As I write, there are black storm clouds rolling across the Hoosier countryside as a massive storm front dumps rain over much of the Corn Belt — a fitting atmosphere for the news in agriculture. In the past few weeks, corn and soybean prices have taken a major move down as the trade war rhetoric has notched up several degrees in heat and intensity. This has produced a mood among many farmers that is as dark as the storm clouds. Yet, if we dig a little deeper and look beyond the news de jour, we may see some reason for hope of recovery.
The precipitous fall in corn and soybean prices has been sparked by the trade war the Trump administration has started with three of our top customers: Canada, Mexico and China. This has resulted in a loss of confidence by the large, speculative commodity funds that represent a major share of the cash in the market. Thus, they have moved very quickly from a long position which pushes prices higher to a short position which pushes prices lower. They will remain in this position until something changes to convince them to start buying into the market again. This something could be a resolution of our trade disputes or a weather event, here or someplace in the world, that reduces production.
Either or both of these are possible in the next few months. If so, the funds will drive the market up very quickly, and we could even see new highs in prices. Of course, neither could happen in which case we could be looking at these price levels at harvest. In that case, those who opted for the PLC in the farm program will be glad they did.
While there are no winners in a trade war, this one included, they can over time bring about more balanced and equitable trade agreements for both sides. That is the goal of the White House in imposing tariffs and renegotiating NAFTA. If achieved, it would be good for agriculture and good for the U.S. economy overall. Many in agriculture feel, however, that the short term pain is not worth the long term gain. However, there may be some good things to come out of a bad trade situation.
For the past several years, U.S. farmers have suffered from being too successful. Corn and soybean production has been outstanding and has outpaced demand. This has led to an increase in a surplus of grain. The current trade war has produced a good deal of uncertainty as well as lower prices, and this is an incentive for other nations to buy up surplus grain at lower prices. We have seen this to some extent already and may see more this summer. A draw down in world grain stocks will help prices recover, especially in light of what looks to be another good crop this year.
While it is not time to get out the rose colored glasses, it is important not to be overwhelmed by the doom and gloom of the moment.
By Gary Truitt