Rabo AgriFinance finds corn margins to tighten

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As growth in demand for biofuels begins to slow and Chinese grain demand remains uncertain, U.S. corn prices could be pressured to below breakeven levels, according to a new report from the Rabobank Food & Agribusiness (FAR) Research and Advisory group.

The report, “AgFocus: Bracing for Tightening U.S. Grain Margins,” notes softer medium-term prices could lead to a contraction of 5 to 6 million U.S. acres as growers look toward other crops.

“The three largest drivers of U.S. grain prices over the next few years will be demand from the U.S. ethanol industry, import demand from China and supply performance in Brazil,” says report author and Rabobank Food & Agribusiness Research and Advisory (FAR) group Vice President, Sterling Liddell.

The report finds an environment of slowing demand growth for biofuels in the U.S. and Europe, and improving ability for Brazil to export. These factors will likely lead to a dampening of prices and margins for the U.S. over the next three to five years. The report goes on to say the two biggest wildcards are U.S. weather and demand from China. The report authors believe growth in China’s overall demand for grain and oilseed imports is likely to moderate in the medium term as meat demand slows from its recent high levels. This moderation is despite the likely rapid continuation of the industrialization of China’s animal protein industry, which is being stimulated by a string of food safety problems.

“It’s our belief that corn prices will adjust lower, with a long-term midpoint of around five dollars per bushel,” notes Liddell. “We also anticipate U.S. corn exports will struggle to regain 2009 levels, as farmers are impacted by these tighter margins. As a result, farmers will be forced toward cost efficiency, productivity growth and tighter financial management, and away from investment and business growth.”

The full report explores the legislative and infrastructure factors driving U.S. ethanol demand, Brazilian practices and outputs, and China’s increasing feed demand.


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