CURRENCY devaluation has shielded Australian grain growers from the price impact of record global grain stocks, according to a visiting American agri-economist.
And while Dan Basse, president of Chicago-based price trend forecaster AgResource Company, predicted the Australian dollar could sink as low as US$50 cents, a weather disaster was probably the most likely way global surplus grain production will end he warned.
“Currency trading has never been more important to agriculture than it is today,” Mr Basse told grain industry representatives, economists and bankers at a Rabobank lunch in Perth on Friday.
“Australian farmers are making money – or most of them are anyway – compared to US farmers because of currency,” he said.
They were also aided by global demand for protein and the quality of Australia’s higher protein wheat exports helped growers obtain premium prices “in a world awash with grains”, Mr Basse said.
A Wisconsin University economics graduate and founder of AgResource in 1987, Mr Basse said corrected farm revenues data indicated the currency advantage to Australian farmers was in the order of 24-26 per cent over their US counterparts and the advantage was expected to stay their way for some time.
Mr Basse said the strength of the US dollar appeared to rise in six-year cycles.
“Every six years we tend to make a bottom in the dollar and then we move higher,” he said.
“We are only two and half years into what I consider to be a five or six-year cycle.
“Since 2013 Australia’s dollar has declined in value 27pc against the US dollar.
“The Australian dollar has been trading in a fairly narrow range of 77-78 US cents on the upside and 70 on the downside, that’s really where the market has been for some time.
“I’m going to argue that it will fall first to 60 and potentially down to 50c.
“That would be a good thing for Australian agriculture.”
Mr Basse said United States policies and “Trumponomics”, like the projected slashing of the company tax rate in the coming US summer, could have some bearing on exchange rates with Australia and other global agriculture exporters.
Mr Basse said interest rates starting to move and other indications of a strengthening US economy would continue to hurt US farmers in comparison to their global competitors.
“For the average US farmer in the last two seasons, if he was planting wheat, his losses were $100 an acre,” he said.
“No one in the US can make money with those sorts of losses.”
US grain stocks were still increasing, he said, despite reduced cultivated acreages projected to be down to the second lowest level since 1900 for 2017.
“Even though we’ve cut back on seeding we still grow way too much wheat in the United States, we need a big weather problem somewhere else to get Chicago or Kansas City really excited,” Mr Basse said.
Recent US data showed US farmers’ collective net revenue had halved over four years, from US$120 billion to $60b.
“Just think what would happen to Australia’s farming community if it lost 50pc of its net revenue over four years?” he said.
“This is the state American agriculture is in because of the dollar.
“We don’t have that (currency valuation) buffer.
“We don’t have that ability to go back to whatever we can get for price because our costs are not falling fast enough.”
Mr Basse said anger across the middle and southern US at eroded incomes had been behind the desire for change and Donald Trump’s election as president.
“We know a lot of farmers voted for him,” he said.
“I’m not saying that was a good change, but he is a change that has
happened.
“We’ve seen the US dollar appreciate 27pc against world currency but we still think the message is ‘King Dollar’ because of Trumponomics.”
A lack of clarity yet on trade policy and talk by Mr Trump on the possibility of the US leaving the World Trade Organisation had raised concerns in regional areas since his election, Mr Basse said.
But US grain growers, like other grain exporters around the world, were having trouble matching production to changing markets.
After a decade where the principal “drivers” of global grains production had been Chinese gross domestic product “elevating” demand for a higher calorific diet and a potential for biofuels, the world’s grain growers were having trouble adjusting, he said.
Changes in policy and subsidies had seen China go from being the world’s largest grains importer, taking one in every five metric tonnes of grain two years ago, to now being self-sufficient in corn and on target to export corn by 2018-19.
Its imports of barley, sorghum and corn derivatives had been slashed and its wheat imports continued to fall, Mr Basse said.
The biofuel industry had also “matured” and demand for conversion crops had plateaued.
While demand drivers had changed, increased productivity through precision agriculture, better crop management and increased area under cultivation by some global producers had compounded the problem of surplus grain stockpiles.
The stockpile of the three major grains, corn, soybeans and wheat, was now 546 million metric tonnes, up 18mmt on last year, Mr Basse said, and since 2006 the world harvested grain acreage has expanded by 179 million acres, the largest expansion by a factor of three in any 10-year period.
“There is no mechanism today to cut production,” he said.
“The only way farmers in Europe and US don’t plant grain is if they are paid not to.
“How do we get out of this surplus of wheat oversupply, farmers are asking – we won’t get out of it except for weather.”
Mr Basse predicted the Black Sea grain growing area was statistically due for a major crop failure and a weather forecaster on his staff had said the Black Sea area and the central US were two “hot spots to watch” for volatile weather caused by rising sea surface temperatures.
“He’s a weather man, he’s right 75-76pc of the time,” he said.
