Protein demand, fracking affecting grain prices

Commodity News Service Canada — The difficulty in getting American soymeal from processors to the end-user is just one symptom of a much larger problem facing the current market, said a noted industry-watcher at the Cereals North America conference in Winnipeg.

“In the last two or three weeks, grain prices have been moving, everything is up, it doesn’t have anything to do with political development, it’s about rail cars,” said Dan Basse of AgResource Co. based in Chicago.

The transportation gridlock is something North America hasn’t encountered before, said Basse. Some of his U.S. clients haven’t been able to get a single rail car when they need it while others have ordered five or six cars, and then watched as 23 pulled up. The variability of supply is striking in different locations and particularly so when it comes to locomotives.

Energy has also changed the game with shale exploration or so-called ‘fracking’ placing more demands on U.S. railways than ever.

“North America will be energy self-sufficient by 2019, 2020. Fracking will occur around the world by 2016,” said Basse, adding the demand for rail cars could change if the U.S. ever builds a comprehensive oil pipeline system.

Meantime, demand for protein continues to fuel grain values with the cost of livestock being the primary driver. Beef, pork and milk prices are all up significantly.

“The hog virus was a big problem in the U.S. quite recently,” said Basse, noting vaccination has ended the crisis. With more hogs expected to arrive next year, he wonders how much more domestic feed will be required.

The world has 90 million tonnes of soybeans right now, according to Basse, yet China’s GDP has slowed as of late. What’s more, the economic outlook for several other countries has cooled as well.

“I worry there will be some countries in pockets of deflation,” said Basse, adding that average U.S. farm income will decrease this year.

The harvest global acreage for grains topped 517 million hectares this year, said Basse.

“Global acreage will drop though with profitability, today’s profitability isn’t as good now as it was for the past seven to eight years,” he said.

With countries like Ukraine, Brazil, Argentina and the U.S. recording large harvests it remains to be seen which country will be forced to reduce their plantings.

“Which one of those big exporting countries will be see prices drop below the cost of production?” asked Basse.

 

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