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

Soybean field
FungicidesValent Launches New Seed Protection Fungicide For Soybeans
July 16, 2014
The INTEGO SUITE System contains the first new, novel seed protection fungicide chemistry registered in 30 years by the EPA for protection against Pythium and Phytophthora. Read More
InsecticidesEPA Grants Besiege Insecticide Additional Approvals
June 18, 2014
EPA has granted additional registration approvals for the use of Syngenta's Besiege insecticide on sorghum, cereal grains and peanuts. Read More
HerbicidesArysta Touts Burndown Herbicide For Brome Management In Wheat
June 4, 2014
Arysta LifeScience North America recommends PRE-PARE Burndown Herbicide for effective brome management in winter wheat. Read More
HerbicidesFall Herbicide Applications More Effectively Manage Resistant Italian Ryegrass
May 14, 2014
Field studies show that a fall application of certain herbicides before weed emergence, leads to more successful crop planting and weed control in spring. Read More

Trending Articles

Retail FacilitiesWaconia Manufacturing Builds Facility Designed For Speed, Efficiency
July 7, 2014
To make its new hub facility more efficient, Cooperative Elevator enlisted the aid of Waconia Manufacturing. Read More
EquipmentSummer Show Preview 2014: Superior Sprayers Take The Field
July 3, 2014
In this final installment of our coverage of the major categories of Big IRON that retailers can expect to test-drive at this summer’s events, here is a look at 19 sprayers. Read More
Scouting a soybean patch at Green Valley Ag.
EmployeesCropLife Compensation Survey: Battling Talent Drain
July 2, 2014
Retailers too often lose employees to companies outside of agriculture, while recruiting efforts are most often limited to competitors and other ag-focused organizations. Read More
HerbicidesDow AgroSciences Introduces SureStart II Herbicide
June 16, 2014
The enhanced formulation has improved viscosity and increased stability under heat and controls more than 60 high-anxiety grasses and broadleaf weeds found in corn fields. Read More
HerbicidesBASF Investing $270 Million To Expand U.S. Herbicide Production
June 11, 2014
BASF has invested more than $270 million to expand herbicide production capacities in the U.S., including more than 20 new products to be launched over next two years. Read More
EquipmentGPS: 25 Years And Still Growing
June 2, 2014
The evolution of global positioning systems applications in agriculture remains ongoing as the technology hits a notable milestone. Read More

Latest News

Precision AgFarmers Learn How Changing World Will Impact Iowa
July 24, 2014
Technology and understanding global consumer demand for Iowa farm products brought hundreds of farmers and agribusiness leaders to Ames recently for the annual Iowa Farm Bureau Federation Economic Summit. Read More
HerbicidesPurdue: Late Season Weeds May Require Manual Removal
July 24, 2014
Hand-rouging and pulling late season weeds by hand may be the best way to remove them, more so than using a herbicide, a Purdue Extension weed scientist says. Read More
Soybean Field
InsecticidesTranform WG, Closer SC Insecticides Receive R&D 100…
July 23, 2014
Dow AgroSciences has received the award from R&D Magazine for Transform WG insecticide and Closer SC insecticide with Isoclast active. Read More
EquipmentKinze, Raven Team Up On 4900 Planter Monitor
July 23, 2014
Kinze Manufacturing announces a partnership with Raven Industries to develop a standalone monitor solution for the Kinze 4900 series planter. With this new Read More
LegislationNew Farm Bill Continues To Confuse As Growers Await USD…
July 23, 2014
The new five-year Farm Bill eliminates many of the direct payments previously payed to growers and could benefit from USDA clarification, reports a Toledo Blade columnist. Read More
EquipmentPrecisionAg.com Relaunches With Responsive Design For M…
July 22, 2014
PrecisionAg, the worldwide leader in precision agriculture information and analysis, announces the launch of its completely redesigned website, PrecisionAg.com. Read More
FungicidesEPA OKs Two Willowood Fungicides
July 21, 2014
The EPA has approved Willowood Azoxy 2SC and Willowood AzoxyProp Xtra. two widely used broad spectrum, preventative fungicides with systemic and curative properties. Read More
Precision AgFarmers Learning Fast As UAVs Take Off
July 17, 2014
Farmers and others interested in how UAVs can be used in agricultural applications were able to learn more about the technology during the recent Precision Aerial Ag Show. Read More
CropLife 100Bobby Knight, Richard Petty To Highlight Ag PhD Field D…
July 17, 2014
Attendees at the July 24 Ag PhD Field Day at Hefty Farms will learn about the latest agricultural technologies, and get a chance to meet legendary sports figures Bobby Knight and Richard Petty. Read More
WebinarsUpcoming Webinars
July 17, 2014
Register for one of our upcoming Webinars or access our archive of past Webinars to view recordings of presentations that may be of interest to you. Read More
A finished Willmar 16-ton side-shooting tender.
TendersNew Production Facility Helps Willmar
July 17, 2014
In 1963, a group of businessmen started Willmar. Today, a half-century later, the company is one of the ag industry’s longest-running brands. Read More
FertilizerCF Industries Sells Carbon Credits To Chevrolet, Donate…
July 17, 2014
CF Industries has completed the sale of a large block of carbon reduction credits to Chevrolet, and will donate the net proceeds of $600,000 to the National FFA Foundation. Read More
CropLife 100Grainland Cooperative, Minier Cooperative Grain To Merg…
July 17, 2014
The shareholders of Grainland Cooperative and Minier Cooperative Grain Co. approved a merger of company operations effective August 1, 2014. Read More
ManagementStudy: Drought Costing California Billions
July 17, 2014
A new study has found the drought has cost the state $2.2 billion, primarily in lost farm revenue and wages. Read More
FertilizerCF Industries Resumes Production At Oklahoma Nitrogen C…
July 17, 2014
The company had shut down production at the Woodward, OK, facility in April to address an issue in one of the site’s boilers. Read More
CropLife 100Wilbur-Ellis To Relocate Agribusiness Division To Denve…
July 16, 2014
The move Eastward will allow Wilbur-Ellis’ Agribusiness Division to be more accessible to relevant geographies and is expected to enhance communication and collaboration among the division’s nearly 3,000 employees. Read More
Soybean field
FungicidesValent Launches New Seed Protection Fungicide For Soybe…
July 16, 2014
The INTEGO SUITE System contains the first new, novel seed protection fungicide chemistry registered in 30 years by the EPA for protection against Pythium and Phytophthora. Read More
Crop InputsSyngenta Drive To Thrive 10 Finalists Announced
July 15, 2014
Finalists are chosen based on the quality of their essays and photos depicting what makes them thrive. Read More