Commodity, Production Prices Are Sinking, But Not At The Same Rate
MARY HIGHTOWER
LITTLE ROCK, ARKANSAS
Farmers looking ahead to the 2024 growing season are worried about being squeezed by sinking commodity prices, said Ryan Loy.
Loy, extension economist for the University of Arkansas System Division of Agriculture, spent the first two months of this year speaking to farmers at winter production meetings about revenues, profits, crop insurance and other fiscal topics. What he’s hearing back is anxiety.
“Commodity prices are falling. Production costs are declining,” Loy said. “The problem is that the two aren’t falling at the same rate and that lag may put the squeeze on farmers trying to make planting and purchasing decisions for the 2024 growing season.”
Soybean prices were relatively strong going into the new year as widespread drought took its toll on farming in the Midwest, leading to tighter stocks. Those higher prices may prompt farmers to plant more soybeans this year.
Brazil enjoyed a record soybean harvest in 2023 and exported more than 100 million metric tons. The outlook for 2024 is also bright, but the U.S. Department of Agriculture recently reduced its estimate of Brazil’s 2023-24 harvest to 156 million metric tons from 157 million metric tons, because of dry weather. China is a key buyer of Brazilian soybeans.
USDA is projecting Brazil’s corn output to be 124 million metric tons, which would make it the second highest on record.
“Brazil is on track for near-record production in both corn and soybeans,” Loy said. “From that perspective, we’re going to have an abundance of those commodities; and a high supply will turn into a lower global price.”
Russia is exerting additional downward pressure on corn and wheat.
“Russia is selling their corn and their wheat extremely cheap,” Loy said. “Russia doesn’t care what the price is. They’re saying, ‘we need to get some money for our grain to fund this war’.”
The lower prices are very attractive to those who might otherwise buy U.S.-grown grain, which is made more expensive by tighter stocks and inflation. “Those other countries are going to say, ‘why would I spend so much in corn when I can go to Russia or Ukraine and buy it super cheap?’”
Reuters reported that China purchased an estimated 240,000 metric tons of Ukrainian corn, quoting an unnamed trader who said the corn was “looking the cheapest in the world.”
As for production costs, fertilizer prices are beginning to stabilize after the shock of the Ukraine-Russia conflict’s beginnings.
“You're starting to see the cyclical movements of the fertilizer prices rather than these crazy spikes,” Loy said. “When demand is high, prices go high and when demand is low, prices go low. A lot of this has to do with the price of liquified natural gas, which is used as input for nitrogen fertilizers.
“Since the start of the Ukraine conflict, a lot of the global capacity to produce that nitrogen fertilizer has come into place,” he said. “We have it in the U.S. and Europe, and that’s making up for some of the gaps left after the Ukraine conflict started.”
How can farmers protect themselves?
Loy said that having a marketing plan in place is important.
Forward contracting some or all of a grower’s grain, some at the beginning of the year and some in June, can provide some protection.
Timing is everything on input purchases.
“Do you time your input purchases to do the cheapest route or time input purchases to deduct from your income?,” he said. “It all depends on what you want to do and what’s best for your enterprise.” ∆
MARY HIGHTOWER: University of Arkansas