Economist Dan Basse Predicts Change Coming for Grain Markets - Question is, for Better or Worse?Wed, 27 Feb 2019 15:46:56 CST
Dan Basse, AgResource economist, offered his perspective on today’s grain marketplace during the Bayer AgVocacy Forum held prior to the 2019 Commodity Classic happening this week in Orlando. After his presentation, Basse spoke with Radio Oklahoma Ag Network Farm Director Ron Hays about the information he presented and insisted that in order to reverse the current downward market trend, there will need to be a change in the demand driver. You can listen to their complete conversation by clicking or tapping the LISTEN BAR below at the bottom of the page.
Looking back through history, Basse says American agriculture’s problem has always been the issue of oversupply, hence the need for artificial market controls like the Farm Bill, set-aside programs, etc. For example, the ag industry saw one of its most recent demand drivers appear on the scene between 2007 and 2013 with the arrival of biofuels. Before that, Russia was importing massive amounts of grain between 1973 and 1980. Today, Basse says it is hard to see, but he believes there is the potential in the US-China trade deal currently under negotiation to drastically change the demand driver.
“As I think about the pledge of China to buy $50 billion of US agricultural goods to balance the budget – the deficit if you will – that the US and China have, it’s a sizeable amount,” he said. “If I try to model that out in terms of what it means for agricultural products… added together, it would be a driver of demand that US agriculture hasn’t seen since biofuels.”
With net farm incomes roughly cut in half over the last several years, Basse asserts that a change is eminent, it is necessary. He believes the market itself is working to facilitate such a change – utilizing low prices to fix low prices.
“We’re starting to see that, especially in corn and wheat,” Basse said, explaining how this has spurred increased global demand for the grains that have been anchored in recent years under the weight of their own stocks carried over from one harvest to the next. “We’re starting to see world trade picking up dramatically and we’re excited about that.”
While a change in the demand driver may help alleviate the current market pressure, Basse says farmers must learn to diversify and differentiate – taking advantage of niche markets and direct marketing opportunities whenever possible. Unfortunately, that is not always an option for many farmers. Moving ahead, Basse argues much of what will occur over the next 12 to 18 months will depend largely on the outcome of the US-China trade negotiations.
“I think these trade talks with China are extremely important. I’m actually becoming bullish of corn and soybeans and wheat and meat products out of the US and I think it’ll be a real shot in the arm for American agriculture,” he remarked. “If we don’t do the trade deal, it’s going to be more of the same which is crop prices rather depressed and farmers suffering because of it.
“So, I’m hopeful we can stop that cycle and look at better margins and better opportunities.”
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