IT WILL TAKE AT LEAST ONE MORE CROP CYCLE TO CURTAIL PRICE INFLATION.

Sébastien
19 Aug 2021

From myth to reality, is a food shortage now becoming probable? We are not there yet… but very few people are aware that food stocks are very small when compared to other raw materials. When prices are high, like today, the world stock to use ratio falls as low as 2 months. When it applies to human consumption, high prices will have very little impact upon rationing demand. 

That is the moment when our sector becomes highly geopolitical. Multiple weather events around the globe are clearly representing a threat to global food security. The worlds precarious stability would not cope with a third, consecutive, production incident. This is the exact reason as to why the USDA deeply cut into their stock forecast last week. They want high prices to incentivize you, as farmers, to drill as much wheat as possible. Now, not next year…

Indeed, the 2021/22 season must be a year of high production as global S&Ds need restocking. We can therefore expect prices to remain high for quite a while to encourage productivity and large acreage. 

Yet if weather does not allow this, we will enter the dangerous zone, with stocks and prices probably moving to unprecedented levels and politics entering the game. Here, one of the major risks for prices would be a sudden cut into biofuels policy. A real threat to keep in mind. 

All in all, this is a positive environment for farming. Farmers should enjoy a rather long period of sustained prices and with appropriate weather conditions, the first post Brexit season could be one of the most profitable in years!

However we must remember, historically, that our sector is cyclic. Prices rarely stay at their peak for a long period. We shall then be ready to act, at least partially, to take advantage of current high prices for both old and new crops.    

Sébastien Mallet

ODA UK