This is a much different landscape than the prior bull period from 2006 to 2013, explains Dan Basse, an Ag Resource Company economist.
This is a much different landscape than the prior bull period from 2006 to 2013, explains Dan Basse, an Ag Resource Company economist.
Dan Basse, an agricultural economist with Ag Resource Company, started his presentation around the notion of farmers needing to produce more for a growing global population while using fewer resources. However, he says that the outlook for agriculture, especially when it comes to commodity prices, isn’t so bright.
In fact, Basse says that corn prices won’t rise above $5 per bushel for the next several years, unless there is a severe weather event. During his presentation, he highlighted six key drivers that the seed industry needs to be aware of.
“The world’s biofuel industry is mature,” Basse says, noting that there are no new corn based ethanol plants under construction in the United States or the European Union. “Ethanol consumption has reached the blend wall.”
Basse also call attention to the fact that outside of China’s record large demand for soybeans, the world lacks a bullish demand driver. “This is a much different landscape than the prior bull period from 2006 to 2013,” he says.
Additionally, the Black Sea region will remain the world’s largest grain exporter for both quality and quantity, according to Basse. He predicts the world will ramp up wheat and oilseed production in 2015 amid the falling price of feed-grains. “Farm profitability is curtailed as seed, fertilizer and transit costs remain high,” he explains. When it comes to soybeans, Basse says that South America will produce a record large crop in 2015, but will decrease their production of corn and wheat.
While the supply and demand factors are always at play, Basse adds that currency must also be taken into consideration. “A rising U.S. dollar and falling energy prices argue against the broad commodity market in 2015,” he says. Basse expects crude oil to bottom out in 2016 at about $40 to $45 per barrel.
Due to these factors listed above, Basse cautions that a readjustment period lies ahead for the world’s grain and oilseed farmers for the next three to five years with profits far below what was realized from 2005 to 2013. This means that “U.S. and world government programs become paramount for producers,” Basse says.