What’s in store for agricultural markets

    Tariffs, threatening trade wars, droughts, and global politics are affecting our agricultural markets. Steve Freed, vice president of Grain Research for ADM Investor Services, was the guest speaker at The Chicago Farmers’ November 12 meeting and he shared his opinion on what the future holds for agriculture.

    Factors affecting prices, according to Freed:

    • Weather, the 2018 droughts in Argentina, Brazil, Europe, and former Soviet Union created a premium in pricing.
    • macro-economic conditions such as tariffs, which began taking the premium out of the market place.
    • effects on the Chinese economy are causing volatility in the stock market.
    • algorithm trading (90 percent of trading is done with algorithm trading).
    • balance of payments and trade deficit; the United States exported a lot of production to
      China in the 1980s and today the U.S. does not have the labor or the ability to replace it. China has to buy $200 billion worth of goods from the U.S. to balance trade.

    Freed noted that the global demand for grain increases each year and grain production increases to meet this demand. In November, the price of wheat was $5, corn was at $3.60, and soybeans were at $8.60. “Regionally, farmers should use these prices,” said Freed.

    He noted that the Chinese will continue to consume grain at a record pace. At the same time, world wheat and corn stocks are at a record high.

    Freed said that the world is eating more meat, which means there is a need for more protein, such as soybean meal, to feed that situation. Additionally, wheat production is growing.

    “The bad news is that the United States is losing its share of the corn and soybean markets and this will continue into 2019,” said Freed.

    He said that it is forecast that Argentina and Brazil will bounce back to record production in 2019. Brazil already has planted soybean crops that could be ready to ship in January. “It is possible that we might be able to sell soybeans to China in January if there is a resolution to the trade problem,” said Freed.

    Freed noted that with the drop in soybean prices, it is expected that farmers will switch to corn. It is anticipated that 93 million acres will be devoted to corn in the United States versus the current 89 million acres.

    He went on to say that he did not think there would be a deal between the United States and China at the G20 meeting on November 30; however, if there is, beans could be at $9.00, if not $7.75.

    Russia has taken over the wheat market and has produced 80 million tons of wheat. Freed noted that agriculture is 17 percent of the Russian GDP. In the United States it is less than two percent. “The Russian’s goal is to increase its wheat production to 100 million tons. If they do, we don’t need to produce as much,” related Freed.

    He noted that China’s economic growth is slowing. It will try to stimulate its economy, which would happen through a deal with the United States. “The Chinese economy is slowing. China may need a deal in 2019 to help its economy.”

    Regarding soybeans, Brazil ships 77 million tons of soybeans a year and the United States ships 52 million tons. China is the biggest buyer of soybeans in the world and the government is attempting to reduce its need for soybeans by encouraging the Chinese people to eat fish. Last year, the United States shipped 28 million tons of soybeans to China.

    Freed said the market does not forecast an increase in farms’ net income in the United States. Costs are increasing and farmers are not seeing the returns on their yields.

    Freed said the 2030 farm structure will change. “The farmer will have to be a CEO and have a strong grasp of technology to be successful. I think we will see more of a connection between farmers and the companies that will benefit from the farms’ output,” he said.

     “The United States farmer is the best farmer in the world, but Brazil is catching up,” said Freed. “Outside of the United States there is a lot of growth in yield technology and costs are less in other countries.”

    Freed said that growth for agriculture is flat. He noted, “I don’t see substantial growth for at least the next 10 years.”