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Burgeoning demand, coupled with last year’s Russian grain crisis, floods in China and Pakistan, dry weather in Argentina, and other crop adversities have sharply reduced supplies of major agricultural commodities, pointing to “a need for more planted acres in 2011,” says Steve Freed. Barring another meltdown in the economy, commodity prices “probably won’t trade much below current levels” near term, says Freed, vice president of commodity market research for ADM Investor Services, who gave his insight on grain markets at the Mississippi Farm Bureau Federation’s Winter Commodity Conference.
China a major player in marketplace
“They also believe that 20 years from now the world is going to begin running low on fossil fuels and that they’re going to have to come up with alternative fuels. They are buyers in the energy market to increase their supply. The Chinese now buy more cars than the U.S. and Japan combined, and the numbers are going to increase, which will escalate their demand for energy.
“China is going to be a big player in our marketplace. Of their 70 million tons of demand for soybeans, they import about 55 million tons. The U.S. produces 90 million hogs a year — the Chinese produce 600 million, and they want to double that. One exporter says that by 2015 China will be importing 70 million tons of soybeans and 30 million tons of corn.
“Whatever size corn crop China grows, that’s what they’re going to use internally. A factor that can influence the corn market is that the Chinese congress will meet in March to look at whether or not they want to establish a domestic ethanol program. If they do, they’ll probably come into the market to buy corn, and we hope some of that will come from the U.S. The market is extremely sensitive as to how much corn they’re going to buy, so mark your March calendar and watch what they say in their congress about ethanol production.”
Changes in the dollar’s value will also be a factor, Freed says. “A lot of money nowadays is linked to the markets: if the dollar is lower, commodities are higher; if the dollar is higher, commodities are lower.”
Other factors that will have an impact on grain markets include the 2012 elections in the U.S., measures to deal with U.S. debt, and tax reform legislation.