Crop Prices: Another Bubble?

The recent spike in crop prices was welcomed with cautiously open arms by retailers interviewed in this report, but the scars of the crash of 2008 are still fresh. A sampling of quotes includes the following:

  • “The memory of recent years is pretty vivid, and a lot of people got burned. We managed to make a profit and keep inventory in check, but a lot of people got hurt, and I suspect the same scenario is setting up again.”
  • “If $2 or $3 comes off the soy price, we will be sitting here in the same boat as 2008, sitting on a lot of high priced product.”
  • “We’re cautiously optimistic but lots of growers don’t trust markets will stay up forever. Then there’s the guy I know at church, asking me about speculating on wheat at 11 dollars. Some people don’t know corn from soybeans, but think they do.”

What ultimately will happen is anybody’s guess, but don’t be surprised if we see a drop as precipitous as the rise says Sano Shimoda, founder and president of BioScience Securities.

Agriculture commodity composites have risen since May, when weather phenomenon began to hamper yields in many parts of the world. Then the USDA revised forecast setting the corn harvest at below earlier projections, sending crop prices into the mid-$5 range. But as weather normalizes and analysts get a better picture of farmers’ planting intentions, prices will begin to descend from their current orbit.

“When you see price curves that look like a rocket taking off, it won’t last,” Shimoda says. “The question is when will that rocket run out of fuel and drop as fast as it goes up … seldom do you see parabolic curves that don’t display the inverse trajectory on the other side.”

Shimoda, who has 30 years of experience as a Wall Street analyst and investment banker, is conversationally calling the his prediction of a commodity price correction “Ag Bubble 2.0.” The first price correction (Ag Bubble 1.0) occurred during 2006-08, when heightened demand and speculative investment drove prices to unprecedented highs, especially for corn, rice and wheat. The result of those price fluctuations — enormous financial loss both for growers and retailers — is a situation no one wants to relive.

Ag Bubble 2.0 has been driven by weather-induced supply shortfalls. These factors, although unpredictable, are somewhat easier to compensate for with robust national food reserves. Currency valuations are also a factor as countries jockey to keep their respective currency valuations low, including the U.S. dollar. A lower dollar translates into more favorable commodity prices, relatively speaking. And the investment community is exacerbating the trend with cash infusions into short-term and long-term investment vehicles.

“Prices will peak somewhere in the next three to six months, depending on whether weather distortions continue,” Shimoda says.

For example, Shimoda continues, in the case of corn and soybeans, further upward price pressures could continue in the short-term, until this year’s U.S. crop (production and inventories) is fully accounted for in the next three months, greater visibility develops over the production potential of crops planted in Argentina/Brazil, the battle for acreage in the U.S. is settled with spring 2011 plantings, and the reality that the La Nina weather pattern fades as expected this spring, resulting in a more normal weather pattern in both North and South America.

Leave a Reply

Crop Inputs Stories

Melissa Olds Dow AgroSciences
Crop InputsDow AgroSciences: Highlighting The Past, Present & Future
September 2, 2015
In general, media events held by large agricultural suppliers tend to focus primarily on what plans the company has in Read More
Wilbur Ellis Pink Soybean Seed Treatment
Crop InputsWilbur-Ellis Goes Pink With Soybean Seed Treatments For Breast Cancer Awareness
September 1, 2015
This past year, proceeds of pink-dyed soybeans treated and sold to Wilbur-Ellis seed customers in Chester, SD, went to two Read More
Syngenta Sign
FungicidesSyngenta’s Newest Fungicide Receives EPA Approval
September 1, 2015
Syngenta announced today that its newest succinate dehydrogenase inhibitor (SDHI) fungicide – Solatenol – has received registration from EPA and Read More
Flooded corn in Indiana
Crop InputsDelaying The Fertilizer Decision
September 1, 2015
Comments gathered from several retailers recently evidenced a classic good-news-bad-news scenario. Good news is prices and supplies of nitrogen, phosphate, Read More
Top 100 Articles
Crop InputsLand ‘O Lakes, United Suppliers Finalize Merger
August 24, 2015
According to a press release on August 24, owners of United Suppliers, Inc. and members of Land O’Lakes, Inc. “have Read More
West Central Cooperative, Jefferson, IA
CropLife 100Iowa Cooperatives To Explore Unification
August 19, 2015
The boards of directors at two of Iowa’s leading farmer-owned cooperatives yesterday signed a letter of intent to study the Read More
CropLife 100Southern States Coop Hosting Drone Flight This Friday
August 3, 2015
Southern States Cooperative — No. 9 on the CropLife 100 — is hosting an FAA-approved drone demonstration at Grandview Farms Read More
CropLife 100Aligned Ag Distributors Adds Four New Owners
July 30, 2015
Aligned Ag Distributors LLC has announced the addition of four new customer/owners to Franklin Holding Co. LLC. They are: The Read More
CropLife 100Pinnacle Purchases California-Based Specialty Crops Retailer
July 20, 2015
Pinnacle Agriculture Holdings has successfully acquired California-based NH3 Service Co.  Operating as part of Pinnacle’s Performance Agriculture brand, the new locations Read More
Asmus Farm Supply liquid fertilizer facility features 20,000 square feet
CropLife 100Slideshow: Asmus Farm Supply Shows Off Its New Liquid Fertilizer Facility
July 15, 2015
Asmus Farm Supply, Rake, IA, recently added a new liquid fertilizer facility to its company operations. The new liquid fertilizer Read More
Latest News
ManagementReviewing MAGIE 2015
September 2, 2015
CropLife Editor Eric Sfiligoj talks what he saw at the recent Midwest AG Industries Exposition (MAGIE) show. Read More
Melissa Olds Dow AgroSciences
Crop InputsDow AgroSciences: Highlighting The Past, Present & …
September 2, 2015
In general, media events held by large agricultural suppliers tend to focus primarily on what plans the company has in Read More
Mobile tablet
OpinionTaking Data Head On
September 2, 2015
As you read this column, I’m hoping that if you picked up the phone and gave me a call, you’d Read More
Young soybean field
Industry NewsArysta LifeScience Announces New Business Unit Head For…
September 1, 2015
Arysta LifeScience North America announces the addition of Rico Christensen, Business Unit Head, North America. Christensen will have responsibility for Read More
Wilbur Ellis Pink Soybean Seed Treatment
Crop InputsWilbur-Ellis Goes Pink With Soybean Seed Treatments For…
September 1, 2015
This past year, proceeds of pink-dyed soybeans treated and sold to Wilbur-Ellis seed customers in Chester, SD, went to two Read More
SprayersNORAC Active Wing Roll Slated For More Sprayers
September 1, 2015
NORAC Systems, a member of the Topcon Positioning Group, announces the release of Active Wing Roll for RoGator, Apache, New Read More
Syngenta Sign
FungicidesSyngenta’s Newest Fungicide Receives EPA Approval
September 1, 2015
Syngenta announced today that its newest succinate dehydrogenase inhibitor (SDHI) fungicide – Solatenol – has received registration from EPA and Read More
Flooded corn in Indiana
Crop InputsDelaying The Fertilizer Decision
September 1, 2015
Comments gathered from several retailers recently evidenced a classic good-news-bad-news scenario. Good news is prices and supplies of nitrogen, phosphate, Read More
StewardshipBee Buffer Strip Initiative Seeks 100 Ohio Farmers
August 31, 2015
The U.S. Bee Buffer Project, an initiative of the Pollinator Partnership (P2), Burt’s Bees and The Burt’s Bees Greater Good Read More
2015 ShowStopper Award, MAGIE
EquipmentA ShowStopper From Case IH: The Patriot 2250
August 31, 2015
For nine years now, visitors to the yearly Midwest AG Industries Exposition (MAGIE) show have been tasked with not only Read More
Crop InputsMonsanto, FMC Expand Roundup Ready PLUS Platform
August 31, 2015
FMC Corp. and Monsanto Co. announced today an expanded agreement to continue their participation in the Roundup Ready PLUS Crop Read More
Deere Nutrient Applicator
Eric SfiligojThe Good & Bad News From MAGIE
August 31, 2015
As I write this column, I’ve just returned from the annual Midwest AG Industries (MAGIE) trade show in Bloomington, IL. Read More
CPS Morenci receiving its 4R certification
StewardshipCPS Morenci Becomes First Michigan Facility Certified I…
August 31, 2015
The 4R Nutrient Stewardship Certification Program has announced that Crop Production Services, Inc.’s facility located in Morenci, MI, has been Read More
EquipmentDeere Announces Soucy Track Distribution Alliance
August 28, 2015
John Deere announces an alliance with Soucy Track to sell and distribute products through the John Deere dealer channel. “This Read More
FertilizerFall-Applied Phosphorus: A Rooted Investment
August 28, 2015
As commodity prices decrease and input prices continue to rise, farmers are seeking more efficient strategies for meeting a high Read More
Monsanto Sign
Crop InputsWhat’s Next For Monsanto, Syngenta?
August 28, 2015
After dropping its $47 billion bid to take over Swiss agribusiness firm Syngenta, Monsanto may be turning its focus to Read More
Golden Harvest Corn stalks
Crop InputsMonsanto: Syngenta Not The Only Horse In Crop Protectio…
August 28, 2015
Monsanto Co, having ditched an audacious $46 billion (£30 billion) offer for Syngenta AG, may downshift to a humbler strategy Read More
ManagementConsolidation hits and a miss; And a look at China’s ch…
August 28, 2015
As Monsanto suspends its pursuit of Syngenta, consolidation news at the retail and distribution level heats up. CropLife magazine’s Executive Read More