“It's a small world after all. It's a small, small world.” Perhaps no where is this mind-numbing Disney jingle more applicable than in today's commodity markets. “The world is becoming smaller every day. The world market now responds to prices in much the same way we do, and production trends are affected in much the same way they are here in the United States,” says Rob Westmoreland, executive vice president for Sparks Companies, Inc., in Memphis.
The good news, Westmoreland told growers attending the 30th annual Delta Ag Expo in Cleveland, Miss., is that U.S. commodities are moderately under-priced with pricing opportunities possible this spring and early summer.
While the possibility of a full-scale war with Iraq has some market watchers subdued, Westmoreland believes we are nearing an economic breakout in the United States, and are starting to approach a point where capital investments turn in a positive direction. “Global economics and world off-take of major commodities show some very positive trends,” he says.
A downside of world participation, Westmoreland says, is increased competition. “Brazil is the last place in the world where acreage can expand, and is expanding. In the United States we are effectively at 100 percent land utilization. Another aspect of our shrinking world is the consolidation of the supply chain worldwide.
“In reality, nobody really likes free trade. It remains a political goal, but I expect progress will move slowly on these issues. Agriculture is too important to be left dangling out there, and GMOs are being used as a new way to slow down free trade talks, allowing countries to protect their interests and maintain their self-sufficiency,” he says.
Westmoreland also expects random weather events associated with El Niño will play a magnified role in commodity markets price moves this year. That means that although market opportunities are likely to present themselves to growers, they'll most likely be the result of either a weather-related crop problem or a perceived problem that causes worry in the market.
Early producer planting intentions, according to Sparks Companies' surveys, show an increase in corn acreage, a decrease in soybean, rice and sorghum acreage, and a cotton crop about flat on last year's numbers. “The farm bill is lowering soybean support and increasing corn support somewhat. As a result, producers are moving toward corn, which is expected to be up 3 percent in the Heartland alone,” Westmoreland says. “We expect soybean acreage will be pulled down about 2 percent, setting the stage for a tightening of soybean supplies.”
With a decrease in soybean acreage predicted, Westmoreland says the 2003 crop will likely end up around 2.8 billion bushels.
“This is an extremely popular commodity in New York and Chicago. However, we will be out-produced and out-shipped by South America. Despite many negative factors, they will produce and export their biggest crop ever,” he says. “With a monster tidal wave of soybeans coming at us from Brazil, it could mean trouble selling come harvest this fall. Any pricing opportunities for U.S. producers will probably come at planting time, or early in the crop season.”
A bountiful U.S. corn crop is expected in 2003, with early indications suggesting a potential 10.5-billion bushel crop on about 81.5 million acres. “A 10.2-billion bushel demand is becoming somewhat perennial, so we need to produce that 10 billion bushel crop of corn,” he says.
If U.S. corn producers produce a bumper 2003 crop, Westmoreland says, the average price for corn could be a bit lower than current levels. The opportunity for an 8- to 10-cent basis pop could present itself to Delta growers harvesting before the Midwest crop makes its way to the grain bin.
An increase in demand for corn to be used domestically to make ethanol is also possible. “There's a big constituency on both sides of the aisle for an ethanol subsidy, so producers should continue to watch this issue,” he says.
Cotton acreage is expected to remain flat in 2003, according to producer surveys taken by Sparks Companies. Assuming a normal harvest, U.S. cotton growers are predicted to yield about 665 pounds per harvested acre over 14 million planted acres, producing about a 17.6 million-bale crop.
“Taking into account continued demands for about 18 million bales of cotton at current price levels, stocks should come down on top of a world stocks decline, resulting in a positive bias against today's price levels,” Westmoreland says. “Negative weather will further enhance pricing opportunities during the 2003 growing season.”
Westmoreland is predicting a 3 percent decline in U.S. rice acreage, which combined with stocks of 27 million hundredweight and steady world export demand, could pull prices back up to $6.50 per hundredweight. While admittedly not the price level producers would like to see, he says, “It's better than a sharp stick in the eye, when you've had $4 per hundredweight.”
Average rice yields across the United States would equal production of about 205 million hundredweight, he says.
In comparison, U.S. winter wheat acreage is up this season, but Westmoreland calls crop conditions “questionable.”
Harvest in the Delta will occur when supplies are tightest, which may offer some pricing opportunities for Southern wheat growers. “The wheat crop is off to a poor start, acreage is down in some areas, and there are weather problems globally, which sets the stage for what could be some pretty impressive spring rallies,” Westmoreland says.