September 21, 2023

Various factors impacting U.S. grain prices

BLOOMINGTON, Ill. — The demand trend for food is always rising.

“We’re always consuming more grain as a world, as the population gets richer and we add more people,” said Dan Basse, president of the AgResource Company. “We added a billion people during the past 12 years and the next billion will come in 8.5 years.”

World food prices peaked in March 2022 and have started to come down, said Basse during a presentation at the Illinois Society of Professional Farm Managers and Rural Appraisers annual meeting.

“Rice kept the world from going hungry last year because rice prices never followed along with wheat and corn,” he said. “Everyone is four meals away from a change in life because if you miss four meals, you change your mentality.”

The available grain per capita in the world, Basse said, is worrisome.

“If there is a drought, we will be staring at a crisis,” he said.

World farmers have increased crop yields from the 1970s until 2016.

“Something has changed and over the last six years global grain yields have not increased due to heatflation,” Basse said.

For example, last year in India, which is a big rice and wheat producer, the temperature was from 135 to 138 degrees in March and April and in London the temperature reached 103 degrees.

“We are able to breed drought tolerance into seed, but we haven’t been able to figure out how to breed in tolerance for heat, so heatflation is starting to have a cap on yields,” Basse said. “If we don’t have yield rising then we need more acres to keep people fed.”

Basse estimates a need for an extra 22 million to 24 million acres in the next five years if grain yields do not increase.

“Our modeling shows between 2040 and 2060 the world reaches peak farmland,” he said. “That’s when this yield question really starts to get interesting and when technology has to step up.”

This year, Basse said, global grain demand for corn, wheat and soybean consumption is going to be flat or slightly lower.

“That is due to the slowing world economy,” he said. “So, that is helping us this year.”

U.S. food inflation is soaring.

“It was at the highest levels since 1977 and now it has come down a little, but it hasn’t fallen as fast as everything else,” Basse said.

Changes are occurring with the U.S. workforce.

“For the past 50 years, we’ve been adding a half to 3.5 million people in America to the workforce every year,” Basse said.

“About 2017, baby boomers started to retire, millennials didn’t want to work as hard and the Gen Zs and Gen Xs want a lot of benefits.”

As a result, from now until 2040 to 2045, he said, America will lose from a 500,000 to 1.5 million people from the work force annually.

Basse estimates it will cost about $870 per acre for corn production this year.

“That’s a little down from last year with fertilizer being the biggest cost followed by seed, fuel and repairs,” he said.

“Natural gas prices are falling so nitrogen prices should be easing lower over the next couple of months, but it will still be an expensive crop to plant.”

Diesel prices have been quite volatile, Basse said.

“The spring will probably be the time to lock down diesel since energy prices probably won’t drop a lot because we’ve been stealing a lot of supply from the petroleum reserve,” he said.

“It is now at the lowest level of stocks since 1985, so we don’t have a supply for any emergency longer than a week.”

The refinery capacity in the United States has flattened out.

“We have not built a new refinery in this country for 41 years,” Basse said. “Whether it’s heating oil or diesel fuel, it’s going to stay relatively tight and volatility in these markets is going to stay extreme.”

For the first time in three decades, Basse said, the United States and China are in different spots economically.

“The U.S. is raising interest rates to try to cool inflation and China is lowering rates to try to stimulate their economy,” he said.

The Chinese have been buying U.S. beef, pork and soybeans.

“U.S. ag exports to China on a 12-month rolling basis are at $35 billion,” Basse said. “China released 36 million tons of rice from September to November and now farmers are feeding rice to livestock, but that will end soon.”

When the war started between Russia and Ukraine, Basse said, China began buying corn from Brazil.

“That will be their predominate supplier of corn going forward,” Basse said.

“Brazil wasn’t much of a corn exporter until 2012, when the U.S. had a drought and they started planting corn after soybeans,” he said.

“In a matter of a decade, Brazil will become the world’s largest corn exporter along with the world’s largest soybean exporter.”

For the three principle crops in the United States — corn, soybeans and wheat — the number of planted acres has been about the same for the past 10 years, Basse said.

“We can switch crops around, but we’re not going to find additional acres unless the CRP acres go down,” he said. “So, the U.S. has to get our extra crop from yield, not from extra acres.”

America has a lot of work to do in the area of producing renewable diesel and sustainable aviation fuel, Basse said.

“We need more soybean oil, which is one of the major feedstocks, which means we need more crush capacity,” he said.

“There will be a 26% expansion in crush capacity by 2026,” he reported. “South Dakota and North Dakota have more crush capacity than soybeans, so that has major implications on the cash basis bids going forward.”

Within one and a half years, Basse said, there will be as much renewable diesel produced as biodiesel.

“I struggle to figure out how we’re going to produce enough soybean oil,” he said. “Renewable diesel is a big deal. It’s a demand driver for U.S. agriculture.”

Martha Blum

Martha Blum

Field Editor