Goodbye grain gluts?

The growth of the ethanol industry has created a substantial new market for wheat and corn and that, in turn, has helped drive up prices. The question on a lot of growers' minds is whether current high prices will hold.

Rex Newkirk, director of biofuels and feed with the Canadian International Grains Institute in Winnipeg, is optimistic.

It's true that grain prices depend on many factors beyond this particular industry — everything from world wheat stocks to national and international agricultural trade and policies to acts of Mother Nature.

But Newkirk hopes ethanol production might provide some pricing stability due to the sheer volume of grain that the ethanol industry requires now, and will require in the future as more plants come online.

"In the past, if prices got too low, everybody outbid each other to get rid of their grain," says Newkirk. "I'm hoping that growth in the ethanol industry will take out some of those downward price swings."

One important caution, however, is that the ethanol industry currently relies on government subsidies. "Those subsidies help plants determine how much they can pay farmers," explains Newkirk. "No one is sure how long they will last and how the industry will look without them."

Which is where renewable fuel mandates come into play. With governments effectively legislating use of renewable fuels, like ethanol, demand for the grains to produce them should, in theory, help the industry outgrow its need for subsidies. "Even a small mandate makes a big impact on a crop," says Newkirk. "A 2 per cent mandate in biodiesel would work out to about 30 per cent of our canola crop."