For the last couple of decades world grain and oilseeds markets have been like a ride on a merry-go-round. Prices would go up and down, round and round at a gentle pace and end up where they started.
Last winter that all began to change when corn supplies dropped and prices soared. In the spring, North American farmers seeded a near record acreage to corn and, with reports of good growing conditions in the U.S., prices fell. As fall approached forecasts put yields in near record territory pulling prices down again.
By September prices were down about $1 a bushel from winter and spring, but well above levels of recent years.
But with all that land going into corn something had to give and that something appears to have been wheat.
With poor growing conditions in much of Europe, continuing drought in Australia and a much smaller than expected crop in Western Canada wheat prices took off.
It’s been a wild ride. The relaxed ride on the gentle merry-go-round has been replaced by a breathtaking experience on the roller coaster and analysts don’t expect it to end any time soon.
Numerous forecasts are saying farmers will plant more wheat this fall and soybeans next spring, which could mean less corn a year from now.
The key to breathtakingly quick transformation is the stocks of stored grain. For years they were burdensome and kept grain and oilseed prices down.
But that has changed.
Last winter it looked as if an exceptional corn harvest would be needed to maintain adequate supplies. U.S. farmers have delivered with a huge crop. But even that was only enough to raise projected corn stocks slightly and a poor harvest next year could send prices soaring again.
Meanwhile, world wheat stocks are expected to end the current crop year at 112 million tonnes, the lowest in 30 years. The stocks to use ratio is well under 20 per cent – the lowest since the USDA began the calculation in 1960. With the Australian crop deteriorating almost daily the ratio could fall further. The result is record wheat prices.
In the European Union, where grain surpluses and subsidized exports used to be the rule, shortages now loom.
In mid-September EU officials decided to eliminate a rule that required grain producers to take 10 per cent of their land out of production.
“There’s no overproduction any longer; we’re facing a shortage of grain so we have decided that the 10 per cent rule should be cut for one year,” EU officials said.
“A poor 2008 harvest combined with 10 per cent set-aside would expose the internal market to potentially serious risk,” said EU Agriculture commissioner, Mariann Fischer Boel.
The rising grain prices have pushed the U.K.’s largest egg packer to call for higher egg prices.
Noble Foods says the crisis for the U.K.’s egg farmers is deepening daily as price pressure continues to cripple them with the increasing cost of feed for laying hens.
Half of the cost of keeping hens is the cost of wheat and soya contained within the feed. In the U.K. wheat has gone up in price by over 60 per cent in the last two months and has more than doubled during the year.
Soya too has seen prices rise by almost 60 per cent this year.
Marketing director for Noble Foods Finn Cottle says these next few weeks are critical.
Faced with major price increases, she says, the egg packing industry is worried that egg farmers will drop out of the market and turn instead to other types of farming such as grain.
“The pressure on egg farmers is increasing at an unprecedented rate,” she says.
“A number of producers have already cancelled pullets and are leaving houses empty, threatening the supply of eggs for the winter season and Christmas. It could be the first time since the war that we are restricted in supply,” she says.
She says she believes that egg prices to the consumer will have to immediately increase by more than 30 per cent.
Even the corporate giants are feeling the pinch.
The Dow Jones Newswire reports that “higher grain prices are taking an increasing financial toll on Tyson Foods Inc. and showing signs that they will test food companies and keep consumer food prices lofty for some time.”
In response Tyson’s shaved its earnings estimates for the current fiscal year and unveiled a restructuring plan that will cut into its management ranks.
Tyson reported it has spent $300 million more this year on grain than last year.
“The genie’s out of the bottle when it comes to food inflation,” said Michael Swanson, an agricultural economist at Wells Fargo & Co.
Canada added fuel to the fire when Statistics Canada reported in mid-September that “in the Prairie Provinces, on-farm stocks of most major crops as of July 31, 2007, were down to levels below their five-year averages.”
Total stocks of wheat, which include on-farm and commercial stocks, were estimated by Statistics Canada at 6.8 million tonnes, a decrease of 29.2 per cent or 2.8 million tonnes from the same period in 2006. The lower wheat stock levels were the result of above-average export demand, brought on by a tight world supply-and-demand situation in 2006 and the first seven months of 2007.
On-farm Prairie inventories of wheat were down 54.8 per cent from July 2006 to 1.9 million tonnes. The five-year average is 2.3 million tonnes. Farmers reported decreases in all three Prairie Provinces. The largest decrease, 1.7 million tonnes, occurred in Saskatchewan, where stocks hit 880,000 tonnes.
Feed grain stocks also fell below the five-year average, according to Statistics Canada.
Total stocks of barley on July 31 tumbled 54.6 per cent to 1.5 million tonnes, a level well below the five-year average of 2.4 million tonnes. Generally higher world prices, brought on by demand for corn for the ethanol industry and a decline in Canadian barley production in 2006, were responsible for the drop, according to Statistics Canada.
The low carryover from the 2006 crop year has combined with earlier estimates of much lower wheat production this year.
Canadian wheat production is estimated to fall by 23 per cent, to the lowest level since 2002-03. Western Canadian wheat production is expected to decline by 21 per cent, to 15.1 Mt. Meanwhile Canadian consumption is expected to rise slightly, due to increased industrial use as new ethanol plants begin operation in Western Canada.
Although exports are forecast to fall this year carry-out stocks, on July 31, 2008, are forecast to decline by 30 per cent to a modern-day low of 4.0 Mt.
Meanwhile prices are up dramatically due to the tightening world supply situation, with lower than earlier expected production in all major wheat-producing countries.
For barley, production is estimated to be 11.8 Mt, close to the 10-year average, due to a larger seeded area. However, supply is expected to increase only slightly due to significantly lower carry-in stocks.
Carry-out stocks are projected to decrease by 13 per cent. The average feed barley price is forecast to remain at a historically high level, but slightly lower than in 2006-07, as the increased supply and the strong Canadian dollar more than offsets the support of slightly higher U.S. corn prices.
Canadian corn production was estimated at the end of August to increase by 18 per cent to a record 10.6 Mt, as the increase in area more than offsets the decrease in yields. Imports are forecast to decrease significantly from 2006-07 as a result of higher domestic supply. Food and industrial use is forecast to increase by 34 per cent, mainly as a result of increased demand for ethanol production, Statistics Canada said.
Carry-out stocks are forecast to be the same as 2006-07. The average price at Chatham elevator is forecast to increase slightly.
Soybean production was estimated to decrease by 18 per cent, because of a decline in area and yields. Supply is expected to decrease due to the reduced output and lower carry-in stocks. Imports of soybeans for crushing are projected to rise to offset tighter domestic supplies. Prices are forecast to increase on support from sharply higher U.S. soybean prices.
Ontario farmers are expected to react to rising wheat prices and shrinking supplies with a vengeance. Industry experts are projecting a record 1.5 million acres of wheat could be planted in Ontario this fall if the weather co-operates.
This would be triple last year’s wheat acreage, when farmers moved to corn, and more than the record of 1.2 million acres.
As grain producers swing from corn to wheat or soybeans in the pursuit of the highest price and bad weather takes a high toll on production, poultry producers and other consumers of grain get whipsawed. Grain markets move violently on virtually every production report.
World grain markets have jumped off the merry-go-round and climbed onto the roller coaster. n
Feed: Something’s Gotta Give
Tight grain supplies and soaring prices
Tight grain supplies and soaring prices have serious implications for poultry producers worldwide
McDonald’s Canada to participate in new Egg Quality Assurance programEgg Farmers of Canada (EFC) announced a new partnership with…
Cyberbullying by vegan activists a source of stress for farmers: psychologistsCyberbullying by vegan activists is a growing source of stress…
Who's Who - New Brunswick - David CoburnIt is a path with bumps and twists, but at…
Plant-based eggs join meatless options at Tim HortonsTim Hortons is testing a fake omelette — made with…