The International Grains Council’s (IGC) recent Grains Conference 2018 heard how Russia will go on being the driving force behind world grains trade, while some other big players outlined their ambitions and the challenges they face. Speaker after speaker warned of the potential effects of climate change.
Jesús Maria Silveyra, Undersecretary of Agricultural Markets at Argentina’s Ministry of Agro-industry, explained that Argentina has a planted area of 36 million hectares with the potential to increase it to 60 million hectares.
“We produced, last year, a historical record of 136 million tonnes of total grains,” he said, including cereals, oilseeds, pulses and peanuts in the figure. “Unfortunately, this year we lost 28 million tonnes due to drought. We need to export more and more because Argentina needs to generate income to reduce poverty. Our objective is to produce 150 million tonnes in 2020 and 186 million in 2030.”
There were, however, concerns over what the countries competing in the grain market would do and how much climate change would affect Argentina.
“The rate of growth of the population is declining,” he said. “Thirty-five percent of the world population is concentrated in China and India. The largest increase in the future would be in Africa. The new players, Russia and Ukraine, are growing fast. We are a little afraid of Russia and Ukraine.”
Climate change was one of Argentina’s main concerns.
“It is a fact, the increase in temperature,” he said. “It is not a joke. We are facing this volatility in climate event. Then we have these commercial disputes about tariffs, import duties, quotas, fight phytosanitary regulations, the use of chemicals. Also, we are seeing a concentration in trading, in the seed production and in the agrochemicals. It’s also good.”
The market will be changed by trends in food.
“People consume more fiber, less fat,” he said. “People don’t want to take sugar, low sodium, low carbohydrate.”
There is demand from vegetarians, halal demand, kosher demand. There are people who want gluten-free wheat.
“Argentina will continue trying to increase production, but we know we have to take care all of these changes in the world,” he said.
More moisture in Kazakhstan
Gulmira Isaeva, Vice-Minister of Agriculture of the Republic of Kazakhstan, outlined the position of Kazakhstan, one of the leading wheat exporting countries, which has produced 19 million tonnes on average over the last five years.
“We export about eight or nine million tonnes of wheat and flour,” she said.
Afghanistan and Iran are the main customers.
“We are the main exporter to the Caspian Sea area,” she said.
Kazakhstan can supply China, Southeast Asia and Iran via the Persian Gulf.
“Because we don’t have direct access to sea routes, we cannot realize our potential fully,” she said.
That meant a higher cost of transport. Flour exports are limited because the Central Asian countries are trying to build up their own milling industries to increase employment.
Isaeva highlighted problems with the double invoicing in Central Asia and Afghanistan. Import quotas are also a barrier.
“Last year we exported 300,000 tonnes to China and only 100,000 tonnes was within the quota,” she said. “The rest paid high duties on sales tax. Uzbekistan charged highly transit fees to get grain to Afghanistan. One of the challenges that is very important at the moment is climate change.”
Varieties in Kazakhstan traditionally had been selected for drought. Now the country needs types of grain that can deal with more moisture.
Kazakhstan is building new transport and logistics structures on key export routes.
“We would like to use our transport opportunities between Asia, Russia and China,” Isaeva said. “We are building and have built a number of railways. We think this will allow us to increase exports. We also plan to build new grain terminals on the borders with Iran and China.”
Kazakhstan is trying to become a more important transport hub between Europe and Asia.
“It’s a new silk route,” she said. “There are 3 billion people along the new silk route.”
The country also is trying to diversify its grain production, encouraging farmers to plant more soybeans, legumes and oilseeds.
“We are giving up hectare bay subsidies,” she said. “We have adopted a new state standard for wheat that is consistent with international standards.”
Farmers are now allowed to import seed without having to go through a complicated separate registration scheme.
Kazakhstan also is encouraging “digital Kazakhstan,” adopting electronic systems for services to crop harvesting. An electronic system of grain receipts accounts for the grain at all of Kazakhstan’s elevators.
“We are attracting foreign investment to achieve a greater degree of processing in grain products,” she said.
Soybean acres rising in U.S.
Robert Johansson, chief economist, at the U.S. Department of Agriculture, expected some prices to edge up into 2018-19.
“We are seeing some strength in wheat prices and the corn market,” he said, adding that it was due to the drought in Argentina, and dry conditions in some wheat areas in Russia and Ukraine.
In the United States, the profile of planting has changed.
“Soybean planted acres is above corn acres for the first time in some time,” he said.
The dollar weakened earlier in 2018, but since then there has been some strengthening.
“It is uncertain how currency will play out,” he said. “We are expecting to see interest-rate increases from the Federal Reserve several times in 2018.”
Economic growth is driving meat consumption at a faster rate, he said, predicting that feed demand would lead to a higher soybean area in the United States. The new farm bill is being discussed against a background of changed realities for U.S. farmers.
“We are seeing net farmer income flattening,” Johansson said. “Five years ago, we had record income.”
Wang Xiaohui, deputy director of the China National Grain and Oils Information Center, said, “Everyone knows that China is the largest producer of grain and also the largest consuming country, especially soybeans.”
Income has risen and the structure of the population has changed.
“People living in urban conditions has reached around 51%,” he said. “More and more people are going into the city from the countryside. Their income has increased. Their consumption has increased. The uptake of commodities into China has also increased.”
In 2018, the Chinese government is targeting a growth rate of 6.8% with urban unemployment under 5.5%.
“Production of food has been maintained at a very high level,” he said, but noted there is an oversupply of rice and maize. “China has adjusted production structure … to reduce the oversupply situation and raise the quality of food production. The acreage adjustment is to try and fit the Chinese domestic supply and demand situation.”
Yields low in Australia
Peter Gooday, chief commodity analyst at the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), outlined that country’s grain industry.
“Australian grain production is dominated by cereals, mainly wheat and barley,” he said. “Yields are low, averaging 1.9 tonnes a hectare for wheat. Over 70% of our grain production is exported. Continued productivity growth is essential.”
The most important factor in achieving that productivity growth is long-term investment in innovation.
“Large farms have increased their share of production dramatically,” he said. “Something like half the increase in productivity since the 1970s has been because of this reallocation of resources to large farms.”
Climate change is likely to be a substantial challenge for Australia. He explained that in the 1990s Australian agriculture had become more intensive, creating higher production in good years but an increased sensitivity to climate shocks. Now improvements are being targeted toward getting better results in dry years.
“It’s important the government and others don’t impede the kind of adjustments and investments in technology that are necessary to respond to climate change,” he said.
More Russian winter wheat
Andrey Sizov, managing director of SovEcon in Russia, told the conference that Russia had had a bumper crop in 2017-18, producing 135 million tonnes of grain, a new record, mainly because of increased wheat production.
“Yields are growing relatively slowly but they are growing,” he said, noting that for the first time the average wheat yield in Russia had been three tonnes per hectare.
There had been some expansion in area over recent years.
“It’s not exploding,” he said.
In many cases it does not make economic sense to bring land back into production. Milder winters because of climate change means that more winter wheat is being produced while the spring wheat area is declining.
“Obviously winter wheat yields are significantly higher than spring wheat,” he said. “Climate change allows us to plant more winter wheat.”
Russian production also has been encouraged by the devaluation of the ruble and a period of relatively high commodity prices. The wheat export growth is a straight line going “up and up and up.” The possible limit is a lack of terminal capacity. He put current capacity at around 55 million tonnes a year.
“We had a very mild winter and moisture reserves are okay,” he said. There are “no big problems with the so-called Russian drought.”
Siberia had a cold winter with snow lasting to the end of May.
“Planting lagged badly,” he said. “I think at the end of the day it will arrive. The yields are likely to be lower because of very late planting.”
Also, for this year’s wheat crop he noticed that crops in the south are close to average.
“The center looks better than average and the Volga, again, looks slightly better than average,” he said.
He estimated the wheat crop at 73 million tonnes.
“The total supply of wheat for next season is likely to decline after five years of growth, but it’s still the second highest,” he said.
He estimated exports at 37 million tonnes.
“Russia is very likely to remain the No. 1 wheat exporter in the new season,” he said, predicting a strong start to the export campaign.
Swithun Still, director of Solaris Commodities, underlined Russia’s success.
“Russia is set to hit 40 million tonnes of wheat exports alone this season, which ends at the end of June, which is stupendous,” he said.
However, he felt that Sizov’s 37-million-tonne export forecast for next season was optimistic.
“It’s going to be hard to improve the yield in the south,” he said. “They’re always pretty high.”
He pointed out that Russia did not have, unlike other exporting countries, a well-funded lobby “going around the world persuading buyers to buy Russian wheat.”
Instead, when the millers went looking, the quality they needed came from Russia.
“Production growth is possible,” he said. “Today, actual planted area is lower than it was in the Soviet Union. The cost of production is less. The profitability is there. The ruble is weak. Prices in rubles are good.”
Yields in the south of Russia are impressive compared to other origins.
“We have similar low yields to Australia in Siberia,” he said. “Irrigation is a problem. That’s why you have swings in production relative to the weather.”
He put port capacity for export at around 5 million tonnes a month.
“There is more port infrastructure being built in the next few years,” he said. “Russia will remain the focus, particularly in wheat, where it is the powerhouse.”
He put the wheat export potential of Russia this year in “the low 30s, maybe 32” million tonnes.