January 19, 2009
US grain market seen as gloomy this year
The US grain market could be gloomy this year as the global recession weighs down heavily on the agricultural industry, said industry experts.
CBOT grain prices had dropped sharply from its record high in mid 2008, but the prices had to fall as most buyers were unable to make money converting corn or soy to meat or other products, said Jon Cavanaugh, marketing director for Connecticut-based Central States Enterprises.
The high feed costs had severely hurt meat producers, including Pilgrim's Pride and Tyson Foods. Pilgrim's Pride filed for bankruptcy in December, while Tyson's president and chief executive officer resigned after earnings for fiscal 2008 plunged 68 percent.
A global recession has worsened the situation for livestock farmers, as consumers ditch middle- and higher-end meat cuts for low value cuts such as hamburger or turn to foods such as peanut butter and macaroni and cheese, said David Kohli, a commodity analyst for the Fort Wayne branch of Allendale.
People are losing their jobs and that has hurt demand, said Cavanaugh.
While Asia imports a great amount of US corn, meat is still considered a luxury to much of the population in many of the export markets, so feed demand fell quickly when economies weakened, said Cavanaugh.
Grain exports were also pulled down by the strengthening dollar while other currencies declined last year.
Kohli said interest-rate reductions by the Federal Reserve have not weakened the dollar as expected partly because companies worldwide are selling assets to pay down debts. This de-leveraging requires dollars because 80 percent of international transactions take place in US dollars.
The economy has a large influence on grain prices and farmers should keep an eye on global and national economic forecasts, said Kohli.
With winter wheat planting down 4 million acres due to lower wheat prices, there will be plenty of US acres to meet projected corn and soy demand, said Cavanaugh.
Current corn prices are relatively low considering its production costs, said Cavanaugh.
He said between mid-January and the end of March, corn will trade between US$3.50 and US$4.75, while soy will trade between US$8 to US$9.50.
Kohli said if soy goes below US$8 per bushel, the price could fall to US$6, and corn prices could fall to as low as US$2.75.
