Grain Prices Explained
Grain prices fluctuate due to the varying complex of its supply and demand, the changing preferences from its top consuming industries, and emerging applications in the grain industry.
Why are grain prices fluctuating?
1. Supply Output Imbalance
The tug of war between grains’ supply and demand makes a big contribution to its changing prices.
For example, the International Grains Council (IGC) projected a 1% increase in global grains in 2023-2024 output, estimating 2.283 billion tons of global grain production.
This came true as favorable weather conditions in Russia and Ukraine led to increased wheat production, contributing to a global supply surplus and downward price pressure.
However, the abnormally dry weather across the United States that affected almost 80% of its winter wheat and corn lands pressed concerns on farmers’ profitability. Thus, the imbalance of grains’ supply output openly fuels the significant grain price fluctuation.
2. Demand Dynamics
The main price and demand drivers of grains are corn, soybean, wheat, and biofuels. Additionally, Africa and Asia are its top importers.
While these are good signs for a steady market flow, market analysts predicted a 3% increase in yearly trade due to the uncertain global economy coupled with geopolitical tensions and inflation.
Additionally, the rising need for food and bio-based energy top as the stimulant for higher grain prices in the coming years. Overall, grains marketability threads between the present country relations and its emerging application in various industries.
3. Increasing Production Costs
Generally, the commodity’s manufacturing value continuously increases yearly.
This year, its total cost for crop production amounts to $1,161 per acre, up from the $1,054 level in 2022.
Its rise stems from the increased cost of fertilizers and fuel. These two elements constitute the entire grain-growing process. Fuel accounts for about 10%-20% of the entire produce while fertilizer contributes 20%-30%.
However, these figures are rough estimates as the input prices depend on the fluctuating value sources. In general, as these factors continue to evolve, grain prices will likely remain dynamic and continuously change.
Which variables impact the price of grain?
- Supply Output Imbalance
- Demand Dynamics
- Increasing Production Costs
- Weather Conditions
- Currency Rates
Where does grain come from?
Grain commodities which include wheat, rice, maize (corn), soybeans, and other staple grains play an important role in the global food system.
Its cultivation started in Mesopotamia ( modern-day Iraq ). This region was home to various wild grains such as wheat, barley, and oats.
Additionally, its cultivation made a great impact on human society as it allowed people to produce food more reliably and in greater quantities.
Furthermore, they serve as the foundation of agriculture and a vital source of nutrition for billions of people as they are rich in carbohydrates, protein, fiber, vitamins, and minerals. Also, they are essential in making various products such as bread, cereal, pasta, and beer.
Overall, grains are traded extensively on international markets, influencing food prices, economic stability, and political landscapes worldwide.
Here are some of the most commonly traded grain commodities:
The most widely consumed grains in the world. It is used in numerous food products such as bread, pasta, and pastries. Also, it is a major feed grain. It mostly grows in China, India, Russia, the United States, and Canada.
Also known as maize, corn is a versatile crop and a key ingredient in many food items. Furthermore, this grain tops as a major feedstock in biofuel production. Additionally, this multi-purpose grain comes from the United States, China, Brazil, Argentina, and Ukraine.
A major source of protein and oil. Not only that, this commodity is becoming an important part of diet trends. Additionally, its flexibility finds purpose in biodiesel production. Soybean mainly comes from the United States, Brazil, Argentina, China, and India.
Commonly cultivated across Asian countries such as China, Indonesia, Bangladesh, and Vietnam, rice is a staple food for more than half of the world’s population.
Corn is primarily consumed as a food grain, however, its flexibility reaches certain types of alcohol production such as gin, whiskey, and vodka.
Russia, Canada, Poland, Australia, and Finland top as major oat producers. Oat products such as oatmeal and granola are the number one go-to lists for diet enthusiasts.
Mostly found growing in Russia, France, Germany, Ukraine, and Spain, barley is used in various products such as malt, beer, and whiskey.
This non-GMO and gluten-free commodity is mainly produced for cereals, animal feed, and biofuel production. Additionally, it is grown in the United States, Nigeria, Ethiopia, India, and Mexico.
Overall, these are just a few examples of the many types of grain commodities. Each of these grains plays a crucial role in the global economy and has its unique market dynamics.
Side notes: Among these grain types, wheat and rice are the most consumed, accounting for 33% and 19% of total consumption, respectively.
What is the future price of grain?
Generally, the human population is the primary price mover of grain as its production mainly serves consumption purposes. Thus, its rough price estimate in 2030 will remain elevated between $287.56 – $290 per ton.
Several factors will likely play a significant role in shaping grain prices in 2030. These include:
Supply Dynamics: Production levels in major grain-producing regions are key determinants of their prices. Favorable weather conditions and technological advancements can boost production, while adverse weather events and pests lead to supply shortfalls and price spikes.
Demand Trends: The rising global population and disposable income levels will continue to drive demand for grains, particularly in developing countries. Additionally, as dietary preferences shift towards more plant-based and meat-based diets, its value will continue to fluctuate.
Biofuel Production: The growth of the biofuel industry which uses grains as a feedstock will firmly influence its prices. Government green energy policies striving to offset the volatility of fuel costs will eventually dominate as one of the factors in grain marketability.