Getting more global

by Chris Lyddon
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The grain market is becoming more global. Wherever you are, events in countries far away affect supplies and prices in your market. Speakers from around the world came to the International Grains Council’s (IGC) annual conference on June 7 in London, England with a message of connected and interdependent markets.

Joseph W. Glauber, chief economist of the U.S. Department of Agriculture, was the first to make the point.

“Even events in Greece and the events in China are as important as droughts in Texas or droughts in New South Wales,” he said. “We’ve seen in the last five or six years what events can do to these markets. A very important element of the current market situation has been strong growth in demand.

“Despite record yields, we just haven’t seen the growth in ending stocks we would have expected. This is the third year in a row we have had flat demand for ethanol,” he said. “What that will lead to will be rapid growth in corn stocks.”

He commented on a sharp fall in supplies from the Ukraine and Kazakhstan. “These were countries that had snapbacks last year,” he said. “As a consequence we are projecting a small decline in wheat stocks.”

Overall higher prices are likely to have triggered record production of winter wheat in the United States, he said. “There was so much abandonment of acres last year that we have predicted three million acres of harvest area we didn’t record last year,” he said. “This should be the second largest on record.”

Rice production is also expected to break records, but stock levels are expected to remain flat. “The big news has been the fact that consumption to has been increasing,” he said.

Glauber described increasing corn production, most of it from the U.S., as incredible. “Corn prices, we know, have been at record levels,” he said. “We are expecting some 96 million acres. This would be the highest planted area since 1937.”

He pointed out that the amount of corn used for ethanol had effectively reached a maximum. “The amount of ethanol produced from corn is capped at 15 million gallons,” he said. “We are very close to that.”

Fuel consumption has started to fall as Americans adopt more fuel-efficient cars. At the same time, conventional vehicles are limited by a 10% blend. Even though the Environmental Protection Agency will go to a 15% blend, there are liability issues with selling fuel with ethanol content that high. “Petrol stations just won’t make the move to 15% ethanol,” he said. “What that means is corn use for ethanol should continue to be flat. Ethanol prices have triggered a sharp discount to gasoline over several months.”

He also noted an increase in corn imports by China. “Our own forecasts show a small increase last year with a lot of uncertainty,” he said.

China stresses food security

Bingzhou Cheng, director general, Department of General Affairs, China Grain Reserves Corporation (Sinograin), looked at China’s practice and experiences of safeguarding the nation’s food security with grain reserves.

“The Chinese government has always been paying much attention to grain security,” he said. “Grain security has always been part of the strategy to maintain social stability. For the last decade, China has managed to be 95% self-sufficient regarding main grain products, feeding 22% of the world population with only 9% of the world’s cultivatable land, contributing greatly to world grain security.

“2011 saw the national grain output reaching another historic new height. Grain output has increased for the eighth successive year, corn and rice output reached historical heights, and wheat output reached the highest level since 1998,” he said. “According to the 2011-12 autumn winter plantation, winter wheat and rapeseed acreage has increased compared to last year. The plants are looking fine, which lays a good foundation for a nice summer harvest in 2012.”

As the population and economy are growing, the consumption level of the Chinese people is also increasing fast, he said.

“On the one hand, the demand for foodstuffs is increasing steadily. According to statistics, the demand for foodstuffs in 2011 was 600 million tonnes, an increase of 100 million tonnes compared to 2005. On the other hand, the structure of consuming demand is also getting higher. The ratio of food consumption is dropping every year, while the demand for fodder and industrial crops is growing rapidly, and it is getting more obvious in the past few years. This is because the consumption structure is turning from basic grain to more nutritious food like meat, eggs and diary products, which has induced the rapid increase for fodder crops,” he said. “At the same time, rapid development of new biomedicine, food processing, alcohol and fuel ethanol and other business also pushed the consumption of industrial crops up.”

In 2011, China consumed 270 million tonnes of food grain, which is only 45% of its total grain consumption, and it is decreasing every year. In 2011, the demand for fodder and industrial grain was around 300 million tonnes, which made up 50% of the total consumption, he said.

“The rapid growth is continuing; the consumption for feed and industrial crops has overtaken food (first happened in 2010),” he said.

Bingzhou Cheng also noted that China’s grain market has become more interactive with the international market since it joined the World Trade Organization.

India, the world’s other developing giant, was represented at the conference by Nilambuj Sharan, a director at the Department of Food and Public Distribution, who looked at demand and availability of food grains in India.

For a huge country like India, with a population of 1.2 billion, food security is very important.

“Our policy is directed by concern to ensure self-sufficiency,” he said.

The Indian government is implementing a program of public distribution and maintaining buffer stocks. At the same time, India’s agriculture is becoming more efficient.

“The area under production has increased by 10% in the last five decades whereas the volume of production has increased threefold,” he said, referring to foodgrains. “We are self-sufficient in food grain production,” he said. “We have realized a record level of production. We are also able to keep our prices stable despite global volatility.”

At the same time India has allowed the export of wheat. “There are no restrictions now,” he said. “Import is also allowed under the zero general duty. We already exported about 1 million tonnes of wheat this year. We have an exportable surplus of five or six million tonnes.”

India is changing policy to guarantee the supply of food to the poorest people. “The country is about to take a historic step by making access to food grains a legal right,” he said.

Waleed A. Elkhereiji, director general of Saudi Arabia’s Grain Silos & Flour Mills Organization, described changes in the wheat and feed market in that country.

“The market in Saudi Arabia is open for all different sources of wheat,” he said. “Nowadays we are only importing hard wheat.”

However, there is a plan to start importing soft wheat as well, and Saudi Arabia remains the world’s largest barley importer, receiving 7.2 million tonnes a year, although it has decided to subsidize feed wheat in an attempt to substitute.

“The first challenge we have now is to increase storage capacity,” he said. “The second challenge is to privatize the flour mills.” That is waiting for government approval.

Khairullah Hasan Babakr, Iraq’s minister of trade, described the grain supply and demand situation in that country.

“We are keen to enter the global markets on a regular basis through announcing tenders for supplying wheat and rice almost on a monthly basis so as to secure the required quantities distributed to Iraqi citizens and to achieve food security,” he said.

Canada preparing for transition

Brent Watchorn, senior vice-president, Grain & Crop Input Marketing at Canada’s Richardson International Ltd, looked ahead to the opening of the Canadian wheat market on Aug. 1, when the Canadian Wheat Board monopoly ends. “Already in the Canadian market you see players such as ourselves buying wheat from producers.”

They are also already agreeing on export contracts. “We cannot physically export those until Aug. 1,” he said.

Some farmers will want to go on supplying the Canadian Wheat Board. “The wheat board does the price pooling that farmers have become accustomed to,” he said.

He also expected third parties to come in and supply some of the services previously supplied by the wheat board.

He sounded a warning about the duopoly in transport of the two rail companies, Canadian Pacific and Canadian National.

“The railways have been performing fairly well in the last six months,” he said.
They have, however, been putting extra requirements on the industry with penalties for non-compliance. “What we are looking for is reciprocal penalties,” he said.

Some of the grain exchanges were trying to move into the Canadian market, he said. “We’re seeing now global exchanges do want to play in the same marketplace,” he said. “There is probably not enough room for all of them.”

Since 2001-02, canola has really become a key crop in Western Canada, going from around 10 million acres in 2001-02 to this year potentially over 20 million acres, Watchorn said. Because of that, he said it’s hard to see wheat acreage doing anything more than stabilizing.