“At what prices will we see users rationed out of the grain markets?” That was one of the questions being asked by Sterling Liddell, vice president of food and agricultural research for Rabo Agri Finance.
Liddell, speaking at the Farm Progress Show as a guest of the Iowa Soybean Association, said some rationing is occurring in livestock and ethanol production as prices rise.
Soybean prices, however, remain strong and could hold that strength through spring 2013.
Liddell says prices for soybeans have been running about 2.1 times the price of corn. That ratio is less than the historic average, due in part to continued hope that recent rains may benefit soybean yields and the need to fill corn contracts.
He notes that soybean demand from China is holding.
“China is the biggest soybean importer, accounting for about 60 percent of global soybean trade,” Liddell says. “It will be harder than most people think to price China out of the market.”
China, a country of more than 1.3 billion people, has been purchasing soybeans after auctioning some of its own reserve in June. Swine production has also increased in China due to the country’s adoption of production systems used by a majority of U.S. farmers. These advancements in pork production require a feed ration that’s high in protein.
Liddell says China has also invested in the construction of soybean crush facilities. “They need to run them,” he says. Therefore, they continue to buy soybeans even with prices at near-record highs.
Strengthening prices for soybeans and corn are alarming for livestock producers, the analyst adds. “Most pork and poultry growers are pretty well covered for awhile,” he said, but he anticipates a reduction in herds is likely to occur, perhaps early next year, if the situation isn’t resolved.
The key, Liddell said, will be the U.S. harvest, and how much grain there actually is once farmers take to the fields.
“We know we will have less than we’ve had in the past few years. There will tremendous variance from one end of the field to the other and from one field to another. Yields will be lower but how much is yet to be determined.”
Because of volatile yields, Liddell says crop insurance will be a major player this year, and the volume of claims will be high.
“Timing will be the biggest issue because every claim for more than $200,000 will have to be audited,” he says. “And there will be a lot of those.”
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