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Agricultural News

Bruce Scherr With Informa Tells Farmers- Don't Apologize for Increased Demand

Tue, 18 Jan 2011 18:57:45 CST

Bruce Scherr With Informa Tells Farmers- Don't Apologize for Increased Demand Corn farmers who came to St. Louis for the National Corn Growers Association's Priority and Policy Conference this week enjoyed a presentation by Bruce Scherr, CEO of Informa Economics and one of the nation's leading agricultural economics research firms. In his presentations, Scherr reviewed the historical trends in corn prices and looked at how changing global demographics are shifting the agricultural commodity market paradigm.

"What we see in increased corn prices today is the ripple effect of economic expansion," Scherr said. "The expansion of commodity values is not over. It's just beginning."

Noting that commodity prices remained, on average, stagnant for three decades despite significant inflation in the market as a whole, Scherr explained that it is essential to keep current price increases in perspective because prior values were unsustainably low. He also pointed out that, while demand initially surged, increases have leveled off and are now trending to more gradual growth.

In light of increased demand, Scherr pointed out the importance of remembering that the United States has never actually run out of corn despite major demand increases. When needed, farmers boosted production -- by as much as two billion bushels.

Currently, corn balance sheets are extremely tight with the most recent U.S. Department of Agriculture reports indicating that corn stocks are down 8 percent since December 2009. Despite tighter margins, Scherr reasoned that advances in corn genetics will help limit yield losses in the face of tough growing conditions and can, therefore, enhance consistent production capabilities.

A reliable supply will be necessary given Scherr's forecast for continued demand growth as a middle class continues to develop in nations such as China and India. To put this in perspective, Scherr noted over the last two decades we have seen almost 1.5 billion people move from subsistence to a relative middle class. With substantively significant increases in household income, these new consumers will almost unfailingly improve their basic diet to include more protein which, in turn, requires significant amounts of grain to produce. Notably, these growth areas have extremely large populations capable of influencing world demand more intensely than the developed world as its economies continue to lag and populations decline.

Using kitchen appliances in China as an example, Scherr explained how a government policy, or a similar social change, could have a huge impact on demand, the global economy and even the public health that underpins healthy society. Here, the government placed a high priority on ensuring that every home in China had a refrigerator. Subsequently, Chinese citizens were presented a barrage of incentives that nearly ensured the addition of a refrigerator, even in instances when it otherwise would have been unattainable. By increasing the use of this single appliance, the Chinese promoted the development of more Western grocery shopping habits, increased energy demand and improved public health as consumption of temperature-sensitive dairy products became popular.

Scherr explained that, while overseas demand would continue to grow due to rising incomes and resulting social changes, price increases would have the most impact upon export market demand. Potentially, this could moderate demand growth, allowing prices to remain at equitable levels without creating scarcity or inflating value. He did note that markets such as livestock had adjusted to feed price increases in the past and that the demand for their product was not diminished as prices rose.

As changes such as these continue to reshape demand, low interest rates amplify these increases. Scherr explained that meeting this need would require not only an adequate, steady corn supply but also an improved infrastructure that would handle more and doing so faster.

Scherr stressed that farmers, "should not apologize for increased demand." Instead, he suggested that they were working to fill a growing need for a valuable commodity that had been undervalued for decades. Asking how long corporate America would continue such dedicated production when facing three decades of stagnant pricing despite rising input costs and overall inflation, Scherr pointed out that now farmers were finally receiving a fair price that reflected the value of their tremendous contribution to society.



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