World stocks of cereals are at their lowest level for more than 20 years, and supply and demand is expected to tighten over the next 12 months.
As Western nations look to reduce their dependence on oil from the Middle East, biofuel production is set to increase dramatically over the next few years.

However, in the short-term, the cereals market is being driven by demand for palm oil. The latest weekly bulletin from the Home Grown Cereals Authority says: "World vegetable oil prices are continuing to rise. Malaysian palm oil futures have risen by $50 per tonne over the last fortnight, reflecting prospects of demand rising faster than supply."

The net effect has been to reduce the gap between the value of palm oil and rapeseed oil by as much as $27 per tonne in recent weeks, while much the same has been happening with soya oil futures.
Meanwhile, two plants are planned for the production of biofuels, at Rosyth and Grangemouth, and these facilities will require large tonnages of a number of crops to meet the demand for non-fossil fuels.
Scottish farmers regularly achieve higher yields for oilseed rape than the rest of the UK on account of longer daylight hours during the summer months. It is then no coincidence that the area of this crop planted in recent months is set to be the highest for many years.

But there will also be a wider effect on the whole pattern of arable farming; wheat can also be converted into biofuel relatively easily. The mild and dry autumn conditions have prompted a considerable expansion in the area now under winter wheat.

That pattern is common throughout the European Union, with the result that the market for all grains is now at its highest level for more than a decade. The London futures market is now quoting wheat for March 2007 at just short of £100 per tonne, but the spot market is a shade firmer with a delivered price in Scotland for next week of £104.50 per tonne, which is almost £7 higher than in East Anglia. These prices are more than £20 per tonne higher than last December.

Feed barley prices have also moved upwards, and while that will add to the costs of the intensive pig and poultry sectors, there will be a knock-on benefit for the malting barley sector, with the trade now seriously concerned about future supplies for the brewing and distilling industries.

Source: The Herald