- April 1, 2016; Vol. 3, Number 4

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Consequences of Low Grain Prices: High inventories highlight the need to reduce supply

by Hugues Rinfret

While the rise of the middle class continues to support the long-term demand for grains, short-term challenges on the supply side need to be addressed. With global grain production outpacing demand and resulting in record high inventories and low prices, crop farmers around the world have more incentives than ever to pull back from record output levels. We expect a supply response to start materializing in 2016, leading to lower global output within the next two years. This will be the first step toward improving prices for major crops since grain demand has already posted a near-term high.

Livestock feeding, by far the largest demand component, accounts for about 45 percent of U.S. corn demand, while another 29 percent is directly captured for the production of corn-ethanol, leaving a 16 percent share to be traded on the export market. Despite a temporary slowdown, the long-term demand for agricultural commodities remains strong as the size of the middle class continues to m

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