Strong outlook for organic grain prices, panel says

Imports are keeping processor margins away from the brink, says panel

Seed grains

While conventional farmers fume about rail delays and falling prices, the organic sector is worried that supply shortages and sky-high prices may derail future growth.

“I think most people know that in the market today, demand outstrips supply and that’s why we have the prices that we do,” said Ken Sabatier, a buyer for Grower’s International Organic Sales, in last week’s Western Canadian Organic webinar, the last of a lunch-hour series organized this spring.

In 2008-09, a price crash followed by a period of marketing “doldrums” spooked many farmers back into conventional production, but since then demand has steadily crawled back, he said.

Last year’s long winter and delayed spring resulted in less organic wheat going in the ground. That, and poor winter wheat-growing conditions in the United States in 2013 has crimped supplies.

“There has been a dramatic increase in wheat prices,” said Sabatier, but he expected that normal spring growing conditions and what looks like a good winter wheat crop south of the border could bring supplies more back in line with demand.

Oats, barley and flax supplies — and consequently prices — remained stable over the same time frame.

Sabatier said that the rail fiasco has had an impact on Canadian credibility in the organic sector, too, and some sales have been lost.

“Customers still want our product and they are willing to wait for it — within limits,” he said, adding that a four-month delay seems to be the breaking point.

Pete Manahan, a buyer for F.W. Cobs Company Inc., a Vermont-based company that supplies a number of feed mills in the U.S, said that there is strong demand for organic feed barley.

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F.W. Cobs manages logistics to ensure “timely movement,” and buys grain f.o.b. the farm. It is also a buyer of organic wheat, both feed and milling quality, as well as feed rye, peas, oats and screenings. The drought in the U.S. Midwest in 2012 sent feed grain prices to record levels, but better crops this year have flattened things out.

“There has been a fairly large supply of organic feed grains, mainly due to carry-over of organic corn,” said Manahan, but he added that organic feedlot production has been steadily recovering.

Feed wheat has been “almost eliminated” this year due to milling prices upwards of $20 per bushel, but imports from Europe and South America have been plugging gaps.

“We have been hearing more and more about the coming non-GMO markets, and how they might affect our markets,” he said, adding that more end-users are aiming to market their products as GMO free.

The 200 per cent premium over conventional for most crops is luring more farmers into organic, he added.

“We may see an upward swing in the amount of those grains produced, but for now, it has yet to be seen how many acres will go into that market.”

Terry Tyson, a buyer of mainly oats for Grain Millers since 2001, said that robust demand growth of 10-20 per cent a year had been matched by supply nearly every year up until 2008, when prices and demand crashed.

“But right now, with the financial ship righted, consumer demand is back, and really it’s better than ever,” said Tyson, adding that organic oat demand began to stabilize in 2010 and now the focus of end-users is securing supply.

Sabatier noted that more acres are going into organic soybeans and other non-traditional crops such as hemp, as well as ancient grains such as spelt, kamut, and einkorn.

End-users are getting the message, said Sabatier, and many are hiking their prices to ensure adequate supplies. Processors have also recognized that dependence on a single region puts them in the crosshairs of supply constraints, and many are now sourcing grains from other areas.

“Eastern Europe has essentially taken most of the European grain market away, and Russia is actually finalizing its own organic standards and getting equivalency with other countries,” said Sabatier, who added that the Crimea crisis may blunt that effect.

That trend of diversified supply has broadened the “global pool” of organic grains, and the effect on Canadian sales is being felt, he added.

Many conventional farmers are keen to switch sides, but the three-year transition period will prevent an overnight glut in supplies.

“Even if supply does increase, we’ve got a very strong growth trend for the next five to 10 years,” said Sabatier, noting that mandatory GMO labelling — if passed — may significantly boost demand for organics, but excessively high prices push end-users towards alternatives.

In Quebec, a new competitor in the form of “zero input certification,” essentially conventional grain that is pesticide and herbicide free, is pushing for legislative and regulatory permission to proceed.

“It won’t be present this crop year, but it may be something to consider because the ‘natural’ label has sort of lost its effect on the market,” said Sabatier.

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