The parade streaming down Graintown’s main street is more exciting for crop farmers than anything Disneyland produces.
Stocks of most grain types are tight, demand is strong and there is no expectation that crops produced in 2008 will return supply to comfortable levels, so prices are sparkling like the fireworks that explode over Disney’s Cinderella Castle each night.
Speaker after speaker at Crop Production Week in Saskatoon provided optimistic market forecasts for 2008 of prices sustained at current levels or even higher if bad weather hurts yields in any region of the world.
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The only cloud shading the parade is the possibility of a recession in the United States.
The subprime mortgage credit crisis slammed an economy already struggling with high oil prices, rising inflation, a record trade deficit and soaring government debt.
In the U.S. in December, unemployment rose for the first time since 2003, delinquency on mortgage and credit card debt is rising, consumer spending is slowing, corporate profits are off and the American dollar is weak.
Major investment banks such as Goldman Sachs, Morgan Stanley and Merrill Lynch all forecast a U.S. recession this year.
The U.S. Federal Reserve Bank is signalling significant interest rate cuts and Congress is talking about what it might do to stimulate the economy.
At the same time, China has been trying to slow its booming economy to cool raging inflation.
Some economists warn that if the U.S. economy falls harder than expected and if Beijing pushes too hard on the economic brake, the global economic growth that has spurred demand for food could stall.
An annual economic report from the United Nations last week said there is a “clear and present danger” of the global economy slowing to near standstill in 2008 if the U.S. situation worsens considerably.
It is not saying that will happen, just that there is a danger.
More optimistic global economic outlooks say that developing countries will continue to grow, partly on their own expanding domestic demand, offsetting the decline in the U.S. Demand for commodities will continue, although at perhaps a slightly slower rate of growth.
I find this latter assessment more convincing and even if the more worrisome scenario became reality, it would likely only slow the growth in food demand, not stop it. And we can’t forget the growing demand for grain for renewable fuel.
There is strong evidence that strong prices will signal the need for more production for at least 2008-09.
