Several Factors at Play in High Commodity Prices for Carolina Producers
At the Joint Commodity Conference last week, Director of Global Policy for USDA’s Foreign Ag Services Mike Dwyer spoke on the eight trends that will shape global markets. One of the highlights of his speech is that it’s projected that ag commodity prices will remain high:
Dwyer: They call for continued, fairly high prices as global demand will be a challenge for the world's producers to come up with enough supply that would allow them to go down. They'll stay high. They won't be as high as they were at the 2008 high but they don't need to be to be profitable for producers.
SFN: As we both know, land costs are going up, not only here in the Carolinas but around the country and that is bound to be a factor at some point.
Dwyer: Yes, because you know, it is part of the cost of production if you keep raising the costs of production you got to rely on those high prices, otherwise you can't make a profit.
SFN: And then, of course other areas of the world are getting more involved in agriculture, particularly in the export market and South America is something we really need to be keeping a close eye on.
Dwyer: Yes, actually South America, particularly Brazil, as we mentioned earlier, but also Argentina. Argentina has some policy challenges that they have, they tax the devil out of agricultural exports. You know, so you put a 30 percent tax on it when it leaves, that means you don't get world market prices, you get world-less 30 percent. So producers are not getting the world market price in Argentina. They do that though, because the Argentine government is not getting enough tax revenue to keep the government afloat. So they tax the one thing that is very, very successful and that's agriculture.
SFN: As far as Brazil is concerned, Brazil has an infrastructure problem but they're working on it.
Dwyer: Yes, they are. And I mentioned earlier the VR 63 is a new highway from Monte Grosso up to the export terminals on the Amazon. But it's not just there, that's the one that gets the most of the press play. They're actually making investments all over the country. Farm size is actually very large in Brazil, the average farm is huge. They've got the land. The large farmers are the ones that are really expanding production and they use cash flow many times. They're not even borrowing money, they're that well financed.
SFN: Of course, Brazil is known for their soybean production. Do you see that they could make a dent in our soybean exports?
Dwyer: They already have. They already have over the last 20 years. Brazil has come on strong, as has Argentina, but largely Brazil. But, the beauty is, is global demand for soybeans is growing so rapidly. It is one of the rising tides that lifts all boats. Just because Brazil is successful doesn't mean we lose. Our own soybean exports are at record levels, largely because of China. China is a game changer in the soybean business. In fact, they are responsible almost single handedly for almost all the growth in global trade in soybeans over the last 10 years.
SFN: Now something that we've watched the last two or three years is wheat production continues to go up and yet the demand continues to go up. Where is it going?
Dwyer: Egypt. I mean, it goes to a lot of places. Wheat is a good crop for the United States. But what has really captured a lot of attention from farmers is corn and soybeans. And, largely because of biotechnology. A lot of land has gone from wheat into some of the others because of the higher net returns to the land.
To see Dwyer’s presentation, click here… for that and much more coverage from this year’s Joint Commodity Conference.