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Ag inflation: “China’s got a big appetite”

 In Newsletter

Issue 153

Assets Covered: KC HRW Wheat Futures (KW1), CBOT Corn Futures (C1)

 

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Agriculture commodities have been on fire this quarter. Corn, wheat, soybeans, and coffee futures have all risen dramatically and they appear to be going higher. Coffee has been the big winner since April 1st, seeing a ~23% rise, followed by corn (~15%), rounding out with soybeans and wheat (each just under 9%).

 

KC HRW Wheat Futures (KW1) – Forecasts until September 2021
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There are a number of factors pushing prices up – monetary policy and a weaker dollar, demand resurgence in the wake of Covid, weather, and – in some cases – ongoing supply chain issues. Re-opening is pulling demand, especially at restaurants, resorts and entertainment venues. And weather is top of mind as Brazil faces its worst drought in nearly 100 years.

 

Last week, we spoke with Kevin Van Trump for our Quick Hit interview titled “Ag’s Perfect Storm.” During the discussion, Kevin said droughts in the Dakotas, primarily, are worrisome for the corn crop. Markets are starting to worry, but we won’t have a full picture until late June/early July, so there are some real unknowns with corn supplies. Soybeans generally follow corn price trends, so there is potential for impact on soybean prices as well.

 

CBOT Corn Futures (C1) – Forecasts until September 2021
CI Futures generated this chart. Book a demo to see it live in action.

 

Kevin also stated that China is a major demand driver of US agriculture, making the understatement that “China’s got a big appetite.” On Friday, Cargill’s CEO David MacLennan also said that China hasn’t been able to ramp up domestic agriculture production as they’d hoped, so China will remain dependent on imports for the foreseeable future. China is expected to buy 25 million tonnes of corn from the US this year, according to the USDA. And China is contributing to the wheat price rises as Chinese farmers look for an animal feed substitute to expensive corn this year.

 

There’s a lot of detail in this interview with Kevin, so we hope you’ll check it out. In short, ag prices could go higher from here and stay there through Q3.

 

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