After 30 years of farming, David Radenberg had a decision to make…
“Do I go work at Walmart as a greeter or as a parts man at the mechanic shop?”
Radenberg has sowed wheat on his family’s 2,400-acre farm in Claflin, Kansas, for three decades. This year’s crop could be his last.
You see, grain prices are low. And those low prices may force David to sell the family farm.
Here’s why I’m telling you David’s story…
Today, there’s a record amount of excess grains on the market. In fact, there’s so much grain, some farmers have no place to store it.
Iowa farmer Karl Fox said storage bins at his property are so full that he piles excess corn on the ground and covers it with a tarp.
Per the U.S. Department of Agriculture (USDA), global inventory of corn, wheat, rice, and soybeans combined will hit a record 740 million tons going into the next harvest…
That’s the third straight year of historically high surplus.
The oversupply of grains is pushing down prices… And falling prices are forcing small family farmers like Radenberg and Fox out of the market.
For most investors, this may seem like a bad time to buy grains. But at the Daily, we’re not most investors. When the herd goes one way, we go the other…
You see, the oversupply of grains is nearing its peak.
As the glut shakes out family farmers, supply will eventually tighten. That will lead to an undersupplied grains market. I think that will happen before the end of next year.
Prices push higher when there is an undersupply of grains. It’s a cycle that repeats time after time…
The last two times grain stockpiles were so large, the index that tracks grains spiked 80% and 118%—just over a year later.
This Indicator Says Grain Prices Will Rise
Over the past 15 years, the grains market has been oversupplied three times. Each time that’s happened, producers left the market and supply quickly shrank.
That sent prices up…
To find the tipping point in the grain supply chain, I like to look at the grain “stocks-to-use” (S/U) ratio and the Bloomberg Grains Subindex.
The grain S/U ratio is a measure of supply and demand. It’s a complicated mathematical formula, so I won’t delve into details.
When the grain S/U ratio (black line) is above 20 and starts to turn down, grain prices generally rise (the blue line). You can see that in the chart below…
As you can see in the chart, the ratio is about to turn again…
Today, we’re seeing the most oversupplied grains markets in over 20 years. But this is about to change…
Farmers like Radenberg are leaving the market… and as they leave, supply will shrink.
It’s happened three times since 2000. Each time, prices soared. And I expect it to happen again over the next year.
This is a perfect example of a busted market getting ready to turn around.
There are several ways to play this trend. You can start by researching wheat-focused exchange-traded funds (ETFs), seed companies, or fertilizer companies.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. The grain market is about to move from oversupplied to undersupplied… But that’s not the only reason prices are going up. On Monday, I’ll show you why demand is going up, too…
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