With the COVID-19 pandemic finally starting to ebb, speakers at this year’s International Grains Council (IGC) Conference, held virtually June 8-9 as a precautionary measure, said the global grains and oilseeds supply chain has handled COVID-19 well, despite wrestling with labor supply problems, closed borders, high shipping costs and wild swings in demand, notably away from biodiesel as vehicle use shrank dramatically with people around the world staying home.
The feed sector had problems keeping its workforce safe and got a reminder that buffer stocks are necessary to cover shocks to the system, while oilseeds producers and traders are looking forward to renewed biofuel demand. For grains, favorable weather has brightened the production outlook.
In a group discussion on feed demand, Justin Sherrard, global strategist, animal protein at Rabobank, highlighted the issue of labor availability in the wake of the pandemic.
“The animal protein sector, particularly 12 months ago, had enormous problems with maintaining workforces in a safe environment within their plants,” he said. “In some cases, with beef for example, we are still working through the back end of the supply backlog that was established by the slowdown in plant operations.
“There have also been some disruptions associated with COVID-19 outbreaks in plants that have influenced or impacted or restricted trade. Certain plants have been suspended from exporting to certain countries because of COVID outbreaks, for example.
“Most of that is behind us but the broader issue of labor availability remains. It remains quite challenging in many parts of the world to find the workers, to get the workers into the plants, particularly some of the more labor-intensive deboning activities.”
Sherrard also pointed to a growing challenge regarding freight costs.
“The cost of shipping from Europe to Asia, North America to Asia, South America to Asia – all of these costs have gone up during the last nine months or so,” he said. “While we may be saying that those costs have peaked, they are still very high costs when you have to also take into account that feed is also very expensive at the moment.”
Zoltán Pulay, vice president of the European Feed Manufacturers’ Federation (FEFAC), said that the first wave of the pandemic “was really scary.”
“We really just faced a situation where we really didn’t know what to do,” he said. “That happened in such a short period of time, but I think both our federation and our European organizations have been very successful in negotiating originally with the governments, also sending out messages very quickly to the (European) Commission.”
An early success was in getting the European Commission and the EU’s Member States to set up what were called “green lanes” to enable the agrifood sector’s vehicles to move between European countries.
“That was extremely important,” he said. “Feed ingredients and also feeds were not able to move over the borders. That would have been a very serious problem in the food supply.”
Europe, in his view, handled the first wave well, but then there was a second wave that brought with it shipping delays, notably from Asia.
“Goods could not move from central Asia to the ports, and then all of a sudden there was a big panic purchase, especially from the pre-mix producers who are buying all their ingredients, or the majority of their ingredients, from Asia. That led to a very significant price increase. Then logistics calmed down a bit and the prices came down again, and all of a sudden we had the third wave. We are still living in very severe conditions of shipping costs and the lack of containers.”
FOB Asian prices for ingredients are coming down, but freight costs mean European buyers are paying more.
“Everybody had to realize that a safety stock is a must,” he said. “That is a burden for the European feed industry even today.”
Countries seek self-sufficiency
Justin Sherrard noted a broader political dynamic stemming from COVID-19 is some countries accelerating existing policies around self-sufficiency.
“We see that in parts of Asia, and we see that in parts of the Middle East as well where there has long been interest in improving self-sufficiency,” Sherrard said. “The most obvious example in recent times has been a move by Saudi Arabia to block imports of chicken from Brazil, which I think is all about improving self-sufficiency within Saudi Arabia. We see a little bit of this in China as well. The current five-year plan talks about a move toward self-sufficiency.”
In a panel debate on vegetable oil markets, Gustavo Idigoras, president of the Argentine Grains Exporters and Oilseed Industry Trade Association (CIARA-CEC), said: “We are watching an incredible increase in prices for vegetable oils in the last year, particularly in these last months.”
He highlighted the growth of biodiesel in the United States, “with the adoption of the renewable energy policy — particularly the introduction of a new technology that is the HVO (Hydrotreated Vegetable Oil) and particularly the use of the vegetable oils as a raw material for such production.
“It is clear that the level of participation in the international market from the US is quite different from before. So one of the main drivers that is pushing this particular tension between offer and demand is focused particularly on the US renewable policy.”
In contrast, Argentina, with the government likely to trigger a reduction in the usage of vegetable oil as fuel, would be able to export more. Brazil looks set to maintain its biodiesel mandate.
Jakob Dehoust, senior market analyst at Archer Daniels Midland Co. (ADM), discussed the rapeseed market.
“Over the last season, after consecutive smaller rapeseed crops in the major exporting regions, we have seen a huge reduction to minimum pipeline requirement stocks in both Canada and also the EU,” he said. “It started a few years ago in the EU and this year with 6 million tonnes of EU imports in total (with) quite a large share of more than 2 million tonnes from Canada. Canada’s stocks are getting excitingly tight.”
The EU’s rapeseed oil and rapeseed stocks had become tighter despite the effects of COVID-19.
“We lost biodiesel demand of around half a million tonnes, so a million tonnes seed equivalent, because of less mobility, transport and public transport,” he said. “We all still sit at home. Most of the offices in Germany, for example, are still empty.”
Stronger demand was expected from the biodiesel sector and prices for the new crop are at a record high, despite the improved outlook for EU production.
European crops bouncing back
In a discussion of the grains and soybean production outlook, Maurits Van den Berg, senior scientist, European Commission Joint Research Centre, Directorate for Sustainable Resources, said that it was still difficult to say if the growing season had gone well.
“Let’s start by saying that we had three difficult years behind us,” he said. “Anything that is better than that is already positive.”
The winter crop season started well, without too much rain.
“Crop establishment was fairly good, especially in December in most European countries,” he said. “But then we also had some very severe cold spells, really record cold temperatures, which has been quite rare during recent years because we were always talking about record hot temperatures.
“Even in April, we had a very cold period. April is, of course, the period when winter wheat grows and the crop stems are forming, and also when the summer crops are sown and germinating, and shoots have their early establishment.
“Currently, depending on where you are, conditions have been more stable. Temperatures, even though in many places are still slightly below average, are now much more favorable for crop growth so we have seen an acceleration of winter crop development and growth.
“We are cautiously positive about the outlook for 2021. That concerns the main European producers but also the neighboring regions like Ukraine and European Russia.”
Van den Berg said he is less positive about Turkey.
“Let’s put it that way, mainly for the summer crops, because currently a lot of irrigation water has been used for winter crops,” he said. “Water reserves are at a very low level.”
Huge corn, soybean plantings in the United States
Libin Zhou, lead research analyst, agriculture research at Refinitiv Commodities Content and Research, explained that a large projected area was planted to maize and soybeans in the United States.
“US farmers wanted to take advantage of the high prices,” she noted.
There were still some concerns over warm and dry weather in the northern plains and upper Midwest, she said.
“Soil moisture in North Dakota has been low compared to the long-term average as well as in some portions of Iowa, one of the biggest corn and soybean producing states, but so far we still think corn and soybean production should be OK at the moment,” she said.
Zhou said the summer weather outlook in the United States did not indicate any significant dry or warm conditions.