It is important for growers to recognize the difference between the run-up in wheat prices and what is happening with corn, soybeans and canola, says the head of one of Canada’s largest grain companies.
Wheat futures temporarily hit $9 US per bushel last week. Soybeans have also crested that mark and canola was trading in excess of $9 Cdn per bu. Corn is the only commodity that has fallen from its early-summer highs of more than $4 US per bu. due to the anticipated record production of the crop in the United States.
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Strong ethanol and biodiesel demand in North America and Europe has been the main reason for increased corn, soybean and canola prices.
“The wheat values are not the result of the biofuels movement,” said Len Penner, president of Cargill Ltd., the Canadian arm of the world’s largest privately owned grain companies.
“They are the result of a number of years of marginal production around the world, which has drawn down stocks.”
This year was no exception. There was the Easter frost in the winter wheat growing area of the United States, a drought in Ukraine, a wet harvest in the hard winter wheat area of the U.S., extreme heat and floods in the European Union, a July heat wave in Western Canada and most recently, a return to drought in Australia.
The result is that while corn and oilseeds are riding what analysts believe will be a sustained wave of new demand, wheat is on a temporary joy ride brought on by production shortfalls.
That is something growers need to remember when deciding what to market this fall and what to plant next spring.
“A shortage of supply can easily be fixed as soon as someone in the world has a good crop. As soon as that happens prices will come back down,” Penner said.”It could be short-lived.”
The biofuel influence won’t last forever, either.
Penner said less than five percent of the world’s grains and oilseeds are being absorbed by that new source of demand.
It was enough to put a temporary squeeze on supply but eventually growers will catch up to the demand through improved yields and expanded acreage.
“We need to take advantage of this particular short-term situation. However, this is not the basket we should put our eggs in for the long haul,” he told delegates attending CropLife Canada’s annual meeting in Saskatoon.
“Going forward, don’t forget the food because that’s where the greatest value creation opportunity is going to be.”
Penner said the biofuel market is looking for a low-cost starch ingredient to produce ethanol and in the long run it is going to be tough to generate decent value out of that market compared to food markets.
He is concerned the agriculture industry has lost sight of that reality, blinded by the allure of the sexy new biofuel sector.
And this is not the time to be distracted.
Canada’s once dominant position in grain export markets is increasingly challenged by low-cost product from Brazil, Argentina, Eastern Europe, China and India.
“Canada is no longer the go-to market,” Penner said. “We are simply running with the pack.”
Every year that pack is getting larger and more nimble.
“How do we break free? How do we get noticed?” he asked his audience.
Rather than competing on price, he proposed following canola’s success story, a made-in-Canada crop that created its own market space.
In 1986, the oilseed generated farmgate revenues of $1 billion. In 2007, that will rise to $4 billion due in a large part to the adoption of genetically modified crops, hybrids and specialty trait varieties.
“We have created significantly more value in the industry,” Penner said.
Applying the same innovative approach to other sectors of the agriculture industry will require a collaborative effort between academics, industry and government to eliminate regulatory barriers preventing another potential success story.
