The fundamentals of the commodity market have changed dramatically in one year. As everybody knows, we had a correction in the grains market around July 1, 2014. We harvested a near record crop in 2014. It does appear that a similar crop is on its way. Protein producers’ No. 1 cost is feed ingredients. If you follow a five-year trend, grain-based feed ingredients including corn, wheat and soybean prices travel within a pricing range of one another.
Their price also correlates to the price of oil. Estimating and gaining some control over that cost is always an important factor in a successful or unsuccessful year for good companies in the protein business. Ethanol production continues to get more efficient, maximizing the energy extracted from every bushel of corn. Ethanol is now the No. 1 consumer of corn, with animal feed ingredients closely behind. Corn demand has temporarily flattened for several reasons, including cheap energy. The dollar is very strong, which limits attractiveness to the export markets. Oil prices will remain relatively low for the short term, but my prediction is, long-term, OPEC will moderate production and push the crude oil market back into the $80-per-barrel range.