October 2, 2007

 

Ethanol, surging meat demand hike Canadian grain prices

 

 

As the price of wheat have reached to levels not seen in 30 years, Canadian grain farmers are riding a wave of global demand that could change the nature of food markets for decades to come.

 

In the past year, wheat prices have climbed almost 50 percent to more than US$7 a bushel, durum has doubled and feed barley is up 70 per cent.

 

Doug Chambers, manager of Quality Grain Marketing, a Calgary-based grain brokerage, says record levels in production and prices are likely to come in the next few years.

 

The surge is driven by rising prosperity in Asia and Latin America as its growing middle class is changing its diet to include a wider variety of foods, including dairy, beef and pork raised on grains, or breads and pasta from wheat and durum.

 

Chambers said as the world enjoys a higher standard of eating, people are enjoyed to more for a more expensive forms of protein.

 

Another major factor is the ethanol boom in the United States, which has driven up the price of corn and has led farmers in the Midwest to plant more acres than in any year since the Second World War. The massive shift to corn production has reduced the world supply of other grains normally used as animal feed, and caused their prices to rise.

 

Meanwhile, world wheat production hasn't been able to keep pace with demand. Global reserves have been drawn down to their lowest levels since the early 1970s.

 

The third trend is the changing global weather pattern. Australia is in its second straight year of severe drought, which will reduce global grain supplies.

 

Chambers said fifteen years ago it was rare to see 10 centimetres of rain in a single storm; this summer, between 70 and 100 such storms damaged prairie crops.

 

Some analysts argue that higher commodity prices, and higher food prices, are here to stay. The latest Canadian consumer price index show the price of meat is up 3.5 percent from last year, while baked goods are 3.7-percent more expensive.

 

The trend toward bigger grocery bills will come as a shock to North American consumers, who have grown accustomed to enjoying the world's highest standard of living along with some of its lowest food prices.

 

But long-term prosperity may still remain just beyond reach. Livestock producers have been badly hurt by high feed costs and the soaring Canadian dollar cuts into any exporter's profits.

 

Al Mussell, a senior research fellow at the George Morris Centre, an agri-food think tank based in Guelph, Ontario, says he is sceptical of those who say this is the start of 10-year boom.

 

Some US observers also wonder whether the ethanol boom may be slowing, with the average US ethanol price on the spot market dropping 30 per cent since May.

 

Mussell said more so than any other industry in the economy, agriculture has proven itself very adept at developing new technology to increase yields to allow supply to swamp demand very quickly.

 

He added that the huge corn harvest can cause supply problems which can lower prices of corn.