers here is grim; however, Basse says when he travels to Turkey and visits farmers in Russia or to South America, the smiles on farm faces are everywhere._x000D_
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“They are making lots of money,” he says. “So as you think about the food table … I want you to understand there’s another side of the table._x000D_
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“It’s due to currency that people are looking more favourably upon their lot in life. Russian farmers are expanding wheat acreage. South American farmers are on their way to producing a record soybean crop this year. And they are all looking at returns ranging between 10 and 30 per cent — a much different landscape than we are facing today.”_x000D_
Market Drivers
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While he was addressing members of the corn, sorghum and soybean seed industry, Basse hit upon several factors that influence where agriculture is today, including demand, energy, de-carbonization, inflation, currency, political landscape and more._x000D_
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In short, he said that regarding demand, the world biofuel market is mature. Additionally, livestock producers have expanded herds, but now face reduced profitability, principally in the United States._x000D_
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“We’ll see hog prices, chicken prices and as you think about your Thanksgiving table, lower prices than we’ve seen going back 12 years,” Basse says._x000D_
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Looking at global production compared to global need, Basse points out that the world increased harvested acres by 179 million acres in the past 10 years — the biggest increase in_x000D_
history._x000D_
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However, he says the world only needs about 1.8 per cent more calories to feed itself each year._x000D_
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“As you think about that, the world today is producing 2.4 per cent more grain, largely due to better genetics, better agronomy and better farming practices,” Basse says. “We are building grain stocks. We are back to that landscape we call 1980 to 2005. It’s a different landscape than we were in from 2005 up to about 2013.”_x000D_
Renewable Energy
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It’s not just grain that’s oversupplied; energy is, too. In early December “you basically saw OPEC register its first production cut in eight years,” Basse notes. “Coordinated with the minor producers, it was the first production cut going back to 2001.”_x000D_
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Add to that de-carbonization, an effort to decrease greenhouse gas emissions._x000D_
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“We believe that by 2025, one-third of U.S. cars will be of electric nature,” he says. “If you think about that happening and solar panels on your roof, feeding your house electricity, we start peaking out crude oil demand.”_x000D_
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Moving on to other factors, he explains the world is seeing increased nationalism and pointed to recent events in Italy, the Brexit and the United States._x000D_
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Additionally, inflation is starting to bubble. Basse says this is good news, explaining that it’s the only way to grow your way out of debt over time._x000D_
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Basse says he expects to see improvements for hard assets by late 2017 and early 2018._x000D_
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In summary, he says the world is producing too much food again today._x000D_
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“The key question going forward is: ‘Will there be enough economic growth outside North America to sustain the demand?’ We believe this bounce in inflation will cause grain prices to go sideways,” Basse says. “I’m not as bearish on grain this year as I was last year._x000D_
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“But if we have another big harvest in the Northern Hemisphere come July, August and September, we will see prices move down again. But for today, we are cheap enough.”
