Reshaping Pulse Market Fundamentals

VANCOUVER - Oct 16/06 - SNS -- Old masters in the grain business have often quipped that they need to relearn their craft every year. In varying degrees, younger market participants are dumb-founded, mystified and inspired by that observation.

Yet even old masters are surprised by how much has changed just since the 2005-06 marketing year. Run away oil prices the last couple of years created new outlets for oilseeds and grains which are reshaping market fundamentals. Some people speculate these new sources of demand for primary agricultural products have reversed a decades old downtrend in prices.

Only time will tell if markets are in a multi-year uptrend. There is no doubting, however, the bullish influences affecting major grains and oilseeds in 2006-07. In corn, for instance, available stocks in the United States are up around 110 million bushels from 2004-05, but usage is expected to be up around 1,200 million bushels, with ethanol accounting for most of the increase.

In its October supply and demand outlook, the USDA forecast 2,150 million bushels of corn would be used to produce ethanol in 2006-07, up from 1,323 million in 2004-05 and 1,600 million last season. Grain is also being diverted into ethanol production in Canada and other parts of the world. Similarly, more vegetable oil is being used to produce bio-diesel, especially in western Europe, converting the region from a net exporter to a net importer of rapeseed and canola.

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