Stocks-to-use ratio favors farmers
Washington--Field crop market prices, specifically corn and wheat have been on a bull run since mid-2010.
Bad weather around the world has limited crop supply, add growing populations, better income levels and demand for food should be strong in 2011, according to the United States Department of Agriculture.
These factors have led to a tight supply-demand market for multiple crops. According to the latest estimates released by the USDA. The stocks-to-use ratio (a measure of supply and demand that historically exhibits negative correlation with crop prices) for U.S. corn is 5.0%, its lowest level since the 1995-1996 growing season. For soybeans, the U.S. stocks-to-use ratio stands at 4.2%, the lowest figure on record. Low stocks and high crop prices send strong signals to farmers that agricultural inventories must be rebuilt.
The USDA thinks farmers will plant more acres in 2011. The USDA's chief economist expects 9.8 million additional acres, a 4% increase over the prior year, and the largest year-over-year increase in the U.S. since 1996. With more acres planted, we expect sales volumes for crop inputs, such as fertilizer, seed, and crop chemicals, will increase. High prices also motivate growers to increase yields through greater use of agricultural inputs. Additionally, higher crop prices improve farmer economics, giving crop input producers leeway to raise prices.