The grain market outlook isn’t any less grim this year than last year.
That’s the unfortunate message analysts will be presenting at the Cereals North America conference in Winnipeg Nov. 2-4, according to Pedro Dejneka, the managing partner of AGR Brasil.
“It’s the new old world. We’re back to where we were pre-ethanol,” said Dejneka, who will present a Brazilian and South American outlook.
“We have a period of depressed prices unless someone cuts production aggressively.”
Dejneka said the world would need “two really bad, back-to-back crops, 2012-like in both hemispheres,” to return to sustainable prices of more than US$10 per bushel for soybeans and more than $4 per bu. for corn.
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That’s not likely to occur, so some farmers somewhere will need to reduce acreage to make up for recent hefty production expansions around the globe.
Right now it looks most likely to happen in the United States, where crop profitability is weakest, Dejneka said.
Crop prices are low and profits have disappeared for U.S. farmers. There’s not much incentive to boost production.
However, Dejneka said the opposite is true elsewhere. Brazilian, Russian and Ukrainian farmers have all been making money in recent months, even as Chicago futures have fallen, because their national currencies have slumped.
Brazilian farmers are now making more than they did at the peak of the U.S. Midwest drought rally in 2012, at least in terms of their local currency, the real.
The same situation has applied to Black Sea exporters, who are making good profits even while their national economies are in trouble and most people are feeling poorer.
That’s not the kind of situation that convinces farmers to stop boosting production.
“We’re in the midst of a supply war,” said Dejneka, who will be one of more than a dozen analysts at Cereals North America.
“They’re going to plant. They’re going to plant more.”
For example, Dejneka is projecting a 4.5 to five percent increase in soybean acreage in Brazil this year with production likely increasing to 100.5 million tonnes. The country produced 96.2 million tonnes last year.
His range for Brazilian production is 94 to more than 103 tonnes of soybeans, depending on weather, with South America likely producing 172 to 181 million tonnes.
That follows last year’s South American production of 171 million tonnes and the previous year’s 154 million tonnes.
For North American farmers, this means no end to the pressure on their margins, although Canadian farmers are better off than U.S. farmers because the loonie has fallen, cushioning the decline in futures.
Dejneka believes the impact of currency fluctuations will be an overarching theme that will dominate Cereals North America .
Farmers will base their plans on the relative profitability that U.S. dollar denominated crop prices will bring them in their local markets and currencies.
Cereals North America is a major grains market outlook conference held every fall in Winnipeg. It is put together by the market analysts at G3 and the U.S. analytical firm AgResource.
