World Grain - April 2008 - 6

from the editor-in-chief

Oil and grains driven
by similar forces

fter years in which drawing parallels
between the forces affecting grain and
crude oil prices was considered folly,
it is remarkable to realize how this relationship has been transformed by recent events.
Now, studying demand-supply projections
for crude oil provide telling insights into
grain's performance, and it is likely that the
same is true for the way oil markets reflect
forces similar to those in grain. This is huge
change from the situation a short time ago in
the grain industry when the dominant view
was not just that the forces in the two markets were different, but that mixing the two
could produce wrong conclusions.
It was not until processing of grain into
motor fuels introduced a new and significant
demand force for maize (corn) and soybeans
that fluctuations in prices of gasoline processed from oil were cited as affecting the
volume of grain used. This seemingly direct
connection between oil and grain markets
had, when it came to price analysis, the same
fault as had ruled previously, of studying exclusively forces on the demand side of the
supply-demand equation.
Determinants of the use of wheat for
food and maize for feed are not the same
as for oil, causing the separation that lasted
until the start of the new century. While oil
use could be affected dramatically by governmental decisions on fuel economy, or by

WORLD GRAIN.
Chairman
Charles Sosland
Publisher/Managing Director Mark Cornwell
Director of Advertising Sales
Dan Flavin
EDITORIAL STAFF
Editor-in-Chief
Editor
Managing Editor,
World-Grain.com Editor
Markets
European Editor
Designer

Morton I. Sosland
Arvin Donley
Meyer Sosland
Melissa Alexander
Chris Lyddon
Ryan Alcantara

rationing or by the exercise of cartel power,
wheat food use was much less susceptible
to similar initiatives. Rising incomes suddenly have made demand for both oil and
grains reflect the same forces, centered on
the failure of demand to respond to prices.
Use has hardly declined in response to record high prices, and expanding use of
grains for making ethanol has tied these two
together almost as tightly as wheat once related to maize.
While it's still correct to note that production of grain and crude oil - one a renewable crop grown and harvested annually and
the other a resource being drained from a finite supply - is very different, even here the
two have increasing commonality. For example, the global warming issues that once
were the exclusive province of converting oil
into gasoline and using it for fuel are increasingly factors in how grain is grown.
Inventory levels, essential to supply analysis, are critically important for both. This
season the ending wheat stock is projected to
be the smallest in years, especially in relation
to use. In the case of oil, the International
Energy Agency (IEA) has acknowledged
that its data about inventories and production
decline rates have been less than accurate.
This has prompted a rush to develop new
data that will provide a meaningful basis for
forecasting when oil production may peak.

PUBLISHING STAFF
Vice-Chairman
L. Joshua Sosland
President and
Publishing Director
Mark Sabo
Vice-President and
Chief Financial Officer
Melanie Hepperly
Audience Development
Director
Don Keating
Advertising Manager
Nora Wages
Advertising Materials
Coordinator
Debbie Maniez
Digital Systems Analyst
Marj Potts
Marketing Communications
Manager
Carrie Fluegge
Circulation Manager
Judith Arnone

These possibilities relate to questions asked
about the globe's food production capacity.
The chief economist of the (IEA) made
a comment ringing true for grains. He said
the agency and many in the oil industry
"had been placing a lot of emphasis on oil
demand, which is wrong. Supply factors
should be looked at more closely." This
search for new data on oil has been hindered by the absence of transparency when
it comes to knowing not just the natural decline rate of producing oil fields, but also
having a realistic appraisal of the pace of
new discoveries. Understanding the potential for increasing grain outturns to keep up
with expanding food and industrial demand
faces similar obstacles.
The IEA action in seeking to assemble
new oil data is no different from the International Grains Council moving to discover the
reality of global grain stocks. If the outcome
for oil proves at odds with the existing series, the result will be worrying. Downward
revisions in discoveries or upward revisions
in decline rates mean global oil supplies will
peak much sooner than has been expected. A
similar finding on grains, to be sure, would
have an equally chilling impact on market
prices.
Morton I. Sosland
Editor-in-Chief

WORLD GRAIN (ISSN 0745-8991) Volume 26, issue 4,
is published monthly by Sosland Publishing Co.,
4800 Main Street, Suite 100, Kansas City, MO 64112 U.S.
Periodicals postage paid at Kansas City, MO 64108 U.S. and
additional mailing offices. Canada Post International Publications
Mail (Canada Distribution) Sales Agreement Number 40612608.
Send returns (Canada) to Bleuchip International, P.O. Box 25542,
London, ON, N6C 6B2. Printed in the USA.
POSTMASTER: Send address changes to WORLD GRAIN,
PO Box 324, Congers, NY 10920-0324. © Sosland Publishing
Co. All rights reserved. Reproduction of the whole or any
part of the contents without written permission is prohibited.
WORLD GRAIN assumes no responsibility for the validity of
claims in items reported. Sosland Publishing Co. is a division of
Sosland Companies. Inc.

Editorial and advertising inquiries should be directed to our
world headquarters at 4800 Main St., Suite 100,
Kansas City, Missouri 64112 U.S. Tel: 1-816-756-1000,
Fax: 1-816-756-0494 or E-mail worldgrain@sosland.com.
Requests for reprints of articles should be sent to
reprints@sosland.com or call 1-816-756-1000.

April 2008 / World Grain / www.World-Grain.com

http://www.World-Grain.com http://www.World-Grain.com

World Grain - April 2008

Table of Contents for the Digital Edition of World Grain - April 2008