Global crop yields don’t match increasing demand

Glacier FarmMedia – Rising demand and below-trend yields are causing tightness in the global supply of major crops, says one of the world’s largest crop input suppliers.

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Why it matters: Yields have lagged the usual trend for the past four years, leading to a tight global grain supply.

The global stocks-to-use ratio for major crops, excluding China, has been trending down since 2018, Jason Newton, Nutrien’s chief economist, told delegates attending the 24th International Farm Management Association Congress in Saskatoon.

Global crop consumption has been growing by 2.2 per cent per year since 2020, but yields have not kept pace.

“We’ve had four consecutive years of below trend yields globally,” he said, attributing it to adverse weather conditions and high input costs, which led to low fertilizer application rates.

Global crop area has also plateaued, which hasn’t helped matters.

“As a result, global grain supply and demand has been tight,” Newton said.

China is a big reason behind the steady increase in consumption. The country’s corn and wheat yields have fallen below trend lines in recent years, and it has run out of arable land.

Now a country that produced a 34-million-tonne surplus of major grains 10 years ago is expected to have a 49-million-tonne deficit in 2024.

“That has been a major factor that has contributed to support for crop prices,” said Newton.

Another factor is explosive growth in biofuel demand. U.S. renewable diesel production is forecast to grow to 7.4 billion gallons post-2025, up from 4.1 billion gallons in 2023, although that now appears to be wishful thinking.

“That is likely not going to happen because the crush capacity for that is not there,” he said.

U.S. sustainable aviation fuel production is forecast at three billion gallons by 2030, up from 25 million gallons in 2023.

North America’s crops are off to a good start because of plentiful early-season rainfall. Crops are green and lush, and crop condition ratings are higher than average for this time of year.

“As a result, we have seen pretty significant declines in crop prices over the last month or so,” said Newton.

Ukraine and Russia are two interesting markets to watch, he added. Ukraine’s production has fallen 30 per cent from pre-war levels, while its exports have only dropped four per cent by comparison.

“Obviously that’s not sustainable.”

Ukraine has drawn down its inventories to critically low levels, which will eventually have to be reflected in the country’s export numbers.

Russia’s exports kept a lid on wheat prices in 2023-24, despite tight global supplies of the crop.

However, record heat combined with dry conditions are expected to decrease winter and spring wheat production in that country in 2024-25.

Brazil is the key driver of corn and soybean markets. It is the one major source of cropland growth in the world, with cultivated area increasing four per cent per year over the last decade, Newton said.

Global crop prices have dropped, but they are still in line with the 10-year average, which has led to a rebound in fertilizer demand. Ammonia production costs spiked in the European Union in 2021 due to high natural gas prices. Costs have since come down, but 20 per cent of the EU’s production capacity has been idled and is unlikely to return.

China has been restricting exports of urea and phosphate fertilizers as it attempts to become self-sufficient in crop production, he said.

The other big factor in the phosphate market is low U.S. inventories. Distributors reduced stocks in anticipation of a flood of Moroccan imports due to what were expected to be drastically reduced duties on the product in early 2024. That did not happen, and they were caught off guard.