Price of coarse grains

Categories : Category Insights | Commodity Trends Published on : Jul 27 2017

Coarse grains, such as barley, oats and sorghum, have much less widespread use than other types of grain, like wheat and corn. However, they find their way into a variety of products, mainly animal feed, brewed and distilled beverages, ethanol and various food products. Coarse grains compete directly with corn, wheat and soybeans on the animal feed market, and the dramatic price rises in those commodities in the past five years helped coarse grain prices to rise over 200.0% from 2005 to their peak in 2012.

The price of coarse grains began to rise dramatically in 2006 after the Environmental Protection Agency (EPA) rolled out its first biofuel production mandates under the Energy Policy Act of 2005. Policies were expanded under the Energy Independence and Security Act of 2007, which established yearly increasing Renewable Fuel Standards to be set every year. As demand for grains for biofuel increased, the prices of these crops rose dramatically, a trend which was intensified by the rising petroleum prices, which further pulled up the prices of all commodities used in energy production, coarse grains included. Coarse grain prices dropped off in late 2008 and throughout 2009 due to severely reduced demand stemming from the recession. However, these trends reversed in 2010 as the world economy entered recovery, causing coarse grain prices to rise by 15.7% over the year. Continued economic improvement and rising oil prices, which stimulate demand for biofuels, over 2011 caused the price of coarse grains to continue to grow. In addition, adverse weather conditions in Russia, one of the world’s major grain-growing countries, in 2010 led their government to ban exports of wheat, which caused the global price of all grains to spike in 2011. As a result, the price of coarse grains increased 62.5% in 2011 and passed its prerecession high. In 2012, a severe drought across the Midwest and the Great Plains contributed to further increases in the price of coarse grains as global demand continued to expand.

After a year of low grain production in 2012 pushed the price of coarse grains to record highs, grain production in the United States began increasing. For two consecutive years, in 2013 and 2014, corn production (the most widely produced grain in the United States) set new records. The added supply allowed reduced prices, which dragged down surrounding grain prices. The price of coarse grains fell 9.1% in 2013 and 18.9% in 2014. The sharp declines in oil prices, starting in 2014, placed further downward pressure on coarse grain prices. While not the primary source material for ethanol biofuels, the price of these coarse grains is related to biofuel demand. As the price of oil plummeted, this had the effect of reducing demand for alternative fuels. Furthermore, gasoline and diesel fuels are key input prices for farmers and as those production costs fell it brought down crop prices. The price of coarse grains continued to fall through 2015 and 2016 as these conditions persisted. In 2017, USDA projections suggest further reductions in coarse grain prices. Global production was high going into 2017 and grain stocks had increased, which implies continued high supply throughout the year. Overall, coarse grain prices are expected to fall 7.5% in 2017.



Forecast

IBISWorld expects the coarse grain to stabilize in the five years to 2022. According to USDA long-term projections, ending stocks for sorghum, barley and oats are anticipated to peak in market year 2017-18 before declining; suggesting the global supplies of these grains will more efficiently satisfy demand. The price of coarse grain is projected to rise at an annualized rate of 1.3% in the five years to 2022. Several factors are expected to increase prices over the next five years, although, continued advancements in yield per acre, as technologies improve and spread to new regions, is likely to mitigate price appreciation. Increased demand is the primary factor driving expected price increases. Coarse grains are a key feedstock for livestock, so as demand for meat expands globally this is expected to support demand. Additionally, other price movements are anticipated to have an effect on grain prices. The price of oil is forecast to gradually increase over the next five years, which will increase gasoline prices and support higher demand for biofuels. Additionally, the dollar’s appreciation is forecast to subside, which makes grain prices relatively more expensive when stated in dollar terms. However, forecasts are highly exposed to global events like weather and economic growth or decay that could significantly impact prices during the period.


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