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Meridian Institute

Special Report: Drowning in Grain - How Big Ag Sowed Seeds of a Profit-Slashing Glut

Summary posted by Meridian on 9/28/2017

Source: Reuters (27 Sep 2017)

Author(s): Rod Nickel

The world is awash in grain - a global glut of corn, wheat and soybeans is now in its fourth year, and the world’s ending stocks of total grains are poised to reach a record 638 million tons. “The bin-busting harvests of cheap corn, wheat and soybeans are undermining the business models of the world’s largest agriculture firms and the farmers who use their products and services,” this article states. “Some analysts say the firms have effectively innovated their way into a stubbornly oversupplied market.” Favorable weather has been one factor in the grain glut, but genetically modified crops and high-tech farm practices have also contributed. The abundant supplies have helped lower food prices around the world, but it also means depressed farm incomes, often in poorer communities. In the U.S., net farm incomes are about half of what they were in 2013. Farmers will have less to spend on seed, fertilizer and machinery, lending their pain to other firms across the agriculture sector. The pressure on seed and chemical companies has led to a wave of consolidation in the industry. Despite the glut, Monsanto Company is working on developing its fastest-maturing corn, which would allow farmers in Canada and other inhospitable climates, to grow more of the crop. Trish Jordan, a spokeswoman for Monsanto, said the company believes demand growth justifies the new product; she disputed the notion that crop science advances are backfiring on firms like Monsanto. Jonas Oxgaard, an analyst at investment management firm Bernstein, said, however, that success in the lab and the field has contributed to oversupply. "It's somewhat the seed companies' fault - they keep breeding better and better seeds every year," he said. Glut conditions are expected to ease somewhat this year, but supplies are still so large that prices will remain weak. Paul Thomas, a North Dakota farmer, started planting corn and soybeans about a decade ago; both are now his biggest crops. He uses a short-season Monsanto corn variety. “We’re very capable of producing a large amount of bushels given an economic incentive,” he said. “If we end up over-producing, then we shift to one that’s more in need. That’s just the way agriculture works.” Still, he said, the traditional dynamic may be changing in this current glut. “I don’t know any single crop that isn’t in oversupply,” he said.

The original article may still be available at https://www.reuters.com/article/us-grains-supply-special-report/special-report-drowning-in-grain-how-big-ag-sowed-seeds-of-a-profit-slashing-glut-idUSKCN1C21AR

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