Future challenges for the grain industry
April 12, 2012
Until recently, the global grain industry operated in a relatively predictable business environment. Grain prices usually didn’t fluctuate much on a year-to-year basis, nor did production and demand.
Weather patterns were more predictable, grain storage and handling companies had little trouble finding qualified workers to operate their facilities, and government regulations impacting the industry were far less strict than they are today.
Gazing into his crystal ball, Charles Hurburgh, professor in Iowa State University’s Agricultural and Biosystems Engineering Department, doesn’t see a return to stability for the grain industry in the upcoming years. In fact, he says, the business envrionment may become an even more volatile.
During his presentation, “The Bigger Picture: Challenges into the Future,” at the 83rd Annual GEAPS Exchange on March 5 in Minneapolis, Minnesota, U.S., Hurburgh outlined the five biggest challenges companies that store and handle grain will face over the next several decades. They are:
•Productivity and demand for natural resources
•Standard of living/consumer issues
“Any one of those five challenges has the potential to put any company represented in this room in a non-competitive situation,” Hurburgh said. “Likewise, it has the potential to generate a new and real opportunity for any company in this room.
“These challenges aren’t going away, so we’ll have to face them in a proactive and positive way.”
Typically throughout history, if grain production and demand for grain products were both on the rise, prices remained relatively stable. But in recent years the equation has looked more like: growing demand plus growing production equals rising prices. That’s partly because prices have not solely been influenced by market fundamentals.
There’s also the issue of more grain — particularly corn — being purchased for non-food uses such as ethanol. And with the likelihood that the U.S. government will eventually increase the ethanol blend in fuel from 10% to 15%, it’s easy to see how demand, supply and prices will continue their upward trek.
“It is not a usual situation to have supply increasing very rapidly and prices tripling or quadrupling at the same time,” Hurburgh said. “The world’s need for natural resources is not going away. Neither is production or the strength in price going away any time soon.”
He said if corn prices remain in the $6 to $7 per bushel range, it’s like waving a red flag in front of a bull.
“The genetics industry and the farm supply industry are going to figure out a way to get constantly more bushels per acre,” he said.
Hurburgh says a conservative estimate on U.S. corn yield trend is that it will increase two to four bushels per acre per year over the next 20 years, which could mean up to 400 and 500 million new bushels of corn per year.
All of this is a positive sign for manufacturers of grain bins and grain handling equipment, he said.
If the four-bushel-per-acre-per-year increase holds true, Hurburgh estimates that by 2035 more than 14,000 105-diameter steel bins, which hold up to 650,000 bushels of corn, would have to be built to store that extra grain.
“That construction rate has to continue just to have a place to put the corn when it comes out of the field,” he said.
In the coming years, grain facilities that take advantage of the latest technology will be rewarded, Hurburgh said.
In the U.S., the Grain Inspection, Packers and Stockyards Administration (GIPSA) has developed a new grain moisture meter that beginning this fall will become the official meter used by USDA offices and agencies in the buying and selling of grain.
He said the new moisture meters are better than the old ones when it comes to testing cold, hot, light, immature and high-moisture grains.
“This technology is very good and very accurate at higher moistures,” he said. “Judging by the data I have seen, for grain in hot and cold climates you can expect only one-tenth or two-tenths deviation due to temperature.”
Hurburgh said grain companies should consider installing the new moisture meters as soon as possible.
“The old meters are still legal, but you will have to know what your state law says regarding this issue,” he said. “I would guess the old meters will be fine until they have to be serviced. If they have to be repaired, then they will probably have to be replaced.”
With food safety having emerged as an important consumer issue, all parties along the food production chain are being asked to do more than ever to ensure the product is handled safely.
To comply with the Food Safety Modernization Act of 2011, grain storage and handling facilities will have to take various measures to ensure product safety.
Hurburgh’s advice to GEAPS members included developing a plan to prevent food safety risks from coming into the system.
“Start on your food safety plan right now,” he said. “It doesn’t have to be extensive; it just has to show intent and that you’re thinking about what could cause food safety problems in your own situation.”
How grain is transported has become a major issue in regard to food safety. Regulators will expect facility operators to have answers for what was in the trucks and railcars before they received the grain.
“There is a list of prohibited meat protein products. If they were hauled in a previous container, you will need proof that it had been cleaned out prior to the grain being dumped in that container,” he said. “You may consider how you’re going to ask farmers — perhaps make an affidavit — to prove that they have not hauled any protein products.”
The world is getting warmer and, perhaps as a result, the weather around the globe is getting more extreme. While some debate the cause of global warming, there is no disputing that the phenomenon exists.
Hurburgh used Iowa as an example of how the greater variability in weather is impacting grain crops. In 2009, the state was hit with a hail storm that damaged more than 1 million acres of corn. In 2010, heavy rains and flooding during the fall harvest season caused 500 million bushels of corn to remain in the fields over the winter. And last year’s crop suffered though an extended hot spell as the average temperature in the U.S. was the highest on record.
Although grain storage facilities cannot control the weather, they can employ the best storage handling practices to make sure the grain they receive is kept in the best possible condition.
“You must be precise in grain management,” Hurburgh said. “Use test weight as an indicator of storability. Make sure every kernel of corn or other types of grain gets cool as quickly as possible. Temperature is the number one factor in successful grain storage. None of that is rocket science, but variable weather is going to put more of a premium on successful grain storage practices.”
An aging workforce in many countries is a major concern of the grain industry, which will have to find a large number of capable replacements in the near future.
“Up to 60 percent of the U.S. workforce is going to retire in the next decade,” Hurburgh said. “Some of the people you will be hiring will not have grain experience and may not even have agriculture experience, so that creates a whole new scenario in which education and training will be essential.”
He said the grain storage and handling industry has positioned itself to meet this challenge, with the GEAPS/K-State Distance Education Program which now offers 14 courses and the recently established International Center for Grain Industry and Operations Processing, Inc. (ICGOP).
Incorporating partners for the ICGOP include: Kansas State University, Iowa State University, the Grain Elevator and Processing Society, the Kansas Grain and Feed Association and the Agribusiness Association of Iowa. Many grain storage and handling companies have also offered to support the initiative.
The ICGOP will include: distance education for handling, processing and related industry employee training; intensive hands-on training at multiple locations across the U.S.; credentialing to mark successful completion and encourage ongoing education; and augmentation for on-campus degree programs.
“I don’t know of any other industry that has come together in an attempt to do something like this,” Hurburgh said.