Grain & Oil

[TOM4CWB]

Cottonpicken;

I saw this, the last part of a DTN article:

"Until the 1970s, a bushel of wheat cost almost the same as a barrel of crude oil; (but then) people engaged in agriculture suffered a dramatic deterioration in the terms of trade vis-a-vis energy," Mistry said.

He noted price differentials had increased by as much as twenty-fold since then, resulting in "the greatest transfer in history of purchasing power from the agricultural poor to the energy rich."

But as vegetable oils become more significant in energy production, that purchasing power could begin to return to farmers, Mistry said.

"It is not inconceivable we are now seeing a rebalancing of this relationship between agriculture, industry and energy," he said.

"If this is the beginning of that process, we could be in for the greatest bull market (in edible oils) in recent history," Mistry said."

It is becoming clear that there is a link between Oil and grain prices... this article talked about the 10% consumption of oilseed products for energy being the tipping point.

This is about 2 years away... if crude oil stays over $50/b

If consumers actually believe in the "green" oil revolution in energy... and are willing to pay for it...

We certainly have had a fundemental shift in ag commodities that a year ago many would have said impossible!

[cowman]

I sometimes wonder about this? If ethanol/bio deisel is such a good deal...why does the government have to subsidize it? The latest announcement by Alberta is 14 cents a liter for bio deisel or ethanol?...and 6 cents/a killowat for bio gas?
Now I'm not saying that is wrong, just wondering why?
I do know that bio gas/electricity production will never compete one on one with NG or coal fired generation? Now without a doubt I have invested(on a small scale) in a bio gas project and it will rely heavily on government money...hey farming the government!
Lets not forget that oil at $60/barrel is a fairly recent event? wasn't all that long ago it was $25/barrel? Will that ever happen again? Lets not forget Syncrudes breakeven is around $27/bl? Now $60/bl is nice but are you going to let the facilities sit idle if oil dropped to $35/bl?
I wonder how fair is it for the government to be picking winners or losers? Is it fair to subsidize one industry so it can compete with another? Would it make more sense to let the marketplace decide?

[craig]

Cowman Do you not think that the government has a vested interest in promoting bio fuel. Farmers getting paid a reasonable return for what they produce means they are not at the table continually asking for more money from the government. Keeping more employed in rural canada helps keep the pressures away from cities. Must admit though this comes from the perspective of a grain farmer.

[cottonpicken]

Well i dont think we have to worry about crude staying down for very long the devoloping world is energy hungry and now they have more money to go after it.

The past 22 years has been very tough.i've read studies that say in the history of the world there has never been a more devastating bear market in commoddities.So it is little wonder that a lot of farmers dont think a major recovery is possible.

As you said tom,energy security for america is number 1 on the priority list and that is why the subsidies are coming down the pipe line.If there was ever a mushroom cloud on the straits of hormuz the world would be in crisis mode.Oil is the life blood of industrial society.

I should also mention the big time traders that dont even know what a tractor looks like are all talking ag sector.Alls they care about is market momentum and now we have that.

[wd9]

Cowman, what are your thoughts on the subsidization of the renewable fuel program thereby affecting feed prices and potentially putting you out of business utilizing public tax dollars?

[TOM4CWB]

WD9,

Distillers grains are a byproduct of biofuel.

As production ramps up the DDG's become less expensive... but must be blended to balance the ration.

We are going to have to be competitive with US livestock growers with massive supplies of avaliable DDG's, if Alberta livestock growers don't have these products at competitive prices they will in the long run suffer.

[cowman]

Well I'm not too worried about anybody putting me out of business! Were you hoping the cattle business in Canada was going to go out of business????...because that sure sounds like what you were saying?
Bottom line is you guys need us...and yep we need you? This isn't rocket science?
I have no doubt things will "evolve" in that respect?
In case you haven't noticed it...your friendly cow/calf, farmer feeder...isn't doing too well this year? Maybe you will understand it next year...when he has retired...and The rest of the world has a bumper crop?
Come on, we all know the grain farmer has gotten a crappy deal the last "several years"? So bad that a lot of us grain farmers said to hell with this and went into cattle?
I would put a good portion of my land up against the best anyone else on here can come up with, in the ability to produce grain or oilseeds? Quite frankly...the money just isn't there! Now unfortunately the last 4 years...the money just wasn't there in cattle either!
However, just today, while checking out some livestock manifests, I came across a invoice for fall calves I sold in 2000? The heifers averaged 635 lb. for $1.32 or a gross of $832.20? The steers averaged 676 lb. for $1.3950or $943.02!
...Now compare that today...I was at the auction mart yesterday...638 lbs steers....98 cents!
Now you tell me how in the hell is the cow/calf guy going to make a buck at those prices?...maybe back to grain?
I have no problem with barley selling for $3 plus a bushell(in fact I think that is WAY too low), but you really shouldn't think that by getting rid of your major buyer...the hog farmer and the feedlot...suddenly you are going to be rolling in clover? Because the fact is this....when push comes to shove...the oil and gas industry will eat you and spit you out! Sorry if that offends...I realized the reality of this world over twenty years ago!

[cowman]

wD9: Because I don't have my eggs all in one basket, of course I am excited about the Alberta government subsidy for bio energy...and in the big picture realize the times are a changing...and we need to get with the program?
Does it make any kind of sense in the real world...well no it doesn't...but what the hell, what is the real world anymore?
The whole "Kyoto" thing is surreal...at the best of times?
I've been involved(as I said on a very small scale) In the Bio Gas Project that Red Deer county instigated? I believe this whole project will eventually come to fruitation. Without a doubt, it requires massive government/industry investment to make it go, and without a doubt it is "farming the government"!
Personally I hope to reap some of that "government largesse", but I also think this is the way the world is heading? I don't say that it is the right thing to do, but bottom line, I am a businessman...and will take care of myself!

[wd9]

Cowman, absolutely I don't want the feed industry to fail. It is a vital and important part of our ag economy. More and more I am hearing the pushback - especially in the US - of feed grains rising due to public tax funded renewable fuels strategy (RFS) taking it's share of the grain and increasing price. I was after your opinion and thanks for sharing.

I've tried a few different ways to pull what some are thinking in terms of a bio energy future and it's effects on prices, protein complex, livestock industry and of course grain prices.

In a couple years we'll have about 6 million tonnes of oilseed crush, that's about 3.5 to 4 million tonnes of meal - a meal with some challenges in terms of digestibility to market. It is being worked on but is going to take $$ millions and a few years to solve that issue. The majority of the meal produced in Canada today goes to the US.

So far all I have gleaned from this forum and even as Rain said in the biodiesel investment posting, things are looking bright and with lots of protien this is a good thing. If it is all good, good then.

Not often we get to create policy from the ground up. RFS is one of those and the farther out into the future we look to predict some snags that could be prevented today, well that is a good thing. If someone can see the wheels falling off this RFS or an industry negatively affected by it, post away.

BTW if a bushel of canola was the same price as a barrel of oil today, biodiesel would be about $6.50 per litre. (10 litres from a $60 bushel processing).

In terms of Kyoto, not a single country signed onto the accord has actually decreased GHG's.

[cottonpicken]

Not even the europian union?

[cottonpicken]

Actually cowman/wd9 are not both industies complementry to one another.Its cheaper to ship meat/fuel to those 4 billion chindians than raw food stuffs.

[cowman]

cottonpickin: I too believe "eventually" the bio energy component of grain/oilseeds will benifit both grain farmers and beef producers....but getting there might not be a lot of fun!
The number of cow/calf producers leaving the industry is way up...at least in my area? Now without a doubt a lot of them are smaller older cattlemen but some big ones are pulling the pin too!
And that is okay, it seems there is always somebody willing to lay their money down(or probably the banks!) and get into the cow business! Whether they can make it or not remains to be seen? The guys leaving the industry right now could probably afford to stay and in fact could probably make a meager profit, but are getting too old to be working for nothing!
Consider what has happened to the hog business in Alberta? At one time there were all these prosperous hog farms...what is there today? The little guy has been wiped out and mostly what is left is the big mega barn? In my area we had a very good local market for barley from the local hog farmers. Today they are all gone.
I believe the cow/calf business is about where the hog business was about a dozen years ago. It is consolidating and small players are leaving. The small farmer/feeder is becoming a thing of the past.
When you lose these type of guys and they are replaced by the likes of Cargill feeding cattle...well expect tougher buyers for your feed grain!

[wd9]

CP, nope not even the EU. Not a single country.

Think of the manna from heaven Cdn oil companies and industry rec'd - ag for that matter too - with the last 2050 enviro plan. No matter what the cost of 2% or 5% RFS, it is a drop, nay, 1/10 of a drop in the bucket in terms of reduction of 35% GHG's. Even at a loss of a few cents per litre or 75% conversion efficiencies, not a burden compared to the alternative.

Anyone hear of the new bakers yeast that improves ethanol production by a considerable amount?

A snippet:

That used to be the case, however, as the Kluyver Centre for Genomics of Industrial Fermentation has established a revolutionary breakthrough in this field. Genomics techniques, applied genetic engineering and laboratory evolution have enabled the development of a new strain of bakers’ yeast, which can swiftly and efficiently convert xylose into ethanol. Patent applications have already been submitted for the discovery. And the Kluyver Centre’s industrial partners – primarily Koninklijke Nedalco and BIRD Engineering – are currently adapting the process for large-scale industrial production.

http://www.genomics.nl/Sustainability/Result%20Kluyver%20Centre%20biofuel.aspx