Grain price: What really influences it?

The average calorie intake of people of China; obesity in the US; rising wheat yields in Russia; and the weather. The list goes on – but what affects your grain price?

Dan Basse of AgResourse Company, Chicago – a firm that forecasts domestic and world agricultural price trends – gave an insight into global grain markets at the R&H Hall conference last week.

World agriculture is rising more quickly than any time in history. I’ve never seen a point at which we’ve been producing more food than we are today.

“The world needs 1.9% more food to feed itself every year. We’re producing close to 3.1% today, so any of that overhang comes back onto the market place. Sooner or later, we’ll have to decide how we get rid of it.

“No longer is that worry there of how we are going to feed nine billion people going forward. We think that’s relatively easy where we sit today.”

The average calorie intake of the population of eastern Asia was 2,600 calories/day in 2005. This figure has now risen to 3,000. However, the growth in the market is slowing down. Calorie intake in the US needs to reduce by about 600/day. But growth will come from south Asia – typically India and Bangladesh, according to Basse.

Dan Basse, president AgResource Company, Chicago and Claudine Heron, CEO R&H Hall, Barnett Hall and Precision Liquids

Increase in grain production

The increase in grain is coming from countries like Russia and Ukraine, where yields have been increasing over the past number of years.

“In 1990, Russia was the largest importer of grain. Today, it’s the largest grain exporter by a large degree,” said Basse.

Russian wheat yields are up 80% in five years. What other country can you name that has done this? Russia now takes an exporter share of 21% of the world wheat trade.

Chinese wheat stocks are also at a record high, not because of an increase in acreage – because of an increase in yields.

“Brazil’s winter corn crop is the most important in the world. Brazil and Argentina now export close to 65 million metric tonnes of corn,” he explained.

Basse reminded the audience of what’s happening in Ukraine and Russia and said to factor in what’s happening with corn in Brazil and Argentina.

You can see why it’s difficult and why prices are so low.

ABU – Argentina, Brazil and Ukraine

Argentina, Brazil and Ukraine have become such major players Basse now refers to these countries collectively as ABU.

“When I look at ABU, they now capture 65% of global corn trade. The United States used to have an 80% share of global corn trade but is now down to 28%.

Some of the attendance at the R&H Hall conference in Carton House

Impact of weather

Basse stated that, based on normal weather and oversupply, over the next five years he wasn’t predicting anything exciting to happen to prices.

He continued on to describe how weather can give the market a jolt. He watches and predicts weather for each month of the year to see how it will affect grain prices.

However, this year in the US low rainfall levels were recorded from June to September. According to the USDA (United States Department of Agriculture), soya bean pods weighed a record high. Despite the poor growing season the soya bean plant adapted; Basse described his reasons why.

Genetics – likely; agronomics – possibly; combinations – obviously. Farmers are farming better. The genetics on these plants are amazing and are changing the face of agriculture.

“It’s important to understand weather. I’m sure that you understand after Monday’s storm that the Atlantic is the warmest it’s ever been on record.

“Weather and climate have become more unpredictable than ever before. Global ocean temperatures are a record high everywhere.

“Our world ocean structure is producing this conveyor belt of severe weather, which has been felt throughout the world this year – principally in the Atlantic,” he concluded.