Significant Changes in Market Structures Here for the Long Haul
Dan Basse, President of AgResource, delivered his broad economic assessment of U.S. and global markets at the American Seed Trade Association’s 2022 Corn, Soybean & Sorghum Seed Expo this week in Chicago. Dan’s presentations are always compelling and loaded with data. Here are some of the highlights:
- The ultra-low interest rates that we have enjoyed for the last several years are gone and are unlikely to return for quite a while. Historically, periods of low interest have been short-lived and this last period of low rates was relatively long.
- Market structures have changed in light of the Russia-Ukraine war and regional reactions to the pandemic.
- Inflation is at 40-year highs and will be a major driver of price increases across all goods and services.
- The supply of labor has decreased significantly, to the tune of 1 million to 1.5 million workers lost per year. And when looking at U.S. demographic trends, the labor supply will continue to decrease, which will cause pressure to increase wages.
- Population growth in the U.S. has slowed to a near stand-still, and may even turn negative in 2022.
- Changing immigration policy is one of the only tools available to meet current and future demand for workers in the U.S. in light of existing demographics.
- The U.S. is close to, or already at, peak farmland – in other words, there are no additional arable acres to bring additional crop production online. The only opportunity to add acres will be to release land out of the Conservation Reserve Program.
- “Heatflation,” i.e., global high temperatures, drought, and extreme weather events are reducing yields in traditional commodity growing areas, resulting in higher prices for commodities, and ultimately groceries. Regardless of what is causing climate change, it’s impact on yields and prices will be persistent and long-term.
- Crop yields have plateaued in the last several years which may pose problems down the road if additional farmable acreage isn’t brought into the global grain supply. One of the only remaining regions where acres might be found is Latin America, which might also impact the Amazon.
- Production costs for corn and soybeans are expected to continue to increase, with fertilizer costs leading the way. Supply chains that are still trying to recover, along with rising input costs are making the outlook for corn and soybeans slightly bearish.
- The U.S. continues to be one of the highest cost-producers of grain commodities, which makes us less competitive in the world market. Major recent spikes in freight costs are making U.S. grain even less competitive in world markets.
- Corn is forecast to average about $1.00/bushel less in 2023 that in 2022, although it is expected to have a $110/acre revenue advantage over soybeans.
- Beef is expected to have a banner year and reach record market prices in 2023 due to significant herd reductions from persistent drought conditions.