Cereal prices hinge on the smallest of margins

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One bad harvest, anywhere in the world, is all that it would take to send cereal prices rocketing, according to Mark von Pentz, president of John Deere’s Agriculture and Turf division.

He was speaking at the recent SIMA event in Paris.

“Volatility is now a feature of the world’s agri commodity markets,” he said.

“But we are now in a position to identify triggers that can help us predict when these fast changing trading conditions are about to impact. Underpinning all of this is the fact that grains, beef, milk and the other agri commodities are now traded on a truly global basis. We are operating in a truly international market without borders.

“One of the tipping points within the tillage sector is the global stock to use ratio for cereals. At the moment it is sitting at 22%. However if this figure drops below 20% then the markets will start to get nervous and investors will jump in and push prices back up.

“However, all it would take is one bad harvest in any of the main grain growing areas to send this ratio plummeting. And this is what we have seen over recent years when grain prices started to strengthen significantly.”

Von Pentz also believes the world will find it difficult to meet its cereal production targets, in line with the envisaged growth in the world’s population over the next 50 years.

“We need to see cereal output increasing by 2.4% annually in order to come anywhere near meeting this level of output,” he said.

“And this is good news for tillage farmers and other commodity food producers. Grain prices have been challenging over the past number of months. And this is impacting on agricultural machinery sales across the board. But the general prospects for agriculture as a whole remain excellent. The fundamental reality is that farmers must become more efficient. And it’s up to the machinery sector to respond in kind.”