Farm Ireland

Saturday 18 August 2018

Bumper grain harvest are starving farm profits and agri suppliers

Rod Nickel

On Canada's fertile Prairies, dominated by the yellows and golds of canola and wheat, summers are too short to grow corn on a major scale.

But Monsanto is working to develop what it hopes will be North America's fastest-maturing corn, allowing farmers to grow more in Western Canada and other inhospitable climates, such as Ukraine.

The seed and chemical giant thinks that western Canadian corn plantings could multiply 20 times to 10m acres by 2025 - adding some 1.1bn bushels, or nearly 3pc to global production. The question, amid historically high supplies and low grain prices, is whether the world really needs more corn.

A global grains glut is now in its fourth year, with supplies bloated by favourable weather, increasingly high-tech farm practices and tougher plant breeds. The bin-busting harvests of cheap corn, wheat and soy beans are undermining the business models of the world's largest agriculture firms and the farmers who use their products and services. Some analysts say the firms have effectively innovated their way into a stubbornly oversupplied market.

Never has the world produced so much more food than can be consumed in one season. World-ending stocks of total grains - the leftover supplies before a new harvest - have climbed for four straight years and are poised to reach a record 638m tonnes in 2016/17, according to USDA data.

Farmers and agriculture firms could once count on periodic bouts of crop-destroying weather to tame gluts and drive up prices. But genetically modified crops that repel plant-chewing insects, withstand lethal chemicals and mature faster have made the trend toward oversupply more resistant to traditional boom-and-bust agrarian cycles, experts say.

Another key factor: China - the world's second-biggest corn grower - adopted stockpiling policies a decade ago when crop supplies ran thin, resulting in greater production than the world needs. "I think the norm is where we are now," said Bryan Agbabian, director of agriculture equities at Allianz Global Investors.

Allianz investors seem to agree: The value of two agriculture equity funds that Agbabian manages fell to $300m (€254m) this year from $800m in 2011 as crop prices slid, he said.

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Abundant supplies have helped lower food prices across the world, but the benefit to consumers and impoverished nations is muted by several factors, including problems with corruption and distribution of food in developing regions, said Sylvain Charlebois, professor of food distribution and policy at Canada's Dalhousie University.

The bumper harvests may actually harm poor communities more than they benefit their residents in food savings because lower prices depress farm incomes in the same areas, said John Baffes, a senior economist at the World Bank.

Even as farmers reap bountiful harvests, US farm incomes this year will total $63.4bn - about half of their earnings in 2013. It mean farmers can't spend as much on seed, fertiliser and machinery, hurting suppliers.

With profits under pressure, seed and chemical companies are scrambling to consolidate.

Their own success in the lab, however, has contributed to oversupply and may continue to sustain it.

"It's somewhat the seed companies' fault - they keep breeding better and better seeds every year," said Jonas Oxgaard, analyst at investment management firm Bernstein. (Reuters)

Irish Independent

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