World Grains Summit: Feeding China, decoupling from Chicago
Encompassing everything from Chinese import demand to the decoupling of Asian and CBOT markets, a resurgent grain trade reflected upon its opportunities and challenges.
Having recovered from the Lehman/AIG crisis, the World Grains Trade Summit focused on meeting burgeoning Asian feed demand and the strategies involved in doing so. Vijay Iyengar, managing director of Agrocorp International Pte opened the conference by noting that compared to the previous year, participants were far more optimistic. Charlie Blomfield, managing director of Agricultural Management Company Pty, stated that, ''low inventories and undeniable fundamentals are in favour of grain with regards to population size and growth.''
With the financial crisis gradually fading away, monetary issues still loom but are becoming less important. Michael Jester, managing director of Peter Cremer (Singapore) GmBH conceded that even now, ''grain prices are being influenced by money flows and speculation that takes them completely away from fundamentals.'' Nevertheless, ''although money flows have taken the market where it is today, fundamentals will take over by March.''
Moreover, it soon became clear that Asia was driving widely anticipated demand growth. In his presentation, Paul Gruenwald, chief economist for ANZ Bank Group stated that, ''China's agricultural imports have been very strong but up to now, they've been overshadowed by the even stronger import performance of base metals.'' That is because China's economy has been mostly investment-driven.
Gruenwald then pointed out that, ''as China transitions from investment-oriented growth to consumption-oriented growth, we should see a shift from metal imports to grain imports.'' Eventually, this may cause grains to experience the same intense price inflation seen in metals during the previous decade.
Later on, a growing dichotomy between grain industry veterans and institutional investors was explained in excellent detail by Blomfield, who stated that, ''typically, we have investors sitting in one side of the room and farmers on the other side and each does not understand what the other side does.''
Apparently, this misunderstanding arises from grain growing's unique seasonal, land dependent attributes. Blomfield explained that, ''when investors are looking at 10 to 15 year timeframes, you can't say you'll get 4% cash yield and 10% capital gain as you would in other industries.'' All this means that, ''you can't just get big in agriculture and get the returns you expect.''
Highlighted challenges standing between grain supply and demand encompass everything from a shortage of Australian railway cars to climate change, gyrating shipping rates to a breakdown of correlations between CBOT futures and Asian grain prices.
Regarding the latter, K.C. Suresh, president and global head of Asia Olam International's grain division noted that in the last two years, ''the correlation between the CME and the Laksi [Indian] market fell from 90% to about 60%, such that it becomes unhedgeable.'' In response to these emerging trading risks, Dougal Hunter, manager of agricultural derivatives for the Australian Securities Exchange stated that, ''we are starting to see discussions on how the ASX can be used as opposed to the North American wheat markets.'' In a similar vein, Bob Hanson of Sabio Pronostico P/L explained the increasingly complex impact of climate change on grain markets.
The second day was highlighted by an animated discussion between Willis Cheng, chairman of CP, Arif Widjaja, PT Japfa Comfeed's trading division senior vice-president and Dr. Johnie Thomas Scott, Radwa Food Production Company's CEO. Powering their discussion was a single, salient fact: The grain sector's recent, often traumatic transformations are forcing the entire feed-to-livestock supply chain to change how it conducts business.
