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USA - Global grain surplus

24 Jun 2010

Two years after the global food crisis peaked, grain shortages are turning into surpluses that could create their own problems.

Some traders and economists are speculating that if the U.S. and world economies don't heat up soon, surpluses could turn into price-depressing gluts. While cheap grain is good news for consumers and livestock producers, excessive supplies increase a government's cost for farm subsidies and tend to ignite trade fights between the big farming powers.

This tension is growing partly because many of the farmers in the U.S. Midwest who were plagued by rainy growing seasons in recent years are having few problems so far this year.


.Although the corn harvest is months away, farmer Clay Mitchell of Buckingham, Iowa, is preparing his storage bins for what's shaping up as a record-large crop. The corn plants are already as tall as his chest, helped by a warm spring that permitted early planting, followed by well-timed summer rains.

"So far, this has been the best growing season ever," says the 37-year-old newlywed, who planted 1,600 acres of corn.

In some northern Texas towns, the unfolding wheat harvest is so big that farmers delivering grain to local elevators in recent weeks have had to wait all day in long lines of trucks. Some elevators are so full that wheat is being stored in cotton warehouses.

"There's probably never been this much wheat in our county before," says Steven Sparkman, Texas A&M agricultural extension agent in Hardeman County. "We've got a glut."

This is a big change from most of the last decade, when farmers' inability to keep up with expanding global demand for grain set the stage for what became known as the food crisis of 2007 and 2008.

World grain stocks—what's left by the time new harvests can replenish supplies—shrank as the growing middle-class in emerging nations such as China demanded more meat from livestock fattened on grain. Industrialized nations, stung by soaring oil prices, were increasing support for fuels made from crops. In the U.S., the ethanol industry began consuming one-third of the nation's biggest crop, corn.

 .Grain prices skyrocketed as some panicked governments disrupted trade by husbanding domestic supplies, increasing the numbers of hungry people around the world by millions and fueling street protests and riots. It took a global recession to cool grain prices in late 2008.

Two years later, however, farmers world-wide are working harder than ever. Growers from Latin America to the former Soviet Union have expanded so quickly that the global acreage devoted to the 16 biggest grain and oilseed crops has climbed 82 million acres since 2006—akin to creating another U.S. corn belt, according to U.S. Department of Agriculture statistics.

Grain traders in Chicago expect U.S. farmers to produce record-large corn and soybean crops for the second straight year. Farmers in Brazil and Argentina are wrapping up record-large soybean harvests. Asian farmers are poised to produce a huge rice crop. According to forecasts by the United Nations' Food and Agriculture Organization, this year's global cereal reserves—the buffer against shortages—will probably be 24% bigger than just two years ago, and the largest in eight years.

With world grain production this year expected to exceed demand for a third consecutive year, many grain traders and farm economists are beginning to debate the prospects for two starkly different outlooks.

If an economic recovery doesn't gather steam soon, says one group, price-depressing grain gluts could materialize in a few years, dragging down farmers' profits and chilling farmers' demand for everything from tractors to genetically modified seed.

This argument has history on its side: the 1970s grain-price rally ignited a production boom that swamped the 1980s farm sector. Indeed, U.S. wheat reserves by next year are forecast to swell to their highest levels since 1987, thanks largely to plunging U.S. exports in the face of competition from resurgent wheat farmers in the former Soviet Union.

Others, however, worry that the world's farmers won't be able to keep up with demand again once the economy does recover, which would increase costs for food manufacturers and create the environment for another food crisis. China's and India's appetites are expected to grow strongly.

For now, Daniel Basse, president of AgResource Co., a Chicago commodity forecaster, is leaning toward the first camp. He thinks the genetically modified seeds that have saturated U.S. corn and soybean farms are increasing yields faster than anyone expected. Mr. Basse cites the fact that U.S. corn and soybean farmers harvested record crops last year despite a rain-delayed planting season.

At the same time, some important demand is slowing. The federally supported ethanol industry is growing more slowly as it bumps up against federal limits on the amount of ethanol allowed to be blended into gasoline for traditional cars. The U.S. ethanol industry's annual consumption of corn, which had been expanding by several hundreds of millions of bushels in recent years, is expected by USDA economists to grow just 150 million bushels during the year ending Aug. 31, 2011.

"The message," Mr. Basse says, "is that agriculture has always been and always will be a cyclical business."


 

Source: cattlenetwork.com

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