Excess supply lowers grain prices

By Justin Walker

Grain prices will continue to remain low in the first half of 2018, according to a Texas A&M AgriLife Extension Service economist.

Dr. Jason Johnson, an AgriLife Extension economist in Stephenville, said the recent three-month weather outlook for grain crops will be in line with current La Nina patterns, calling for above normal temperatures in January and February.

“Some combination of forces that deplete the supply overhang will be needed to drive prices higher,” Johnson said at the Blackland Income Growth Conference in Waco. “The good news is we do see a bit of a world production drop off.”

Exports and trade agreements, Johnson noted, also play a major role.

The North American Free Trade Agreement was an overlying factor in export patterns.

“That has added to inventories and put on some of the price pressure,” Johnson said. “We have the highest number of grain-consuming animal units in our history. And we are exporting a lot of corn. For the current marketing year, Mexico has accounted for 36 percent of U.S. corn exports, while Japan accounts for 16 percent.”

There are about 70 days of corn use on hand and 104 days of soybean. According to Johnson, marketing year average prices during the biofuel era ranged from about $3.20 to $6.89 per bushel for corn. Current prices are near the bottom end of that spectrum.

“Our ending stocks-to-use ratio is 17.2 percent with projects for 2018/19 pegged at 16.8 percent, so for our prices to start going up again, we need to see expectations for that carryover to come down,” Johnson said. “Typically, we get some seasonal price rally in June and July. That’s when you need to seriously consider marketing alternatives to price at least a portion of your expected crop production for the year.”

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