How long will the good times roll?

In the Southeast farmers are licking their chops to get started on a growing season that seemingly has few downsides. Not in recent memory have growers in the region had so many good cropping options and speculation is that these good times may roll on for several years.

Wall Street authorities, like Goldman Sachs Group and well-known independent analyst Jim Rogers are among a number of forecasters who contend there will be a long-term bull market in foodstuffs due to demand for higher quality foods to meet improved diets in third world countries and worldwide supply strains, especially on grains.

Price increases for agricultural commodities historically last 2-3 years. This time around may be different according to Christopher Wyke, product manager at London-based Schroders PLC, which manages $3.5 billion in commodities and is buying more corn and soybean contracts while reducing energy holdings.

Prices are historically cheap. Though farmers consider current prices for soybeans, corn and cotton to be high, worldwide these commodities are considered to be ‘cheap’. This imbalance between producer and buyer bodes well for a longer than traditional upswing in commodity prices, according to Wyke.

Improved technology and better information dissemination have boosted per acre yields, especially in developing countries — the same type increases seen in the U.S. in the last quarter of the previous century.

The U.S. national corn yield has more than doubled to 153 bushels an acre in 2007 from 71.9 in 1974, while the soybean average has jumped 74 percent to 41.3 bushels from 23.7 in 1974, government statistics show. U.S. farmers are expected to plant more than 90 million acres of corn in 2008. In the Southeast, farmers can come close to the national average in wheat production, but not in soybeans and corn.

In 2007, growers in the Southeast dramatically increased corn acreage, but did not increase yields. In North Carolina, for example, corn acreage was up 29 percent, but 2007 yields were slightly lower than in 2006.

Top analysts contend corn at $4.55 a bushel is cheap, when selling in Germany and other countries in western Europe.

Corn prices increased in 2007 by 17 percent, but after adjusting for inflation corn prices are not close to the $7.80 high in 1974. Despite the interest in corn, soybeans are king for 2008.

Goldman Sachs, in a report to its customers, says, “Soybean prices will rise 29 percent in 2008, the best investment in commodities. Investors who followed the banks' advice and bought raw materials last year profited as the Standard & Poor's GSCI Index advanced 33 percent, beating the 3.5 percent gain in the S&P 500 Index and the 9.1 percent return from U.S. Treasuries, according to data compiled by Merrill Lynch & Co.

World soybean inventories will plunge 23 percent in the 2007-2008 marketing season to 47.3 million tons from a record 61.1 million the previous year, the U.S. Agriculture Department estimates.

The last time U.S. farmers had a comparably favorable pricing situation was during the crop failures in the now defunct Soviet Union in the 1970s. Protracted commodity prices are forecast to remain higher for a longer period of time primarily because of high oil and food prices worldwide.

Higher than national average

Harvested wheat acres in the Southeast will likely be higher than the national average, projected at six percent. Wheat prices have skyrocketed worldwide as stocks reached near record lows.

Wheat farmers worldwide may increase plantings by 4 percent, the London-based International Grains Council said in November of 2007. In the U.S., the world's largest wheat exporter, growers were projected to plant 64 million acres, up 6 percent, according to the USDA. In the Southeast harvested wheat acres is expected to increase from 20-25 percent over 2007 harvest totals.

Historic advances in wealth from Brazil to China have pushed the demand for both high quality food and fuel at a faster pace than at any time in history. What does all this mean to farmers in the Southeastern U.S?

“We'll continue to see a battle for land between the grains,'' said Matthew Sena, an analyst at New York-based Castlestone Management LLC, which oversees $800 million in commodity investments. “The run-up in wheat prices will prevent a dramatic supply response for soybeans and corn. The severity of these factors means there is a better chance of this being the longest and biggest agricultural rally ever,'' according to Sena.

The downside of the high commodity prices is that many people in the World simply won't be able to afford food. The United Nations recently stated, “The United Nations warned recently that it no longer has enough money to keep global malnutrition at bay this year in the face of a dramatic upward surge in world commodity prices, which have created a new face of hunger”.

The U.N.'s agreed budget for 2008 for its World Food Program was $2.9 billion. But with annual food price increases around the world of up to 40 percent and dramatic hikes in fuel costs, that budget is no longer enough even to maintain current food deliveries.

“The fundamental cause is high income growth,” says Joachim von Braun, the head of the International Food Policy Research Institute.

“I estimate this is half the story. Biofuels is another. Then there are weather-induced erratic changes which caused irritation in world food markets. These things have eaten into world levels of grain storage.

“The lower the reserves, the more nervous the markets become, and the increased volatility is particularly detrimental to the poor who have small assets,” says von Braun.

The biggest challenge for Southeastern farmers will be to take wise advantage of this upswing in commodity prices and to grow the crops that best suit their land, their farm equipment and perhaps most of all their expertise and experience in growing a particular crop.

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