January 03, 2008

Strong Demand Supports Higher Prices

Dan Basse, president of AgResource Company made some interesting comments at a recent feedlot meeting cosponsored by Certified Angus Beef LLC (CAB), Feedlot magazine, Pfizer Animal Health and Purina Mills.

“High grain price does not translate to lower livestock prices. Higher grain prices, at this point, do not translate to lower cattle prices,” Basse said. “That’s because we’re in agricultural demand-led markets.”

Demand is the number one cause for higher grain prices, he said.

The demand he says is coming from developing countries and that demand caused by biofuels production is only a small part.

Basse said grain diverted from feed to ethanol production is a very small part of the equation.

“The reason we have grain prices as high as they are is not so much because of biofuels; it’s really globalization taking hold,” he said. “That’s why I believe corn prices won’t fall below $3.50/bu. any day soon.”

Countries like China and India have a rapidly growing middle class. Across the world, 44 countries have expanded their economies at a Gross Domestic Product (GDP) rate of 4% or more.

“That has never before happened in the history of the world,” Basse said.

More people, with more money to spend, translates to a strain on supplies of all ag products.

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