Grain Markets: Is Global Demand Waking Up? – DTN

Wheat, corn, barley, grain market index. - Photo: Pavel Ignatov

I realize corn’s bearish woes are well known by now, so pardon me for repeating the main points. USDA is estimating 2.43 billion bushels of U.S. ending corn stocks for 2017-18, with another increase in the crop estimate possibly coming in Thursday’s WASDE report. South America’s big corn harvest earlier in 2017 is currently winning the battle for exports, limiting U.S. corn exports to a slow start in 2017-18.

Perhaps, the more frightening part of this year’s corn market is the realization that the U.S. harvest was constrained by drought in the Dakotas and dry areas in parts of Iowa and Illinois. Had conditions been a little better, the 2017 harvest could have been much larger.

“Could haves” and “what ifs” are painful games to play and I generally don’t like to go there, but they do remind us that the difference between higher and lower prices is often separated by a fine line. Granted, fine lines aren’t much help when harvest is upon us and cash corn prices are sitting near their lowest levels of the past 11 years. All anyone seems to talk about now is how much corn there is.

Corn prices aren’t showing any visible evidence yet, but there is a bullish change starting to happen for grain markets that we have not seen in years, and it has to do with global demand. More specifically, the International Monetary Fund (IMF) estimated in October that world GDP will grow by 3.6% in 2017 and 3.7% in 2018.

To put the importance of this in perspective, we need to recognize that many of corn’s lowest prices in recent history were accompanied by dips in global GDP growth below 3%. Many will remember how the Asian recession of 1998 hurt world demand and contributed to low grain prices until 2002 when weather problems finally rescued prices from their lows.

More recently, the financial meltdown of 2008 started largely in the U.S. and quickly spread around the world, revealing other problems that led to negative world GDP growth of 1.7% in 2009. It was the only contraction of world GDP in modern history and the repercussions didn’t end in 2009.

Thanks largely to concerted intervention by central banks around the globe, world GDP held above 3% in 2010 and 2011, but the hangover from 2009 continued to weigh on markets as GDP fell back below 3% the next five years, from 2012 to 2016.

At the same time the world’s economies were struggling, U.S. grain markets enjoyed good weather, producing five big crops in a row, from 2013 to 2017. South America did likewise and so did the world’s wheat growers. It was the extra-bearish combination of weak global demand plus good crop weather for several consecutive years that gave us today’s predicament of large U.S. supplies of cheap corn and wheat for anyone in need.

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Just as negative world GDP growth was unusual in 2009, five consecutive years of global growth below 3% has been the longest such stretch of the past 50 years. So, it seems reasonable that IMF is now projecting a rebound in the world’s economies. We even saw signs of that in last week’s commodity prices before news of Saudi Arabia’s turmoil broke out over the weekend.

If you recall the Sep. 5 article, “Grains Are Not Alone, Part Two,” (here) I explained how the Economic Influence (EI) Index, made up of gold and crude oil prices, had a history of high correlation to grain prices. That index closed Friday at 567.00, the highest price this year, and was also above the 2016 high of 566.33. Rising gold and crude oil prices are backing IMF’s claim that the world economy is picking up.

This weekend’s news of a power struggle and missile threat in Saudi Arabia may distort gold and crude oil prices for a while, but there are enough other clues like rising copper prices which also support the notion that the world economy is improving.

As you might suspect, these emerging signs of increased global demand don’t mean corn prices are necessarily going to trade higher this week or this month — we still have Thursday’s WASDE report to get past. But it is important to know that the bigger economic picture is changing in a way that should eventually lift corn prices from their depressed levels. And, of course, weather will continue to have a big say in where we go from here.

Todd Hultman can be reached at

Follow him on Twitter @ToddHultman1

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