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USA Grain Prices During Recession 04/30/2022

Roger, Question What happens to grain if the US falls into a recession; haven't seen anybody say much about it???????


Certainly, in theory, a recession in the USA would not be good for US domestic grain prices, but it would not be nearly as difficult for farmers as it would be for non-agriculture businesses. It might even be good for farmers.


However, far more important for US farmers is the economy around the world. Not only do Japan and China buy a lot of US farm production every year, when one considers how many "smaller" importers are in Asia, most notably, South Korea, The Philippines, India and then even smaller importers, Indonesia, Malaysia, Vietnam, Cambodia, Laos, Thailand, Singapore, Pakistan, Bangladesh and another half dozen or so countries, when they go into recession, that really hurts grain prices.


From 1974 to 1998, corn futures were above $3 about half the time and often flirted with $4 and reached $5.56 in 1996.


From about 1997 to 2004, all of Asia was in a deep recession. From April 1997 to 2006, corn futures traded above $3 only four months. We had the dotcom bust in March 2000 and it was terrible for all the internet startups, but that crash really did not hurt the mainstream economy. The recession in Asia really hurt us. It seemed every day for nine years the reason for weak grain prices was poor export demand from Asia. Their economies were so poor they needed very little imports of anything. But they still have to eat, right? Their weak economy meant a weak currency. The exchange rate versus the US dollar meant they could buy food products from other countries with less of their money.


When farm and construction machinery manufactures can't sell their equipment overseas, that is a massive hurt for those manufacturers. Guess who benefits? US farmers and construction contractors.


By many economic measurements, the recession of 2008 and 2009, was the worst US economy since the Great Depression. The first time corn futures traded above $6 was April 2008 and on its way to $7.65 later that year. Spring wheat hit $25 and beans $17.65 in 2008.


During a recession, the central bank (Federal Reserve in the USA) is trying to stimulate the economy with lower interest rates and easy money. In the USA, that means a weaker dollar and a weaker dollar makes US exports less expensive for foreign buyers. If foreign economies are doing pretty much normal business, they will be buying everything they can from the USA because of the weak dollar.