Bullish Phase in Grains is over

In the May issue of World Grain Magazine the headline above caught my attention and should catch yours. An article in that edition focused on remarks made by Dan Basse, President of Ag Resource Corp at the Cereals Europe Conference in Geneva, Switzerland.

Basse points to many basic economic fundamentals occurring in the world that led him to his conclusion. I will high light some of them here.

Many of his remarks lead to or are derived from the value of oil. He remarks that Fracking has brought the US to the brink of energy self-sufficiency and has contributed to the strength of the dollar.

He believes that world agriculture is in a transition phase away from the bullish 2006-2013 biofuel boom to something akin to the 1990-2005 years.

He also noes that:

• World farmland values could correct 5 to 35%

• World food inflation will drop to 1/3 of what it has been in the previous year

• China is entering a period of slower growth

• Grain yields have been rising faster than demand growth

• Behavior of the index funds have changed as the dollar strength has led to commodity price collapse

• We are rapidly building oil stocks and could run out of storage space for supply

• Year on year net farm income will see its biggest drop since 1931

• Money is flowing into equities and out of commodities

Oddly he sees more acres coming into production as farm income drops and remarks, “Farmer farm.They are always optimistic.It is generally weather that changes acreage not economics.”

Sobering thoughts to say he least but ones that all of us must come to grips with and manage accordingly.