This year’s grain price rally just hasn’t cut the mustard.

High crop values are, as the adage goes, meant to be the cure for high crop values, in encouraging extra output, easing competition among buyers and so allowing prices to fall back to earth.

But this time the production response looks lukewarm.

Wheat output, for instance, will remain behind demand in 2022-23, according to the US Department of Agriculture, which sees output of coarse grains such as barley, corn and oats facing a struggle to matching consumption.

Weather tests

That is in part down to enhanced competition from other crops, such as oilseeds, which will in 2022-23 achieve a recovery in production sufficient to more than reverse the dwindling in stocks witnessed in 2021-22.

Investors could on Thursday afford to be unimpressed, leaving soybean futures little changed, even after official data showed US sowing of the oilseed this year falling well short of forecasts.

Ukraine’s output will remain depressed by war.

And weather has proved unkind in some regions. The European Union on Friday cut 5m tonnes from its soft wheat production forecast, after dryness hurt crops in the likes of France and Romania.

Area down

However, there are other factors too in play which suggest that in the round, lumping oilseeds and grains together, world agriculture just isn’t putting its foot down as much as might be expected to ramp up output and resolve the supply squeeze.

US farmers, for instance, aren’t pulling out all the stops to maximise harvest, despite prices of the likes of corn and soybeans setting multi-year highs during the spring planting period.

Sure, weather has played a role in thwarting sowings, which the US Department of Agriculture revealed on Thursday at 316.3m acres – a drop of nearly 900,000 acres year on year.

However, even if farmers in the drought-tested central and southern Plains, and wetness-plagued north, had matched last year’s area, total plantings would have remained well below, say, 2018’s total of 318.0m acres.

Higher costs

One drag on sowings is the amount of land tied up in environmental schemes, which are often easier (just think of tree planting) to get into than out of.

The US, for instance, accepted 2.8m acres of land last year into its CRP conservation scheme, on which it is raising the ceiling from 25m acres last year to 27m acres in 2023.

However, another is the leap in farming costs.

The European Union on Friday estimated that agricultural input costs expanded by 9.5% quarter-on-quarter in the January-to-March period, swollen by a 21% surge in fertilizer prices and a 17.4% increase in energy costs.

The average price of agricultural output, by contrast, increased by a more modest 6%.

The USDA overnight cautioned too over the threat of tight fertilizer supplies, and high nutrient prices, providing an even bigger test for growers in 2023 than this year.

Revenues vs costs

Whatever revenue increases accruing to farmers from higher crop prices, much is heading straight out again in the form of raised seed, fuel and nutrient bills.

So the signal from high grain prices to growers to raise their game is being muffled.

Markets will, in other words, have to shout louder to get their message across.

That, coupled with the potential for another La Nina (and let alone the strong rouble) should limit the decline in prices which is only to be expected given pressure from the northern hemisphere harvest, higher interest rates and eroded economic hopes.