Investment shift to commodities possible
BLOOMINGTON – The world economy is starting to slow, but that isn’t all bad for agriculture.
The value of ocean freight has been cut in half and this makes the grain we ship overseas more economical. Also, if the 10-year bull market is over for Wall Street, an investment shift could return to commodities just like from the mid-2000s through 2012.
“We are still probably one of the strongest economies in the world despite the fact our economy is starting to slow,” said Kent Beadle, director of risk consulting for CHS Hedging/Russell Consulting Group.
Beadle believes a Chinese trade deal could get us back up to 1.4 billion bushels of soybean sales to China. Corn and wheat could be involved in a possible agreement as well. China reused 10 years worth of corn production going back to 2008 but didn’t tell anyone how that production was used.
“Nor did they give us a read on what their stocks are,” Beadle noted.
China wants to have corn as part of a new trade agreement, according to Beadle. Those stocks could have disappeared due to spoilage or loss to animals through feed. Many believe there will have to be some give and take with China and soybean acres could take a hit this year.
“There’s an awful lot of uncertainty because of what could happen.”
When it comes to South American corn, Argentina should rebound from last year’s disaster but it is early. Brazilian production is also expected to rebound. The world has plenty of soybeans and crush margins have relaxed. For U.S. acres, Beadle is using 176 bushels per acre in his balance sheet. There are no drought concerns and five years of above trend yields have not been done before.
“I essentially have a flat carryout last year to this year,” Beadle explained.
From a fundamental perspective, we will have less corn around and there is a possibility of higher highs due to weather related problems. China could buy U.S. corn but Beadle is concerned about what could happen to corn prices should soybeans happen to fall “out of bed.”
“If we do get a deal, it’s going to be more bullish corn than beans even though beans are going to get the headline story.”
Beadle was the speaker during last week’s insurance and agronomy meeting hosted by First Farmers State Bank in Bloomington.