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Organic commodity markets diverge on trade, demand growth

Organic commodity prices are on very different paths at the start of the 2020-21 crop year. The recent "Market Price Survey" by Mercaris found that organic, feed-grade soybeans delivered to Corn Belt grain elevators in September 2020 increased 4% year over year, while deliveries of organic, feed-grade corn fell sharply over the same period, down nearly 27% year over year.

“Understanding why these two prices have diverged is truly critical for assessing the risks these markets face over the year to come,” Mercaris director of economics Ryan Koory said. “Over the past two years, we have seen the production and demand of these two crops take on very different paths. As a result, these two markets now face unique challenges.”

Mercaris estimates that between the 2016-17 and 2019-20 marketing years, U.S. organic corn production grew at an average rate of 12% per year, while feed demand grew at an average rate of only 1% per year. This discrepancy, the firm said, has resulted in a declining U.S. reliance on imports as well as a U.S. organic corn market that has been stuck in a perpetually long supply position for the past year.

Over the same period, U.S. organic soybeans production grew at 11% per year, while feed demand growth averaged 6% per year. The smaller gap between feed demand and production growth has held prices for organic, feed-grade soybeans much steadier relative to organic corn. However, the U.S. is also persistently reliant on imports to fill demand.

Mercaris estimates that over the 2019-20 marketing year, imports accounted for 29% of U.S. organic corn supplies, down sharply from the 42% of supplies imported over the 2016-17 season. In contrast, organic soybeans are still heavily reliant on foreign markets, with imports providing 78% of U.S. organic soybean supplies for 2019-20, little changed from 79% of supplies provided by imports four years ago.

“Keeping an eye on harvest is going to be key for organic corn prices, as the market is likely to be driven by the size and quality this year’s crop, which currently appears set to reach record levels,” Koory said. "Organic soybeans are also expected to see a record-setting harvest, but the majority of U.S. supplies will still be imported. Keeping this in mind, watching foreign markets and any signs of global trade disruptions will likely provide a better indicator of price risk over the year to come.”

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