Canadian Poultry Magazine

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All Things Considered: July 2009

OK So Far


June 22, 2009
By Jim Knisley


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Guess what grocery shoppers are buying more of these days? Steak? Nope.
Increasingly expensive vegetables? Nope. Soft drinks? Nope.
They are buying more poultry meat and eggs, which is good news for
people getting this magazine. They are also buying more tea, yogurt,
breakfast cereal and berries.

Guess what grocery shoppers are buying more of these days? Steak? Nope. Increasingly expensive vegetables? Nope. Soft drinks? Nope.

They are buying more poultry meat and eggs, which is good news for people getting this magazine. They are also buying more tea, yogurt, breakfast cereal and berries.

But to find the real action in the grocery store you have to turn back the clock several decades and break out the Monty Python laugh track. One of the hottest grocery items today is – of course – Spam. This is all too reminiscent of the old Python comedy sketch about a restaurant that served nothing but Spam. Spam with toast, fried spam, sliced spam, spam with spam and so on.

Spam sales are burgeoning. But so are sales of macaroni and cheese, Hamburger Helper and other low cost foods.

With food and gas prices rising – seven per cent this spring – and incomes of many people stagnant or dropping, something had to give. That something may be the weekly grocery budget.

Even if people made the decision to maintain the spending, in dollar terms it gets them less. Thus, the search for lower cost ways to feed the family.

The current run-up in grocery prices can be traced back to high crop prices a year ago, ongoing water troubles in California and assorted other production problems stretching from Argentina, through Brazil, to Australia, Europe and so on. The meltdown of the world finance sector last fall didn’t help.

This year, hopefully, the price pressures will soften at least a bit.

But a lot of that will depend upon what happens with feed grains – principally corn – and oilseeds – mostly soybeans.

Most analysts seem to be looking at the fundamentals and technical aspects of these markets and saying: “OK so far.”

But there are dangers. It’s like the guy who has fallen from the top of a 24-storey building. As he passes the 12th floor he is asked: “How is it going?” He replies: “OK so far.”

And it will be alright in the end if the firefighters down below get that crash bag fully inflated in time.

The crash bag for world markets is soybean production in the Northern Hemisphere this year. South America’s crops are – without getting too technical – somewhere between bad and terrible. Added to this, China has been buying and stockpiling very large volumes of soybeans.

If China stops piling up imports it could put short-term pressure on prices because it seems few other buyers are active in the market right now. But it would also allow for a bit less than a bin-busting crop this fall.

Corn supplies, on the other hand, seem more than reasonable. But the small Southern Hemisphere crops are having an impact.

Some analysts are also concerned that farmers will shift a staggering amount of land into oilseeds and away from corn to avoid high fertilizer costs and to try and take advantage of what look to be reasonably good prices for soybeans in the coming year.

There is also ethanol. It was battered and bruised by lower oil and gasoline prices. But OPEC has cut production, and oil and gas prices are rising. There has also been an EPA ruling in the U.S. that took a look at CO2 emissions over a 30-year time frame and included all effects of grain ethanol – including cutting trees to grow corn – and found that ethanol will be a significant contributor to global warming.

But the U.S. ethanol industry is nothing if not politically well connected and is fighting back. In Canada, the political connections are, if anything, much, much better, with a former spokesman for ethanol now a spokesman for the prime minister.

The bottom line in all this is that it’s likely increasing volumes of corn will go to ethanol production.

As to demand other than ethanol, the Canadian hog industry is in the midst of a meltdown and the cattle herd is shrinking. In the U.S., there are fewer poultry, hogs and cattle. But the extent of the contraction is subject to much debate and the U.S. poultry industry in particular could come back in a hurry.

So while corn supplies are OK for now and look to be OK in the year ahead, poor growing conditions in the U.S. Midwest could put prices back on the roller-coaster they rode a couple of years ago.

A number of technical analysts have been advising feed grain users to secure supplies for next year by contracting now. Others have advised securing some corn, but believe China will soon step away from soybean markets, making for better (lower) prices by summer.

The key, according to everyone, is the weather for July, August and September. If it’s good, we’ll be fine, if not, watch out for the falling man.


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