Thursday, January 8, 2009

Corn Prices May Enter Decade-Long Slump, Agency Says

Watch that Pacific Decadal Oscillation. A New York Times archive search for the term "crop failure" returns 1950 hits, with a preponderance of stories written during the cool phase of the PDO. With the interconnectedness of the world's grain markets, a failure anywhere would raise prices everywhere.
(more on this follows the headline story)
From Bloomberg:
Corn prices that reached a record $7.9925 a bushel last year are headed for a decade-long slump below $4 as production in the U.S., the world’s top grower, catches up with demand, according to congressional analysts.

The average cash price will bottom out at $3.65 in the 2012-2013 marketing year, then rise no higher than $3.94 through 2019, the analysts from the Congressional Budget Office said in a document used as part of a government-wide estimate of federal spending over the next decade. Corn futures closed today at $4.165 a bushel on the Chicago Board of Trade.

Wheat and soybean prices paid to farmers will also stagnate, according to the nonpartisan CBO. The average cotton price will rise from 40 cents a pound this year to more than 60 cents by 2011, the CBO said. The report doesn’t estimate high or low prices for the year, only averages.

Corn prices are expected to stay low even as total use rises 18 percent to 14.719 billion bushels by the end of the next decade. The analysts forecast production jumping 23 percent to 14.738 billion bushels, as a 15 percent gain in yields absorbs rising demand for the grain for exports and as a source of ethanol. Corn is the biggest U.S. crop, valued at a $52.1 billion in 2007....MORE

From April '08:

Climate Change and the Pacific Decadal Oscillation

...Here's the monthly PDO chart.
You might want to
look up the word famine. And store a couple tons of wheat in a vermin proof room. The risk of a major crop failure somewhere in the world over the next ten years just went up. My best guess (wild-ass variant) would be northeastern Russia/Ukraine. Which could get interesting:
...With the international financial institutions working on a slow track, countries have been cutting their own deals. Ukrainian President Viktor Yushchenko said on Tuesday that he had agreed to let Libya grow wheat on 247,000 acres of land in the Ukraine. In exchange, Libya promised to include the former Soviet republic in construction and gas deals.
-Wall Street Journal
April 14, 2008 Page 1A


Um, folks, um, maybe we should start thinking about rebuilding our grain reserves.

And May '08:

A Black Swan in Food

...Donald Coxe, chief strategist of Harris Investment Management and one of my favorite analysts, spoke at my recent Strategic Investment Conference. He shared a statistic that has given me pause for concern as I watch food prices shoot up all over the world.

North America has experienced great weather for the last 18 consecutive years, which, combined with other improvements in agriculture, has resulted in abundant crops. According to Don, you have to go back 800 years to find a period of such favorable weather for so long a time....
Just as cheap oil prices make this an opportune time to top off the Strategic Petroleum Reserve, cheap corn prices should be used to increase stocks in storage.