Published on 03/11/96

Farmers Learning Benefit of Low Grain Supply

Low grain supplies have buyers scrambling to make sure they'll have enough for their needs. A marketing expert said farmers should be scrambling, too, to lock in prices driven up by the shortage.

"Grain stocks in the United States and globally are at very low levels," said George Shumaker, an economist with the University of Georgia Extension Service.

"You'd have to go back to the end of World War II to find a time when global grain stocks were as low as they are right now," Shumaker said.

Many experts like to see a buffer of about 75 days' worth of use. But stocks have dropped to about 30 days' worldwide use.

Because of the shortage, markets have placed a premium on all grain prices.

"This premium should encourage growers to plant more acres to meet the growing need for food and feed grains," Shumaker said.

The high-price grains include corn, wheat and soybeans used for human food or to feed livestock for later human consumption.

Current prices for wheat and corn, the feed grains, are higher than for soybeans, an oilseed. That's because corn and wheat are in scarcer supply than oilseeds.

Higher prices in all of these grains have caused an "auction for acreage," Shumaker said. Buyers try to make sure they will be able to buy enough grain by getting farmers to plant more of the grain with the shortest supply.

"Bidding prices higher encourages farmers to plant more of that commodity," he said.

Georgia grain growers can take advantage of that. Shumaker said using cash contracts, hedging futures markets and buying options are all good ways to manage marketing risk.

"We're going to have some excellent forward-pricing opportunities in early 1996," he said.

As high as prices are, the market is more volatile, too. Weather forecasts play a key part in setting market prices.

The low supply makes the present crop more precious than it would be otherwise. Buyers keep a close eye on current crop conditions and adjust prices up or down depending on how weather could affect the crop.

Farmers can't affect these price fluctuations, but they can take advantage of them as they happen. Shumaker said this is an excellent time to learn about managing market risk -- while prices are high.

"The 'Freedom to Farm' bill will force farmers to learn more about risk management," he said. "We're fortunate that prices are so high now when farmers are learning."

The new farm bill will also affect acreage. Shumaker expects an increase in corn and soybean acreage over 1995. This is partly due to farmers' planting fewer peanuts, but also because of higher grain prices.

Grain buyers and others look to the U.S. Department of Agriculture's Prospective Plantings Report on March 31 to find out what farmers intend to plant this year.

"These intentions could affect current prices for all grains," Shumaker said. "So producers need to act quickly when they see a profitable opportunity."