|
It's
a bad time to be a grains farmer. Prices have crashed and are showing
no signs yet of rebounding.
Despite the beginnings of an economic recovery
in Asia, export demand just hasn't come pack as much as anyone had
hoped.
 IBD
spoke with Don Roose, president of U.S. Commodities, a commodity
research and brokerage firm in West Des Moines, Iowa. Roose advises
large commercial farmers in the U.S. and Europe who need to hedge
their crops.
Roose is also a farmer.
IBD:
Why are grains prices so low?
Roose: The U.S. is
sitting on the lion's share of world carryout (the amount of grain
held in stockpiles at the end of the crop year).
IBD:
Some commodities have rallied with the recovery in Asia.
Why haven't grains done better?
Roose: Grains
will also benefit from it, but it will take some time, probably
in the area of eight to nine months. It will take time for these
lower prices to build some demand.
IBD:
And do you think that demands will come back?
Roose:
We built a strong demand base in the Asian countries - Japan, China
and the entire Asia-Pacific rim - a few years ago, 1994 through
1997. Then the economic debacle hit, and that demand was lost.
IBD:
Has demand improved yet?
Roose:
It's started to. We're starting to see demand building in Japan
and South Korea.
IBD:
What about China?
Roose:
They've become an exporter, so they're working against us to a certain
degree in corn. They used to be importers, but they turned that
around in the last couple of years. They had a policy to stockpile
grain, but when their economy turned poorly, they started aggressively
working off their stocks.
IBD:
But that can't go on forever.
Roose: That's
right, that's going to change. Especially when you look at their
livestock production (an industry their trying to build up). As
their diets improve, and they consume more protein through meat,
it'll take more grain - especially corn (livestock's No. 1 feed
grain) - to sustain that.
|
IBD:
Isn't the same thing happening elsewhere?
Roose:
Yes, that's what the goal is around the world.
IBD:
Aren't
you surprised at how long it's taking for this rally to start?
Roose: When
you look at the attitude in the market, and the fact that we haven't
had any real (crop-damaging) weather problems. I suppose it's no
wonder prices are down. But I guess I'm surprised how easily we've
been able to move to 22-year lows in wheat. When you look at it,
wheat's world stockpiles have gone down each year since the 1997-98
crop year, when we had 139.21 million metric tons of wheat. In 1998-99,
we had 136 million metric tons. This year, 131.21 million metric
tons. So supply is falling. At the same time, the price just keeps
falling.
IBD:
So even though it's a world supply-demand situation, you still
think the key is in the U.S., the world's most efficient producer.
Roose: Yes. The U.S.
sets the tone. We said we will produce, and we'll sell it at any
price we can get to clear the stockpiles.
IBD:
And if the U.S. is such an aggressive seller, does that force
other sellers to be aggressive?
Roose: Yes.
IBD:
What would it take for the U.S. to change its tone?
Roose: That's a hard
question. What we're trying to do is to keep the price low enough
to move the crop and not to bring more acres into production. That's
unneeded.
IBD:
Are governmental subsidies to farmers encouraging unneeded grain
output?
Roose: Yes, especially
on wheat and soybeans. But wheat is the big one because it can be
grown in so many areas.
IBD:
And these subsidies encourage overproduction and, in turn, these
miserable prices?
Roose: Yes.
IBD:
What has this price crash done to the U.S. farmer?
Roose: It would have
been devastating if not for (U.S.) subsidies. As it is, it's recessionary.
IBD:
But the U.S. subsidies are smaller than those in Japan and Europe?
Roose: Much smaller.
|
