It wasn’t long ago that prairie farmers looked at canola as the bill payer.
While wheat prices were depressed by the export subsidy wars, by and large the global oilseed market was at peace.
Asian prosperity drove an oilseed demand boom that absorbed the rapidly growing production of soybean, canola, sunflower and palm oil.
To take advantage of this buoyancy, Canadian farmers increased their canola acreage through most of the 1990s.
But the signals were also clear to other producers, and their reaction could depress oilseed prices for the next year or more.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
Largely ignored by North American farmers, the companies that own palm tree plantations in Malaysia and Indonesia expanded their acreage.
Because these trees take a few years to mature and bear fruit, and because of drought in the late 1990s, the impact of the acreage increase is only now being felt.
Malaysia is forecast to produce 11.1 million tonnes of palm oil in 2000-01, up almost seven percent from last year and up 84 percent from 10 years ago. Indonesia production is expected to increase more than seven percent this year to 7.2 million tonnes.
Palm oil prices have crashed to about one-third of what they were in the spring of 1998. Historically, palm oil prices are higher than soy oil values, but this year the reverse is true.
Unlike annual crops such as canola and soybeans, you can’t temporarily cut palm oil production when the price goes south. The trees are there and will produce.
However, the companies that own the palm plantations are still making money. Palm trees produce about 10 times the yield per acre of other oilseeds. As well, new higher-yielding trees that aren’t produced through genetic modification are under development.
Malaysia forecasts that by 2005 palm oil might capture 41 percent of the global oil and fat trade, compared to 39 percent in 1999.
In the immediate picture, oilseed prices should get a boost as the United States Department of Agriculture cuts its soy crop estimate, reflecting late season growing problems.
But South American producers are already seeding increased soy acreage and next spring we’ll probably hear of growing U.S. acreage, considering that soybeans are cheaper to produce than corn.
This, coupled with the growing size of palm oil production, could keep world oilseed prices in a blue funk for a couple of years.
