EDMONTON — Grain and oilseeds have tracked the ups and downs of petroleum prices for many years.
They split from time to time, but charts show the two sets of commodities are linked.
The relationship between the two tightened as an increasing amount of global crops were turned into biofuel, said David Jackson, an agricultural economist with LMC International in Wales speaking at FarmTech in Edmonton.
Rising oil prices helped lift the demand and price for biofuel and increase the amount of land used to grow the crops to make biofuel.
Read Also
Sask. ag group wants strychnine back
The Agricultural Producers Association of Saskatchewan has written to the federal government asking for emergency use of strychnine to control gophers
Governments around the world also used legislation to encourage biofuel production to address petrolium shortages and lower greenhouse gas emissions.
Now oil prices are declining because of a global surplus and that puts a weight on crop prices, including canola.
“This is a supply and demand,” Jackson said of oil’s decline.
“We have been forecasting that petroleum should come down (for some time) due to the additional production coming online.”
The high oil prices of recent years expanded production and supply, particularly in North America. Expensive oil also hurt demand.
“People are also becoming more efficient in their fuel use, driven by high consumer prices for fuels,” he said.
Given supply and demand, today’s petroleum prices are about where they should be and that means the price of crops used to make biofuel, including canola, will remain under pressure, he said.
He said canola oil could be protected from this because it is used largely for food.
“But you will have to market it hard to maintain that,” he said.
LMC believes West Texas Intermediate oil will settle in at US$50 to $60 per barrel for the next few years.
“OPEC wants high-cost producers out of the market and are willing to wait them out.”
The recovery will take time.
“The return to $100 per barrel oil will take “six, seven, likely 10 years … and with it crops.”
michael.raine@producer.com
