Wheat, Corn Stocks Still at 30-Year Lows

Wheat, Corn Stocks Still at 30-Year Lows

Despite record harvests last year, corn and wheat stocks are still sitting near 30-year lows.  Which means, anything short of a bumper crop could send the grains skywards once again.

Here are some very cool charts, courtesy of Chris Mayer at DailyWealth, that depict the stocks-to-use ratios of of wheat and corn since 1970, versus their inflation-adjusted prices.
Investing in grains is actually pretty easy – when supplies are low, and prices are low, you know prices should eventually go up.  Then, at some point, high prices spur enough new supply onto the market that prices come down.  Ideally, that’s when you go short!
You’ll notice from the charts that grain stocks and prices move in fairly long cycles – about 15 to 20 years in length.  It takes time to bring new supply online, to replenish stocks…ultimately to rebalance the supply/demand situation.
This time should be no different.  China is industrializing in a big way, and its citizens have taken a liking to eating, a habit they’re not likely to give up, no matter how bad the global economy gets.  Most notably, they are adopting Western style high protein diets, with lots more meat…and livestock require a lot of grains to raise.
Bottom line – it’s safe to tune out the talking heads on TV when thinking about agriculture…just focus on supply and demand.  It’s that simple.  When demand exceeds supply, prices will rise, until supply is able to overtake demand.  Sure, things like currency devaluation, a falling dollar, will toss fuel on the fire…but at the end of the day, it’s all about supply and demand.

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