Supply and DemandSupply and demand will continue to drive the prices of grains for years to come. The growth of producing fertilizer companies are well positioned to benefit from arable land shortages, population growth, continued weather disruptions, high cost of capital to build deep mines, and "Peak Production" from 40 year old mines.
There are limited acres available to crow crops, so when a farmer chooses planting one crop over another...it creates a shortage situation for the crop not planted...farmers are getting 40% more for their crops and have more money to invest in fertilizers and choose crop plantings that give them the best returns...just makes sense.
"If planted wheat acres are high, expect bullish outlooks for corn and soybeans."
Mosaic beats estimates and is very bullish on 2011, BNN quotes Mosaic as saying "Prices for Phosphates and Potash to remain high and supply tight until new supply can come on line..."
January 04, 2011Grain prices continued their rally in December, which has kept the demand for farmland high. Corn, soybeans, and wheat all saw double-digit gains while farmland value reports revealed gains as high as 19% in localized areas over the last twelve months, according to Iowa State University Extension’s 2010 Land Value Survey. An extension of the ethanol blender’s tax credit was a major factor in the increase of grain prices this month. Weather conditions have also played a big role in grain prices as La Nina has damaged crops in South America and Australia has experienced heavy rains.
Grain Prices
Grain prices rallied again throughout December, climbing to near two-year highs for corn, soybeans, and wheat. Foreign demand continues to be the driving force behind the current rally. March 2011 contracts for corn, soybeans, and wheat all increased over 12% during December. Investors took some profits at the end of the month bringing prices down a small amount before a weak dollar ended profit taking. Prior to end of the year profit taking, corn had sustained a 10 day rally.
In December, corn prices increased by 15.6% and closed the year at $6.29 per bushel. Year-over-year, corn prices are 40.0% higher. Global demand has been increasing for U.S. corn and supplies are the tightest since 1996. Global corn consumption has outpaced production for the second straight year. Food inflation is a major concern across the world. China has increased their interest rates twice in the last two months to battle inflation. Worries over lower production in South America due to the lingering La Nina have also fueled the current rally in grains.
Soybean prices increased by 12.1% in December, to $14.03 per bushel due tightening supplies. The December WASDE report estimated U.S. soybean ending stocks to decrease by over 10% due to increased exports. Projected planted acres and the health of the South American soybean crop will be key factors for soybean prices throughout the first quarter of 2011.
Wheat prices rose to $7.94 per bushel this month, a 14.6% increase, due to the decreased value of the dollar and increased foreign interest in U.S. wheat. In late December, Egypt, the largest importer of wheat, ordered 600,000 metric tons of U.S. wheat. Poor U.S. winter wheat conditions, due to low moisture, have also supported strong wheat prices. Crop condition reports and the January estimate of planted wheat acres should be the key factors affecting wheat prices, along with soybeans and corn. If planted wheat acres are high, expect bullish outlooks for corn and soybeans.