Commodity Insight: Prepare for what lies ahead

In the decade of the 1970s, grain prices rose sharply because of two main events. The first was what is now called “the great grain robbery.” Second was a series of weather issues that provided a tail-wind for prices that lasted into the ‘80s.

According to Wikipedia, “The great grain robbery was the July 1972 purchase of 10 million tons of United States grain — mainly wheat and corn — by the Soviet Union at subsidized prices, which resulted in higher grain prices in the United States. Grain prices soon reached 125-year highs in Chicago. In a 10-month span, soybeans went from $3.31 to $12.90 a bushel. Food prices around the world rose 50% in 1973.”

In essence, the grain complex and the U.S. agriculture markets were hit with a one-two punch in the gut in the 1970s. First, was unexpected demand from the Soviet Union and second was several crop disasters brought about by Mother Nature.

Historically, there was no other period in American history that faced such fundamental challenges. However, we may be facing something similar if China and the United States strike a trade deal with China committed to buy $40 billion worth of U.S. ag products a year for several years, and if climate change impacts crop yields and production anywhere on the globe.

We may be looking at history simply repeating itself.

The following headline caught my attention from Huffingtonpost.com, entitled “2019 was the year the world burned.” The article stated, “Wildfires burned around the world this year from Australia, the Amazon and California. These forest blazes are part of nature, but climate change is making them more frequent and more intense.”

Here are a few statements from the article that are sobering:

• “Australia … had the hottest day on record with an average maximum temperature across the country of 107.4 degrees.”

• “Seven of California’s 10 most destructive fires have happened in the last four years.”

• “Annual rains are coming later and later, while hot, dry winds have helped whip up fires.”

• “The Amazon saw more than 80,000 forest fires this year, an increase of 75% from 2018.”

• “‘This is not an isolated event,’ a campaigner at Greenpeace Lebanon, told The Ecologist, ‘as 2019 has been a year of unprecedented forest fires from Siberia to the Amazon, from the Canary Island to Indonesia, sending clear signals that our planet is burning and it is time to act like it.’”

And from my weekly column in October, entitled “Dodging a bullet in 2020,” “Over the past few decades, there were three years with horrible weather devastating crops that led to higher prices. Those years were 1983, the drought year of 1988 and flood year of 1993. And do not forget the U.S. planting season this year was so rain soaked, and worse than 1993, the corn and soybean crops were the most delayed seeded in history.

“Recently, the National Oceanic and Atmospheric Administration showed May 2019 to be the fourth warmest May in their 140-year database, only behind May 2015 (second warmest), 2016 (warmest) and 2017 (third warmest) and 2018 (fourth warmest). The 20 hottest years on record have all occurred within the past 22 years. And the past five years in a row have been the hottest and warmest back-to-back years in history, as well.

“I fear 2020 will be hot and dry year the likes of which has not been seen in years. The U.S. is long overdue for drought-like weather conditions to impact the grain and livestock markets. The U.S. has dodged a bullet the past five years amid record-setting heat that simply did not sear the Grain Belt in the key growing months of July and August. I doubt grain producers will be so lucky in 2020.”

In November, Federal Reserve Bank of New York executive vice president Kevin Stiroh warned in prepared remarks, “that climate change — not, say, asset bubbles created by his employer — is a major threat that risk managers can’t ignore.”

In the New Year and new decade ahead, the odds are high that weather issues will play a major role in determining the values of food stuffs in the United States and across the globe.

My advice to U.S. farmers and ranchers? Be financially prepared for what lies ahead. Do not be left behind.

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