Corn Demand Projected to Outpace Supply This Year

The LA Times reports that corn supplies are tightening, with supply/demand projected to be "upside down" this year:

This year's harvest is expected to yield 11.9 billion bushels, down 155 million from last month's projection. The decline is due to soggy weather in such corn-producing states as Illinois, where farmers have delayed planting.

Total use of the corn crop is projected to be 12.5 billion bushels, which would outstrip this year's supply by 525 million bushels.

That means the corn surplus would be drawn down heavily, according to the USDA report, leaving about 1.1 billion bushels at the end of the year. That's 510 million bushels fewer than USDA analysts had expected.

Also, supplies are very low for...drumroll...soybeans! Lowest supply levels since 1983 according to the article...when demand was only half of what it is today, to boot.

Thanks to my friend Jonathan of Lederer Private Wealth Management for passing this piece along.

Wheat, Corn Stocks Still at 30-Year Lows

Despite record harvests last year, corn and wheat stocks are still sitting near 30-year lows.  Which means, anything short of a bumper crop could send the grains skywards once again.

Here are some very cool charts, courtesy of Chris Mayer at DailyWealth, that depict the stocks-to-use ratios of of wheat and corn since 1970, versus their inflation-adjusted prices.

Investing in grains is actually pretty easy - when supplies are low, and prices are low, you know prices should eventually go up.  Then, at some point, high prices spur enough new supply onto the market that prices come down.  Ideally, that's when you go short!

You'll notice from the charts that grain stocks and prices move in fairly long cycles - about 15 to 20 years in length.  It takes time to bring new supply online, to replenish stocks...ultimately to rebalance the supply/demand situation.

This time should be no different.  China is industrializing in a big way, and its citizens have taken a liking to eating, a habit they're not likely to give up, no matter how bad the global economy gets.  Most notably, they are adopting Western style high protein diets, with lots more meat...and livestock require a lot of grains to raise.

Bottom line - it's safe to tune out the talking heads on TV when thinking about agriculture...just focus on supply and demand.  It's that simple.  When demand exceeds supply, prices will rise, until supply is able to overtake demand.  Sure, things like currency devaluation, a falling dollar, will toss fuel on the fire...but at the end of the day, it's all about supply and demand.

Tough Year Ahead for Corn Farmers?

Corn farmers could be in some trouble this year reports the Batavia News, an upstate New York newspaper.

The (corn) price has been hovering near $4. That could be trouble for farmers if there is an average or below average crop.

Many of his customers have ordered more soybean seed. That crop requires less fertilizer. New York farmers last year planted 235,000 acres of soybeans, the most ever in the state. That was up 15 percent from the previous high of 205,000 planted in 2007.

Tip of the hat to Tom Rivers on a very well written and investigated piece!

Food Supply Problem More Acute Than Ever

Chris Mayer writes in Agora Financial's Rude Awakening that the global food supply problem is more acute than ever before, as a result of the current financial crisis.

This is something we've been discussing here of late. Farmers cannot get basic loans for fertilizer. Forget about new capital investments. And this all happening with world inventories of the grains hovering near historic lows.

BOTTOM LINE: Pick up some agricultural commodities at these depressed prices. Ag-flation is coming - you may as well profit off it!