AGRICULTURE
Figure 6: US Area Maximized – Future Yield Growth Million Hectares
120 Area Harvested (LHS) 100
Million Tonnes 80 Production (RHS) [Aggregate of Corn, Soybeans, Wheat, Rice, Sorghum, Cotton, Oats and Barley] 60 1960 1970 1980 1990 Sources: USDA, Morgan Stanley Commodity Research
Supply Growth Needs To Accelerate In the medium-term, supply growth
2000
100 200 300 400 500 600
2010
prices remain elevated on a sustained basis in the coming years in order to adequately incentivize this expansion. We model that, at today’s input prices and exchange rates, soybean prices will need to average over $13.50/bu to send an expansionary signal to Brazilian farmers. This translates into a medium-term corn price of over $6.00/bu. In the long term, production
growth must come from yield improvement. In the 1970s, agricultural prices spiked, with corn peaking at $15/bu in today’s dollars, owing to rising input costs and supply disruptions in the Soviet Union. These prices sparked the first ‘green revolution’
must accelerate to compensate for higher demand. The easiest and quickest response will stem from an increase in planted acreage. With tens of millions of hectares of arable scrubland not currently in production in Mato Grosso state, Brazil is the most likely (and low-cost) candidate to expand planted acreage in the near-term. However, with poor transportation infrastructure and a strong Real, acreage expansion will require that agricultural
Figure 7: Real Commodity Prices (Indexed) 250
Index: 1915 = 100 200 150 100 50 0 1915 1925 1935 1945 Source: Morgan Stanley Commodity Research September 2011 49 1955 1965 1975 1985 1995 2005
Cotton Sugar
Wheat Soybeans Corn
Year to date (through June) the US has exported 461.2 million gallons of ethanol, more than the entire volume exported in 2010
as governments threatened by the inability to secure food supplies invested heavily in better husbandry and inputs. The upshot of this movement was a material increase
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