Soybeans and other commodities are seeing a jump in prices due to dry weather and strong export demand from China. Could this lead to higher prices for consumers?
RISING COMMODITY PRICES
Prices for corn, soybeans, and wheat recently soared to their highest levels in over six years, reported The Wall Street Journal (Jan. 22). The revival is boosting costs and pressuring profit margins for food and fuel producers and will likely drive increases in food prices for consumers, according to food executives.
Rising prices through the food chain are helping to drive an increase in U.S. farm income and raising prospects for rural business. The palm oil market has also seen an increase in price, according to The Wall Street Journal. The benchmark futures price touched the equivalent of $961 a metric ton earlier this month, the highest since August 2011.
INCREASING CHINA DEMAND
China’s recent push to increase pork production and fulfill recent trade commitments are leading to demand for huge volumes of U.S. crops overseas. American manufacturers are also making sure they have enough grain and oilseed supplies to meet consumer demand as inventories of corn, soybeans, and wheat are on track to hit their lowest in at least six years, according to U.S. Agriculture Department forecasts.
And that begs the question: Can this trend last?
IMPLICATIONS FOR AG COMPANIES
The turnaround on grain farms could mean high prices for others, such as U.S. livestock producers and poultry farmers who could see a 27% jump in prices for grain, according to Will Sawyer, an economist for agricultural lender CoBank. Higher feed costs will also boost expenses for U.S. meat companies such as Tyson and Pilgrim’s Pride.
Additionally, growing demand is lifting the fortunes of companies such as Archer Daniels Midland Co. and Bunge Ltd. Both companies cited stronger exports as a factor behind rising profits last fall.
Archer Daniels beat earnings estimates for the third quarter. Adjusted per-share earnings came to 89 cents, ahead of the 71 cents FactSet consensus. The company is expected to release its latest results on Tuesday.