Is the World Running Out of Grain?

Concerns over the world’s supplies of grains and oilseeds are prompting the Biden administration to step in and encourage more production. Grain analysts say while there’s no doubt supplies of grains are tight due to the situation in Ukraine, the world isn’t running out of grain.

Just this week, the Biden administration announced they are calling on Congress to approve additional aid to Ukraine, which includes providing an additional $500 million in aid to U.S. farmers to boost the production of crops such as wheat and soybeans.

According to Farm Journal Washington correspondent Jim Wiesemeyer,  the plan proposes to:

• Significantly boost some commodity loan rates for two years.
• Extend the loan term to 12 months for 2022.
• Provide a $10 per acre incentive paid through crop insurance premiums to a soybean crop planted after a winter wheat crop in 2023. 
   

The Biden administration is proposing to increase wheat loan rates by 63% to $5.52 bu., oilseeds by 40% and rice and pulse loan rates by 21%.

How Tight Are World Grain Supplies?

Whether or not the plan would significantly boost production over the next two years is stirring debate, while also sprouting the possibility of unintended consequences.

Peter Meyer of S&P Global Commodity Insights says the situation in Ukraine will have a lasting impact on grain supplies, and even without knowing the outcome of the war,  it could be a factor for two to three years. However, he says the world is not running out of grain.

“When we look at what's happened in Ukraine, and the longer that the situation in Ukraine drags on, what we do is we've created an underlying support for the market until such a time when we can balance in supply and demand,” says Meyer. “In our opinion, that probably lasts two or three years, because this is not a one-year phenomenon with what’s happening in Ukraine.”

Meyer points out it’s not just this year’s production that will face hurdles. As massive reconstruction will need to take place across Ukraine, the rebuilding process could take years.

“We think what that equates to is probably two or three years of very, very supportive markets,” says Meyer. “That's not necessarily just ‘bull run’ markets, but we can easily make a fundamental case for a base price of $6 corn and $15 beans, until such time when the veggie oil situation, as well as the corn situation and wheat situation out of Ukraine gets stabilized.”

Efforts to Boost Production 

Tregg Cronin farms in Gettysburg, S.D., and is a grain market analyst. He says the proposal by the White House may not prompt as much extra grain and oilseed production than what’s already planned.

“I guess I'm a little bit skeptical that it's going to result in a flood of extra grain production,” says Cronin. “What's important to realize, too, is we're sitting here, and the calendar is just about to turn to May. There's limited things farmers can do at this stage, and so much is weather dependent to really ramp up production to the degree many think is necessary.”

BREAKING: White House calling on Congress to provide an additional $500 million in aid to U.S. farmers to boost crop production of wheat and soybeans to head off a global shortage due to the war in Ukraine. https://t.co/6oJKoKnLy1 — U.S. Farm Report (@USFarmReport) April 28, 2022

Overall, Cronin thinks the announcement will result in a limited increase in grain production compared to what’s already plan, as the market is already providing the signals to farmers to plant more crops.

“It is the market's job to incentivize additional production; I don't know these measures from the White House are going to do anything the board prices are not doing on their own,” adds Cronin.

Fear of Unintended Consequences

Instead, what Cronin does fear is unintended consequences that could be a result of government intervention.

“When we get a big government program thrown out, the unintended consequences piece of it probably is going to play more so than the additional bushels that we might be able to count on,” says Cronin.

Meyer says with inflation a widespread factor, one of the unintended consequences may be even higher inflation. 

“You can't fight inflation by printing more money, and when you throw money  at the farmer, the unintended consequences would be continued high input prices,” he says. “You start throwing more money at the farmer and certainly your prices for inputs are not going down.”