The Hagstrom Report

Agriculture News As It Happens

Commodity price future may hinge on Chinese market

MIAMI — U.S. commodities appear to be appropriately priced and ethanol is unlikely to suffer if the tax credit expires, but farm prices could depend on what kind of market China turns out to be in the future, the chairman of the Agriculture Department’s World Agricultural Outlook Board said here last week.

Gerald Bange
Gerald Bange, World Agricultural Outlook Board
“Pricing efficiency is doing its job,” WAOB Chairman Gerald Bange said here last week in a speech to the Agriculture Investment Summit of the Americas.

Bange said he found the run up in commodity prices in 2008 “somewhat inexplicable” but “today the situation is different” because “it is a better reflection of supply and demand.”

“We’re not going to see $2 and $3 corn again in the United States,” he added while presenting charts on USDA’s latest supply and demand statistics.

If Congress does not renew the tax credit for ethanol, the industry will still thrive, he said, because the Environmental Protection Agency has indicated it will enforce the renewable fuel standard that governs the amount of renewable fuels that must be in the energy supply.

But Bange said ethanol does have a problem: When U.S. gasoline consumption goes down in a recession, the need for ethanol to blend with it also goes down. That’s why the industry has become so interested in increasing the percentage of ethanol in the blend, he added.

Throughout his career, Bange said, American officials have worried about what impact Brazil would have if it became an important agriculture producer and exporter. But with current demand and prices, he said, “Brazil is coming on — thank goodnesss. The world needs their production.”

But Bange said the real question is “what will China be as an import market in the future?” He added that USDA does not estimate future exports to China quite as high as the industry does. Noting that China has become a big importer of soybeans, Bange said the Chinese “will be loathe to do that with wheat, corn and rice” because they view them as “political commodities.” Of those food commodities Bange said, the Chinese “are an industrious people and they’ll do everything to be self-sustaining.” But he noted that Chinese corn production per acre is half that of the United States.

Bange said that he does not expect a lot of production to come from land that is now idled under the Conservation Reserve Program because “it’s marginal land.” On the other hand, he added, no one would have predicted that corn acreage would have risen as high as it has in recent years.