By Matt Reese
Farmers are used to the inconsistencies of the weather. They know how to handle bugs and weeds and they are used to rolling the dice in the gamble of agriculture each year on their farms. But in 2012, the profitability of corn and soybean growers may depend more on European financial ministers, Chinese pork demand and biofuel politics.
Ohio State University economist Matt Roberts shares the bearish sentiment of many economists for the coming year due to factors very far removed from the farm fields of Ohio. He feels, for several reasons, those factors are aligning in favor of lower prices for corn and soybeans.
“The amount of demand growth we have seen in the last 20 years is unprecedented. It is driven by Chinese demand for meat and U.S. demand for ethanol,” Roberts said. “Meat demand in China is driving oilseed demand. Globally we’re growing 40% more soybeans than we did 10 years ago at nearly triple the price. That is incredible, explosive demand.”
There are signs that this growth in demand may slow, however.
“The ethanol blenders credit, VEETC, expired and we are at or past the blend wall for E10. From a corn grower’s perspective, in 2012, the Renewable Fuel Standard that is currently on the books still requires 13.2 billion gallons. But under the best case scenario, ethanol demand stays steady,” Roberts said. “And the European Union is now a larger customer for China than the U.S. If we see Greece ejected from the Euro and it is handled poorly, the impact on the Chinese economy will be very measurable and push them into what they think is a recession and we lose that other leg of strong demand and instead China stagnates.”
In addition to these factors, domestic feed demand has ratcheted down in response to the high prices. And, while recent free trade developments paint a bright future for U.S. livestock, the feed demand will be slow to respond.
“With flat ethanol demand, we would really need a rebound in livestock demand,” Roberts said. “The cattle cycle is very slow to adjust, so it would have to be poultry that would adjust more quickly.”
This potential for weakened demand, in combination with a possibly significant shift to corn acres this spring and large production, could send prices sharply downward.