The supply of vegetable oil crops is not tight, so why are soybean and canola prices rising?
At a time when harvest selling usually pressures prices lower, the oilseed market has risen.
From the start of September to Oct. 27, November canola futures rose 13 percent and November soybeans rose 15 percent.
That gain was almost all due to rising corn and wheat prices.
Even with a near record U.S. corn crop, soaring demand from ethanol manufacturers, plus regular feed and export demand, is eating all the available corn. Indeed, demand is expected to exceed production by about one billion bushels, cutting deeply into stocks.
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The United States Department of Agriculture expects corn stocks by the end of 2006-07 to be dangerously tight, dropping to 996,000 bushels. That is scraping the bottom of the barrel when you consider domestic U.S. feed and ethanol use and exports total about a billion bu. a month.
Bob Wisner of Iowa State University, writing in Iowa Farm Report, notes that ethanol plants are still under construction and estimates that they will create demand for an additional 675,000-800,000 bu. of corn in 2007-08. Wisner estimates that to meet demand, 2007 corn acreage will have to expand 6.5 to 7.5 million acres, or about 10 percent, and the yield would have to climb back to the record level of 160.4 bu. per acre set in 2004, up from 153.5 bu. this year.
Others think that is inadequate. Chris Hurt, an agricultural economist with Purdue University in Indiana, thinks 10 million additional corn acres are needed.
The industry will have to “buy” those acres from soybeans or wheat. Given strong wheat prices, there isn’t much chance of a big switch there.
But while oilseed stocks are not as tight as cereals, oilseed users can’t allow the 2007 crop to become too small. They have to keep oilseed prices in the same ballpark as corn and so have bid up the price of soybeans this fall. Canola prices have kept pace.
So the good news is that as long as corn is riding high, so will oilseeds.
