Grain crops are being gobbled up faster than farmers can grow them, and that could portend trouble down the road if production doesn't catch up, according to a Purdue University agricultural economist.
There have been two major demand surges in the past five years—the rising use of corn to produce ethanol and China's purchases of soybeans, Chris Hurt said. The former has been driven by government biofuels mandates and high oil prices. The latter is the product of China's growing food demand brought on by rapidly increasing incomes that have enabled the Chinese people to buy more food.
"These greater levels of usage have placed a strain on the agricultural production system, resulting in low inventories that leave little room for any production shortfalls," Hurt said. "Producers certainly have responded to try to meet those demands, but what we've seen is that demand has really outpaced the ability of the world to supply."
Inventories of corn and soybeans are near "bare minimums" in the United States, Hurt said, with wheat stocks in better shape.
To satisfy the world's hunger for food and fuel, American farmers have their work cut out for them. "Either of these demand surges would have had significant impacts on crop prices, farm incomes and land values, but because they were both big and came at the same time, the impacts were even larger," Hurt said.
Read a three-part series in which Purdue agricultural economists provide insight into how grain shortages, ethanol policy, trade practices and Federal Reserve policy are influencing commodities markets.
By Steve Leer