July 26, 2021

Commodity Insight: Dynamic times ahead for agriculture

Historically speaking, a bullish close on the final week of a year bodes more bullish for the new year. The final week of 2020, as well as the final trading session, was quite impressive for the commodity markets, per se, and does indeed set the stage for what may unfold in 2021.

As frustrating and bearish as 2020 was for most all commodity markets at various times, the final week of the year was about as bullish as any I can recall in years.

At the close on the final session of 2020, soybeans, oats and wheat closed at their best levels in six years. So did corn, soy oil and soy meal, as well as sharply higher prices for crude oil and the leading commodity indexes, the CRB and Goldman Sachs indexes.

To post such impressive gains amid a pandemic that continues to rage shows clearly the market psychology has turned decidedly bullish regarding commodities of all stripes.

To gauge how bullish the marketplace is rapidly turning out to be, here are a few headlines this week:

Spring planting outlook — dry! The good news: The driest spring planting conditions in 9 years. The bad news: A very dry year continuing in 2021”: Successful Farming.

2021 may mark the first inflation comeback in a generation, market researcher Jim Bianco warns”: CNBC.

Argentina suspends corn exports to ensure domestic food supplies”: Reuters.

Smaller corn crops mean higher prices are in store”: Barron’s.

Corn and soybeans continue rally into year-end”: AgWeb.

CBOT soybeans end 2020 at 6-1/2 year high, post biggest annual gain since 2007”: Reuters.

Evening markets: Ags end a tumultuous year with a flourish”: Agrimoney.

No doubt, the sun is shining on the commodity markets for the first time in years. The sun is so bright that many are forecasting a super cycle has returned for commodities.

And with those thoughts in mind, here are some thoughts from my book, “Haunted By Markets,” in a chapter entitled “Grocer To The World” that I penned on Jan. 1, 1990.

“F. Henry Firsching, a professor in the School of Sciences at Southern Illinois University at Edwardsville says, ‘By the year 2000, just 10 years away, well over 6 billion people will inhabit the planet. The current birth rate,’ he continues, ‘now exceeds the death rate by about 88 million people each year. In a three-year period, the new mouths that must be fed are more numerous than the present population of the United States.’

“Professor Firsching also poses some troubling, but thought-provoking questions about the world we face early in the next century. ‘When,’ he asks, ‘does the world run out of resources to care for all these people?’

“He notes that the world’s total acreage in agricultural land is shrinking as homes, roads and factories are being built. He also points out that farmland is being degraded by deforestation, air pollution, acid rain and ozone depletion. Ozone depletion and ozone concentration in the upper atmosphere cuts soybean production about 1%.

“‘The sum total of all these factors,’ says Firsching, ‘is a significant loss of agricultural production around the world. And the worst part of this scenario is that these factors are expected to become worse in the near future.’”

Consider the policy change in Argentina this week when it suspended sales of corn for export until late February. The decision was a surprise move as part of an effort to ensure ample domestic food supplies. By any measure, the move was a clear sign of tightening global food supplies.

Moving forward, farmers and ranchers are about to enter one of the most exciting and prosperous periods in history for agriculture. Certainly, there will be pitfalls and problems; there always are. But the difficulties and stumbling blocks will pale in comparison to the bountiful times that appear to be just on the horizon.

My outlook this week is the same as I have been offering for months. A super cycle for commodities has arrived.

The sun is shining brightly on agriculture for the first time in years. Do what is necessary and make hay while the sun is shining.

A dynamic year is ahead. Heck, a dynamic decade is ahead for agriculture.