On the eighth day, God looked down on his planned paradise and said, “I need a caretaker.” So God made a farmer.
It’s a good time to farm and to be in the Food/Agri-Business/Grain markets:
1-DEMAND: Demand for grains products has grown tremendously as we use and consume more bushels than ever.
- World Carry-over stocks are < 10%, at a time that we produce more than ever.
World Export trade in all grains (wheat and coarse grains combined) accounts for just 14% of annual total disappearance.
2-Technology and genetics are improving yields: GPS, precision agriculture, biotech.
3-In Canada, with the Post-CWB environment, an elevator is simply becoming farmer’s legs to the market for Wheat, Barley… Rural economies are blessed to have farmers impacting and giving back to their communities. It is a good time to be a Western Canadian farmer; the Marketing opportunities for growers are the best it’s even been.
In the U.S, the Federal gasoline mandates drive up to 1/3 of the Corn demand, it’s amazing.
(Suffice to say that nowadays someone in Energy ought to know a little about Grains to maintain his/her hedge.)
Asia & Middle East: Demand is booming for every type of grains and agricultural products => Australian Food & Farming is the shortest leg to Asia.
4- Economics: After decades of Under-investment, Profit/acre and record Low Interest rates are luring financials/banks into food and agribusiness.
2 Curious Analogies of the Grain Markets
A lot of grain can be short in the Futures Markets but low prices don’t mean that Farmers actually sell grain.
Futures and cash prices can be high while farmers have no volume to sell (think about last year’s drought in the Midwest).
End of July 2013 : A Word about the Current Markets:
Markets are run by Fear and Greed but the underlying are:
- an unprecedented Demand growth for Grains.
- expectations are huge for a bumper crop while stocks are low.
For Sellers: Now it’s late to priced it. Basis are Wide and Prices are Down.
Old-Crop is sold, Some farmers had portions of the new crop wisely priced during the price rally.
For Grain buyers, including my local elevator, they are being told by the farmers: if you want it, pay more and narrow your basis, then you’ll get it !
Everybody is told that an avalanche of grain will rush into the mills, plants…However, nobody know how much of the new crop is contracted or priced.
On the other hand, pet food makers and the feedlots want to know when they can pick up soybeans, corn, soymeal.
The ethanol plant is still running daily on the old crop and already price its products on the hopes of a low new crop basis.
For the traders, The fun is not in the prompt month: Grain is supposed to flood the market and my understanding is that carry is needed to be higher by both Farmers (to sell and priced it lately) and Grain Elevators (to attract grain).
-The Trade Shipping and Finance Wizard