Hard red spring futures prices jumped higher by about $1 per bushel in the last two weeks, but one analyst was telling farmers the leader for 2008 markets will likely be oilseeds.
“The greatest urgency in inadequate supply growth lies with the oilseeds,” Greg Kostal of Kostal Ag Consulting told a conference held by CGF Brokerage in Saskatoon.
Kostal believes prices will be strong for most crops, but food demand for oilseeds will lead the market up until prices become so high that they stifle demand.
In recent years, higher standards of living in developing countries caused the world soybean crush to climb by 5.2 percent a year. That translated into an annual need to expand soy production by nine million tonnes.
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The world had kept up to this increase until last spring when American farmers switched millions of soybean acres to grow corn for ethanol. The world had lost part of a key supply source but South America was expected to pick up the slack when it started seeding this fall.
Brazil and Argentina seeded a larger soy area, but less than expected.
“Production, to me, is going to be no more than two or three milliontonnes higher and that is insufficient relative to demand. And the crop isn’t made yet. There are dry pockets.”
That will shift the emphasis back to the United States next spring and strong soy prices will likely cause a shift back to the oilseed from corn. Even then, Kostal doubts supply and demand will get back in sync.
“The urgency is on oilseeds in ’08, but then we deflect the problem to corn in ’09 and the cycle continues,” he said.
This sets up what Kostal called an acreage recycling program that will sustain high grain prices until they ration demand and encourage development of new cropland in the former Soviet Union and South America and force reductions in set-aside land in Europe and the U.S.
In 2008, canola will benefit from the soy shortage.
This fall, canola suffered from a wide basis level caused by large supplies in commercial storage. Exporters bought canola in expectation of large sales to China, but because of high ocean freight costs, the strong Canadian dollar and tariffs that favour soy, China bought vegetable oil instead.
The backlog is starting to clear and the Canadian crushing industry is operating close to capacity.
Canola prices could go higher in the new year, marking an opportunity to price some 2008 crop, he said.
Although wheat prices are rallying now, the market’s worry about supply should start to abate because of the larger winter wheat area in the United States and Europe.
However, because a lot of winter wheat is of soft varieties, premiums for hard wheat will remain attractive in the next crop year.
But he had a warning about durum.
“In a commodity, whether it goes to extreme highs or extreme lows, there tends to be unexpected resolution.”
Kostal fears durum acreage could soar to an extreme, resulting in production that overwhelms demand, eliminating the tightness of the market.
“That does not mean we will, but if we do, then you start talking about these lofty premiums coming down to prices that are similar to spring wheat.”
