For the first time in years, consumption is outpacing crop production in the U.S. and other grain-growing nations.

According to Chris Hurt, Purdue University ag economist, world soybean and wheat inventories are at their lowest point since 1996. In addition, carryover corn stocks are at the lowest point seen in 27 years.

And if current weather patterns persist — extreme drought in some areas and excessive rain in others — and 2002 crop yields are below average, the gap between consumption and production could widen. And it’s not just U.S. producers who are battling the weather this year. Farmland in Australia and in Canada’s prairie provinces are mired in drought also.

High carryover stocks in the past have led many to believe that low grain prices are normal, says Hurt. However, world stocks have “tightened substantially. And with the current low carryover stocks anything that leads to increased consumption, or to lower supplies will lead to stronger prices.

The stockpile of grain leftover from 2001 is shrinking. At the beginning of the year, U.S. carryover stocks of corn were projected at 1.6 billion bushels. That’s a level consistent with the big crop years of 1998 through 2000. However, that projection will drop to about 1.5 million, even with a normal-size crop. And if this year’s corn crop doesn’t hit USDA’s projection of 9.8 billion bushels, that number will drop even further.

According to Hurt, grain stocks hit their peak in 1998 and since then world consumption has exceeded production. On average, the rate of consumption increase has been about 6 percent to 7 percent per year. The rise in consumption, explains Hurt has been fueled by low commodity prices.

With the 2002 crop still in limbo, corn prices have already increased 25 to 30 cents per bushel. Soybean prices have increased by about $1 per bushel since spring and wheat prices are at their highest level since 1997.

However, it’s too soon to tell where prices will end up. Grain prices will likely bounce up and down during the next few weeks as the market reacts to changes in world supply and demand issues. And the weather will play a huge factor during the next few weeks as the corn crop progresses through silking.

And it’s too soon to tell whether the recent increase in prices will dampen consumption at all. The best thing producers can do during the next few weeks is to keep one eye on the market.

Justfood.com