Stock market

Boom in commodity prices more temporary than permanent

Electrified by Russia's invasion of Ukraine, commodity prices are sky-high, with soybean futures topping $16,80 a bushel and the USDA forecasting the highest-ever farm price Wheat. But high prices for Corn, wheat and Soybeans are much more likely to return to their long-term averages than to mark the beginning of a new era of sustained higher prices, five university economists said on Tuesday.

A return to prices in the range of $3,90 a bushel for corn, $10 a bushel for soybeans, and $5,15 a bushel for wheat suggested by the Congressional Budget Office in its 10-year baseline would be “significant Adjustments” are needed in the agricultural sector, said economists Gary Schnitkey, Nick Paulson, Krista Swanson and Jim Baltz of the University of Illinois and Carl Zulauf of Ohio State University.

Illinois corn and soybean breakeven costs are higher this year at $4,73 a bushel for corn and $11,06 a bushel for soybeans. With lower market prices, producers would have to cut costs, e.g. B. by doing without expensive fertilizers and other chemicals. Lower revenues could also put pressure on land prices, which will have longer-term implications.

In their blog, the economists cited CBO and USDA forecasts for commodity prices in the coming years; CBO and USDA see above average prices in 2021/22 and 2022/23 followed by lower average prices.

This is a reasonable belief and modeling outcome, particularly given that historical changes in long-term prices are infrequent and typically associated with a sustained change in demand. Moves back to the 2006-2020 averages suggest that the current resilient market due to China and the conflict between Ukraine and Russia is temporary and will also lead to growth in agricultural production, leading to lower prices.

The current spike in high prices has been fueled by comparatively tight global supplies, adverse weather that has created uncertainty about crop production, strong global demand, and the disruption to food supplies from warfare in the Black Sea region.

In its first projection of this year's crop, the USDA said this year's U.S. wheat crop would average $10,75 a bushel, a record high. Corn would average $6,75 a bushel, the second-highest ever, and soybeans $14,40, matching the 2012-13 record.

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