- Raw Materials
- Supply Chain
Remember when we wrote about the lessons gained during the Dust Bowl era? Especially the one regarding wheat and how quickly it can rebound after a small amount of rain? We are getting another great example of this recovery in wheat production estimates as a result of recent moisture content improving across the grain belts in the US. Because of how winter wheat germinates, even if the fall growing season is not as strong as would be considered to be “good”, early spring rains can help it fully recover – it primarily gets delayed.
Take a look at the commodity reports from the GSCI index produced by S&P. You can get the full list of GSCI indexes at its official website at S&P GSCI. The most recent chart for agriculture shows the recent drop in wheat prices as a result of the recent rains throughout the Midwest. Wheat prices are down about 2.11% year-to-date and down about -2.31% for February alone. Since wheat is the only commodity currently in the ground, it is the one most impacted by the most recent rains throughout the region, but others have shown some of the same bearish activity as well.
Demand conditions have also created a bit of a bearish condition against most grains. News out today that order sizes from many emerging markets where a bit less than expected – suggesting that perhaps the demand and economic conditions in certain emerging markets (India, China, Southeast Asia, etc.) is weaker than many thought.
Drought conditions continue to play a role in the outlook for food prices. We will have a full report on global food prices in several days when January reports are released. For now, the drought monitor map shows that the deep-rooted drought still has a lock on big portions of the country – and this will be the third potential year of difficult drought conditions on the country. There has been some easing of drought conditions in Texas and what the map doesn’t show is some really strong rains that moved across eastern and central Texas this week – which will help ease the drought even further. Even Kansas and Nebraska got some rain this week (approximately an inch in some areas) which could start to ease drought conditions even further. If this is the pattern that spring rains will take, we can begin to foresee a period in which the drought has lifted, ponds start to refill, rancher herd sizes start to expand, and grains and food products start to come on better than in years past. Note: it will still take about 3 years for cattle herd sizes to recover – pigs, sheep, and poultry can recover in a year. That would help to ease food prices (for many products) and hopefully help to lower food prices overall for consumers. Again, we want to ultimately see consumer discretionary income improve – that will lead to broader spending and a healthier economy. These elements, all working together, should help to improve at least this one segment of the economy.