Historic Factors

Ever wonder why bird seed prices often fluctuate?  The simple answer is: seed used for bird food is a commodity and commodity prices fluctuate.

For the most part, prices are a result of supply and demand, and you will find these forces in products of all types.  Think about airline ticket prices around the holidays.  There is only a certain amount of planes, but a huge amount of people who want to fly.  There is increased demand with no more supply hence prices go higher.  In regards to bird seed prices, you will likely experience higher prices if you have a failed harvest.  For supply will decrease while demand remains the same.

Often the current price levels of commodities also include estimates about future supply and demand.  For example, the price for shares of a publicly listed company is, for the most part, not based on the past or current situation for that company.  Prices for shares are directly linked to the expectations of the future performance of the company.  Thus, if much less sunflower is planted than normal, and if the market expects unchanged demand for sunflower seed at harvest time, then you will see prices increase in spring on the expectation that demand for sunflower will increase in relation to the supply.

Historically, seed prices have fluctuated.  Some of the major factors that play into the supply of all seeds for bird food include total volume planted, weather conditions, quality of the harvest and freight costs.  Demand for seed comes from bird feeding hobbyists, but the greatest demand comes from crushers who use seeds such as sunflower and safflower to produce products that use sunflower oil and safflower oil.

Current Trends

In late 2010, we saw an especially turbulent market which has led to much higher seed prices.  What is going on?

Two strong trends have recently played an increasingly important role in pushing prices higher.  One is the globalization of the marketplace where we see events outside our borders heavily affecting pricing.  Another trend is increased speculation from the financial markets.

In summer 2010, the supply of Russian wheat was heavily disrupted.  The failure of the wheat harvest in Russia due to severe drought and widespread fires, was one of many international factors that sent prices higher.  In October of the same year, the U.S. Department of Agriculture, because of harvest conditions that were worse than expected, reduced the yield estimate by the largest decrease in recorded history.

Finally, we have seen increased demand from China in 2010.  Some of the commodities countries like China are buying are not necessarily bird food commodities, but their buying strengths may result in farmers planting less specific bird feed.  Thus, with demand high on all fronts, it is probably unrealistic to envision a sharp drop in bird seed prices in the short term.

Another factor in seed prices is speculators.  Speculators are not a new factor in the market at all.  They have always had a varying impact on the market, but they may be playing a stronger role than ever before.

Consider these numbers from a major investment bank: In 2010, around $320 billion of institutional and private money is now uniquely devoted to commodities, compared with just $6 billion 10 years ago.  Furthermore, hedge funds are not included in the numbers above.  Often now fund managers put up to 5% of their cash into commodities.

So what role do speculators play?  These people speculate in the future price of seed. If they think prices will go up, then they will buy positions in the market (read: buy low) so they can benefit later if prices increase (read: sell high).

Sometimes increased speculation can lead to a lot of price fluctuation, and we have currently experienced a greater-than-normal influx of speculative money in the bird feeding industry in the later part of 2010.

The Future

As the saying goes "It is hard to make predictions - especially about the future."  This is certainly true with regard to guessing the movements of bird seed prices in the coming months.  No one knows where prices are heading from the current historically high levels.

It is good to know that we can count on the birds to continue to eat and they can count on people who love feeding them.  By the way, if you plan to drink a cup of coffee while you watch your favorite birds in your backyard, be aware that coffee beans recently soared 40% in late 2010 mainly because of failed harvests in South America, hoarding of beans in Vietnam, and of course, some speculative trading.

Every industry dependent on commodities faces the same issues.  Welcome to the globalized, interdependent, speculative, uncertain, weather-dependent, and market-dependent world of bird feeding.

Contributions to this page were made by Henrik Lehmann Weng.  Henrik is the former Group Chief Executive Officer of Wild Bird Centers of America, Inc. and affiliated companies.