Are commodity prices impacted by inflation?
Richard Brock shares insight on whether inflation impacts commodity prices.
By Richard Brock, Brock Associates
Farmers would like that to be true. But in the last 12 months soybeans have dropped from $15.50 per bushel to $11.50 (down 26%). Soybean meal has dropped from $460 per ton to $335 (down 27%). Corn prices have dropped from $6.80 to $4.30 (down 37%). Grain prices have never been impacted by inflation. Food prices are influenced strongly by inflation but not from the raw material side. Inflation impacts transportation, labor and packaging costs substantially. So, for the consumer they walk away with the thought that inflation is driving up food prices. But what they are missing is it’s not driving up the price of corn, soybeans, wheat etc., it’s driving up the costs of everything around them. The only thing inflation is driving up for the U.S. farmer is input costs.
Shipping the business to Brazil
The soybean production chart below shows that the main benefactor from high soybean prices over the last three years has been Brazil. U.S. production is lagging while Brazil has blown us off the charts. Up until 2012 U.S. farmers dominated world soybean production. But Brazil passed us that year and has never looked back. Most likely they never will.
This year Brazil will export more than twice the amount of beans that the U.S. exports. We’re not going to narrow that gap anytime soon. Soybean crush in the United States is at an all-time new high. Soybeans are being crushed to get the oil to make renewable diesel and that is building up the supplies of soybean meal which is working very much in favor of the U.S. livestock industry. This is good news for the pork and poultry business but not necessarily good news for the U.S. farmer.
The USDA is projecting soybean acreage to jump significantly this coming year. U.S. soybean producers are counting on the renewable diesel market to push soybean prices higher, but frankly we need this growth just for soybean prices to tread water. The demand for renewable diesel, at least in the next 12 months, is not going to be nearly strong enough to push the soybean complex prices higher if we continue to lose export share, and export volume to Brazil.
Bottom Line: Barring a major corn and/or soybean surprise in the May or June report, or a production issue this summer, the soybean/corn price spread will narrow significantly.
