Corn, soybean and wheat prices are trading at discounts to their inflation-adjusted averages, and all three are likely to rally because output won’t keep pace with demand for crops to make food, animal feed and alternative fuels, said Eliane Tanner at Credit Suisse Group.
The CHART OF THE DAY shows corn futures on the Chicago Board of Trade, adjusted for inflation, are 32 percent below their monthly average price since 1972. Corn fell to an 18-month low on the CBOT in December. Soybeans futures are 27 percent cheaper than their monthly inflation-adjusted average, and wheat is at a 25 percent discount.
“Prices have fallen too low,” Tanner, a commodity analyst in Zurich, said in a Feb. 2 note to clients. She didn’t provide price forecasts when contacted by e-mail on Feb. 3. Prices “are significantly below historical average in real terms,” Tanner said in the report.
Rising global population growth, particularly in the emerging markets, has increased demand for food and animal feed. Food supply will have to grow by 50 percent by 2030 to meet the projected demand, as climate change, water scarcity and competition for land limit the growth of crop production, according to World Bank forecasts.
World grain and oilseed production this year will fall below record harvests in 2008, Tanner said. The weather won’t be as favorable as a year ago, and farmers are planting fewer acres and using less high-cost fertilizer after crop prices dropped by more than 40 percent from last year’s records, she said.
“The weak supply-side outlook is likely to keep inventories tight and thus we expect grain prices to be vulnerable to weather-related supply shortages,” Tanner said. “Demand for agricultural commodities is relatively immune to developments in the business cycles compared to that of energy or base metals.”
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