A grain industry analyst believes crop prices are heading back to the doldrums of the late 1990s, but there should be a few more good years before the bull stumbles.
Brian Clancey said by the middle of the next decade prices could head back to where they were in the period between 1996 and 2003 when there was a glut of production, prices were depressed, farmers were idling land around the world and farm rents were extremely low.
Clancey, editor of the Stat Publishing newsletter, said global crop production, which has struggled to serve food demand and fast growing biofuel demand, will catch up and return to a level of surplus capacity not seen since before the biofuel revolution that sparked a bull market.
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Using data from the Food and Agricultural Policy Research Institute and the Food and Agriculture Organization of the United Nations, Clancey compiled a table of how much of the world’s field crops will be available for food and other uses after the biofuel industry has taken its share.
The data shows that by 2014 there will be the same amount of crops per capita as there was during the 1996-2003 period – 848 kilograms per person.
“I really believe (the window) is going to close. Things are going to reverse back,” he said.
The grain industry’s fortunes turned around in 2006 when the United States adopted a renewable fuels standard mandating the use of corn ethanol in its fuel supply, Clancey said.
“I don’t care what anyone thinks about ethanol. Forget the environmental stuff and the food or fuel debate, whatever. Ethanol saved agriculture,” he said.
“We were in a death spiral.”
Starting in 2006, a sizable amount of U.S. corn production was diverted into the biofuel sector. The upshot was a bidding war for agricultural land between corn, soybeans and wheat, which boosted the entire grain price complex.
“As soon as the United States brought in the biofuel mandates, everything changed. Everything changed,” said Clancey.
The amount of field crops available for food has dropped to 838 kilograms per capita in 2009. Clancey doesn’t think that means there is a food shortage because many people are eating far more than they should.
“It’s the same problem it always was. Some people don’t have money and some people have too much money.”
But there is a 10 kg per person shortfall of field crops for food compared to the 1996 to 2003 period. That shortfall is a big contributor to today’s higher grain prices but it is about to evaporate.
Clancey projects a return to an 848 kg per person level by 2014 due to more land coming into production and improved yields. The number will grow to 855 kg per person by 2018.
That will mean lower prices for growers, he said.
