Corn, soyabean and wheat prices, have rallied markedly over the last several months. The impact is being felt by consumers facing higher prices at the supermarket, companies whose margins have been squeezed and policymakers in emerging economies who are having to deal with sharply higher food inflation. As is often the case, some are blaming the participation of speculators for these moves higher.
But the truth lies in the numbers. While speculative long positions are at near-record highs, inventories have tightened meaningfully and to near-record lows in some cases. Even greater challenges lie ahead. Prices will need to move higher if a sustainable equilibrium is to be achieved as only higher prices will encourage farmers to devote much-needed extra land to these crops and this burden rests largely on emerging markets like Brazil. We have long argued that global corn and bean balances were tight, especially given the tendency of weather to surprise and that without higher prices production would fall short of demand, tightening balances to untenable levels.
In the US, poor corn yields have prompted the US Department of Agriculture to cut its corn yield estimate from an expected record high of 164.7 bushels an acre to 155.8 bu/acre – and further downward revisions may still be likely. Even if the current yield estimate is realised, stocks in the US – which is responsible for nearly 60 per cent of the world’s corn exports – are poised to fall to an untenable 6.7 per cent of annual demand.