Winners and Losers in the Grain Markets in 2014

August 20, 2014

Last Tuesday, August 12, the United States Department of Agriculture released its monthly World Agriculture Supply and Demand Estimates Report known as WASDE. All parties interested in grain markets anxiously anticipate this report each month. Analysts will predict WASDE numbers before release and market prices tend to move based on how those average estimates deviate from the actual USDA numbers, once reported. Moreover, the WASDE report can shed light on the current state of agricultural and related businesses. Here is a summary of what the report said about the present state of soybean, corn and wheat markets:

Soybeans:

US production came in at 3.816 billion bushels, slightly above average estimates while yield per acre was as expected. Both numbers increased from the previous WASDE report. The real surprise came in terms of ending inventories which were above last month’s number and higher than analysts thought they would be. The bottom line- a bumper soybean crop is justifying lower prices.

Corn:

US production came in at 14.032 billion bushels up from June but lower than analysts’ estimates. Yield per acre and ending US and world stocks came in lower than was expected. The bottom line- a bumper corn crop but not as big as expected- corn prices should remain stable to modestly higher.

Wheat:

US production and World ending stocks are above estimates and above June levels while US ending inventories came in as expected. The bottom line- a big global wheat crop is justifying lower prices.

The weekly charts illustrate just how dramatic the price adjustments in grains have been so far this year:

20140820 Soybeans

Soybeans have fallen by 17 3/4% since May 22 to the lowest level since October 2010.

20140820 Corn

Corn has plummeted by over 27% since April 9, the lowest level since July 2010.20140820 Wheat

In addition, wheat has given up over 26% since May 6 of this year down to the lowest level since July 2010.

Given the bumper grain crop in the US and across the globe prices have plummeted to four-year lows. With this market action there is bound to be some big winners and big losers.

The Losers:

Farmers: those who have not hedged crops this year are huge losers. Moreover, given current prices at four-year lows next year is not looking promising at all.

Speculators and Traders who bet on higher grain prices: the blood of those committed grain longs is running through the streets. Those who bought initial dips in any of these markets are having a very rough year indeed. 

 

The Winners:

Consumers: anyone who eats is a winner. Lower overall food prices are decreasing prices paid for all products manufactured with grains.

Grain Processors: those companies that process grains such as Archer Daniels Midland (ADM) and Bungee (BG) as well as Cargill and others will be sure to profit from the increase in volumes due to the massive grain crops.

Grain Terminals and Silos: the size of this year’s crop will increase demand for storage facilities in order to warehouse surplus grain supplies.

Grain Transport: With more crops, the need to transport grains from farms to terminals and market will increase. Winners here include all forms of transport particularly railroad stocks many of which are owned and controlled in the US by Berkshire Hathaway and Warren Buffet.

Animal protein producers: producers of hogs, cattle, chicken and other animal proteins that depend on grains as feed input and a cost of goods sold will see profit margins swell as protein prices remain high and feed prices drop.

The re-pricing in grain markets this year should have a ripple effect on many businesses that underpin the markets. Keep this in mind as you sojourn to the supermarket and review your investment portfolio over the coming weeks and months.


Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities.

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