Oilseeds to be bullish in 2012
Feb. 21, 2012
by Arvin Donley
The world will see a reduction in ending stocks in oilseeds in 2012 due to a slowing down of growth in plantings because of increased acreage competition from grains. Couple that with the growing demand for soybeans and it’s easy to see why analysts at the 2011 Soy and Grain Trade Summit, sponsored by Soyatech, were in agreement that oilseeds market will be bullish this year.
“Acreage competition will continue between oilseeds and grains and sugars,” said Thomas Mielke, director, Oil World, who spoke on the opening day of the conference, held Nov. 1-2 in St. Louis, Missouri, U.S. “Corn in the U.S. will not be able to yield any acres due to demand.”
The greatest potential for increasing oilseeds production is in South America, particularly Brazil, where a sizable amount of land is available to be converted for crop production.
Peter Goldsmith, director of the Food and Agribusiness Management Program at the University of Illinois, said Brazil, which currently ranks second to the United States in soybean output, will be the world’s leading producer by 2030.
He noted that in an attempt to maximize both soybean and corn production, some Brazilian farmers have converted to a 90-day soybean variety and are planting corn the rest of the year.
“The drawbacks are that the growing seasons are so tight that any anomaly in rainfall will throw off planting, harvesting and pollination, which affects yield,” he said. “Still, it’s sustainable.”
On the demand side for oilseeds, much of the growth is driven by China. It is estimated that nearly 50% of the current increase in global soybean consumption is from that country.
The growing middle class in China is now as large as the entire population in the United States, and its changing dietary structure due to increased income creates heavy demand on the food supply chain.
Yang Gouqiang, China’s Consul General based in Chicago, Illinois, U.S., told the conference delegates that Chinese food palette is changing from grain-based to meat-based, and he believes this trend will continue for the foreseeable future.
Goldsmith noted that poultry consumption will increase dramatically over the next 20 years, increasing the need for efficient feedstock production in China, the U.S. and Brazil, where most of the poultry will be produced. He said that Brazil will be a major meat exporter, enabled by large supplies of cheap feedstock, but its sub-standard infrastructure is still constraining production.
GLOBAL FOOD SECURITY
The issue of global food security was discussed by Robert Thompson, senior fellow at the Chicago Council on Global Affairs. He said global warming, water supply issues and crop biotechnology will have a major impact on food security in the coming years.
Thompson said global warming will affect crop production patterns, making it difficult to produce crops in areas in which they have been grown for centuries. There has been concern, for instance, that it will be more difficult to grow wheat in Australia which is projected to become a hotter and drier climate. However, wheat production in North America may shift more toward Canada as arctic temperatures continue to shift northward.
The prospect of a drier climate will also impact farmers’ ability to irrigate crops, he said.
“As population gravitates more toward urban centers, farmers will be outbid for fresh water,” he said. “As the volatility of extreme weather conditions increases, the need for efficient, drought-tolerant crop varieties will also increase.”
Studies have shown that crop production must double by 2050 to meet food demand, and Thompson said ways to increase the odds of meeting that goal include making unproductive soils productive, increasing the genetic potential of crops and reducing post-harvest losses.
FREE TRADE AGREEMENTS
Officials representing U.S. soybean and grain trade interests at the conference praised the signing of free trade agreements (FTA’s) in October with South Korea, Panama and Colombia.
Steve Censky of the American Soybean Association said the South Korean FTA gave the U.S. access to 49 million new consumers with two-thirds of the farm goods becoming tariff-free, while the Colombia FTA allows the U.S. to regain market share lost to Canada, with 70% of the farm goods being tariff-free.
Sharon Bomer Lauritsen, assistant U.S. trade representative for Agricultural Affairs and Commodity Policy in the Office of the U.S. Trade Representative, said that in addition to the three FTA agreements, Mexico has dropped the last of its retaliatory tariffs on U.S. agricultural products, and noted that all of these developments will contribute to future GDP growth in the U.S.
During his keynote address to conference delegates, former U.S. Senator Christopher S. Bond, now a partner at Thompson Coburn LLP, discussed the potential impact that an expanded Trans-Pacific Partnership (TPP), would have on agricultural trade.The TPP is a multilateral free trade agreement that aims to further liberalize the economies of the Asia-Pacific region. The original agreement between the countries of Brunei, Chile, New Zealand and Singapore was signed on June 3, 2005, and entered into force on May 28, 2006. Six additional countries — Australia, Malaysia, Peru, Japan, the U.S., and Vietnam — are negotiating to join the group.
Bond said becoming part of this partnership would ensure that the U.S. remains “a vital player, and will be the most important agreement since the North American Free Trade Agreement (NAFTA).”
Specialty grains market growing, but GMO remains a major issue
Markets for food grade soybeans and specialty grains continue to emerge, particularly in developing countries where the standard of living has increased in recent years.
That Identity preserved (IP), organic and non-genetically modified (GM) soybeans are in greater demand than ever is music to the ears of a company like global grain merchant Scoular Company, which entered the IP market in 1994.
Speaking at Soyatech’s Global Grains Summit on Nov. 2 in St. Louis, Missouri, U.S., Greg Licktieg, senior group manager, Scoular, said that while the IP and specialty grains business has been expanding for the Omaha, Nebraska, U.S.-based company, it and other companies selling non-GM products continue to deal with the hot political issues associated with GM soybeans and corn. The conflict stems from some consumers fearing that products containing GM are unsafe for human consumption despite many scientific studies proclaiming that GM products do not cause harm to humans.
“The GM issue is not going away. It seems to me that the sides are polarizing,” he said. “We’re not talking; we’re not cooperating. Conventional commodity agriculture maybe feels threatened by the non-GM side, the organic folks.”
Although China, with its large population and growing number of citizens with increased spending power, would appear to be a good fit for IP or non-GM soybeans, the country has a zero-tolerance for GM.
“We have not shipped soybeans to China because of the risk of their customs finding some level of GM in there,” said Lickteig, who noted that Scoular does not do business with countries that have a zero-tolerance standard because of the risk involved. “The work we have to do as an industry to allow some tolerance.
“We never say our soybeans or corn are 100 percent non-GM. It’s in the environment and if you look hard enough you will find it; it’s out there forever. China says it is non-GM in the production of soybeans. Maybe it is, but I think it’s difficult for any supplier to make that statement today. We will never say that or put that into a contract.”
Tests for GM are highly sensitive and can detect the tiniest trace of genetically modified soy or grain, he said. And it stands to reason that as the amount of GM plantings increases around the world — nearly 94% of soybeans grown in U.S. are genetically modified, while 75% of soybeans grown in Brazil and nearly 100% produced in Argentina are GM — the chances of cross-contamination increases.
“The level of GM can vary throughout a field, throughout the storage bin or even throughout the truck,” Lickteig said. “We have one buyer who is a manufacturer of food soy products. They test the beans we send them. If they get a positive they’ll wash that in water and then test again. Just the dust from GM can make that check go positive — that’s how sensitive those tests are.”
He said uncleaned shipping containers can be a major issue, and buyers and sellers need to agree on set procedures for trying to prevent contamination.
“There’s no guarantee that the previous cargo in the container was not hazardous material or undesirable products,” Lickteig said. “Container quality is a real issue. You can wash those containers and still have problems.”
One way to deal with the problem is with the use of container liners. Even then, there is dispute about who should pay for them and when they should be used.