Latin America, India and The Black Sea: Global Grain Asia's sneak preview of the next market cycle
By Eric J. Brooks
With the old market cycle winding down, new buyers and emerging suppliers keynoted Global Grain Asia 2018. Held from March 12th to 14th at Singapore's Novotel Hotel, it was attended by nearly 400 feed crop decision makers. This year's edition featured approximately 40 representatives of Asia-Pacific mills alongside key Asia Pacific grain traders, buyers, suppliers and financiers including COFCO, BRF, CP, FC Stone and Rabobank.
Jean-Yves Chow, Mizuho Bank's senior vice president for Asia financial solutions, food and agriculture opened the pre-conference China Briefing day by explaining what he called "the butterfly effect", whereby domestic Chinese agricultural policies drastically impact its trading partners. For example, "China could potentially import more soybean and export crushed soymeal to southeast Asia while consuming soy oil instead of palm oil." Hence, China's value-added solution to soy crushing overcapacity could have devastating consequences for stakeholders ranging from Southeast Asian palm oil exporters to Argentine soymeal suppliers.
Thereafter, Juhui Huang, BRF's vice president of corporate affairs for BRF explained how diverse factors including agribusiness consolidation, destocking of bloated grain inventories, new corn processing plants, ethanol production and the migration of livestock farming into inland, northern regions would influence Chinese feed crop demand in years ahead.
The day closed with ChinaAg director Loren Puette and eFeedLink senior analyst Eric J. Brooks detailing the interplay between China's meat demand growth, government policies and unexpected changes in Chinese agribusiness import levels. Alongside explaining policies and geopolitical rationales that caused China to minimize corn imports and maximize meat imports, Brooks predicted that the 2020s would see a flattening out of Chinese meat imports and booming foreign corn purchases. He added that surging Chinese corn demand would coincide with comparably rapid import growth in Southeast Asia and India.
ConsiliAgra founder and director Emily French formally opened the conference by noting the most important permanent change of the last few years: The ascending supply-side dominance of Black Sea grain and Brazilian soy. While futures continue to be traded in Chicago, these changes have made, "Russia the price setter for wheat", "Brazil the price setter for soybeans" -and relegated America to being "the world's storage tank" for feedgrains and oilseeds.
Panelists and presenters that followed French implied that Black Sea grain was putting more than just America's grain supplier status under pressure. Whereas Australian wheat once dominated Southeast Asian imports, Brett Cooper, the Australia-based head of agricultural, International FC Stone Asia and Agracom Pty Ltd director Brett Donoghue made clear that "the Black sea has competed heavily and taken much of that business away."
Gary Stanford, ex-president of Grain Growers of Canada reported Canadian wheat experienced similar competitive pressure and Asian market share losses from Black Sea suppliers. Veles Agro director Viktor Korobko pointed out that alongside much touted Black Sea supply growth "Farmers reinvested their profits in crop storage, so the pressure to sell is not as strong as before."
This interplay between infrastructure and exports was later expanded upon by Alphamar managing director Arthur Neto and general manager David Ross, who used Google Earth to show Brazil's recent shipping capacity improvements. With the number of northern Brazilian shipping ports having increased from 5 in 2013 to 14 this year, Neto predicted that "When northern Brazil's FOB price becomes competitive, we will be able to compete for Asian destinations." Within a matter of years, that will change global grain shipping routes while opening up untouched Brazilian land to soybean cultivation.
Enabled by infrastructure improvements, Brazil's sahfrinha (second season) corn crop rose from 15% of its yearly harvest in 2001 to 65% of its yearly harvest in 2017, enabling it to become dominant corn exporter. Noting that, "75% of our grain exporting capacity is in southern states but this is rapidly changing", Neto predicts that, "northern [Brazil's] inland logistics will eventually change freight shipping dynamics."
Other speakers made clear that Asian demand is destined to outstrip the coming increase in Central Asian and Latin American supplies. Sumit Gupta, business manager at Gargaon, India, McDonald Pelz painted a picture of stagnant Indian corn and soy yields, tight inventories and an ongoing conversion of feed crop growing land to less water hungry vegetable cultivation. Noting that "Our [meat] consumption is going up 2.5% to 3.0% a year and we need an extra 7 million tonnes [of feed grain] every year", Gupta's numbers made a case for India requiring mass feed crop imports sometime during the next decade.
Similarly, John d'Ancona, Clarksons Platou Asia's divisional director for dry bulk market analysis pointed out that "It's not just China anymore. There are a lot of largely populated countries that want to follow China's example." Alongside anticipated Chinese feed grain imports, d'Ancona states notes that, "we've got huge regional growth; we need to add in Vietnam, Indonesia, Philippines and India."
This idea of Southeast Asian demand growth rivaling that of China's was later echoed in comments made by several panelists including Dao Manh Luong, executive officer of Marvin Group, Austfeed Vietnam, Neovia Group purchasing manager Jean-Francois Courtin and Soon Soon Group managing director, Dr. Neoh Soon Bin.
Dr. Neoh warned that despite near-record corn and soybean inventories, "This region [Southeast Asia] is overdependent on corn and soymeal imports" and that a bad US harvest could send local soymeal prices skyrocketing. He explained that "You are not merely trading [soybean] supply and demand. You are trading demand and crushing capacity, " with the latter in far shorter supply.
The evolving coincidence of rising Asian demand and new Black Sea supplies was evident in this year's shifting demographics, with a visible surge in overall attendees and Eastern European based decision makers in particular. With the Singapore Novotel conference hall constantly abuzz with grain industry decision makers, this event has asserted itself as both an invaluable place to obtain feed crop market insights and as a key industry meeting point.
An old, China-dominated corn and soy market chapter has closed -but Global Grains 2018 gave us a sneak preview of a new, upcoming industry cycle: One where Latin American and Black Sea grain challenge North American and Australian suppliers -and where China must compete with Southeast Asia and possibly India for its share of increasingly scarce feed crops. We look forward to Global Grains turning the first pages on this new market phase in the years to come.
Global Grain Asia 2018
Date: March 13 - 15, 2018
Venue: Shangri-La Hotel, Singapore
Organiser: Global Grain Events
Tel: + 44 (0) 20 7779 7222
Global Grain Asia 2018 will feature expert speakers who will focus on the region's consumption trends as well as trading opportunities based on global production outlooks and macroeconomic conditions.
The event seeks to provide visitors with knowledge on how Asian demand will evolve and provide networking opportunities along the entire supply chain at a single location.
The event will include international and local traders, producers, financiers, risk management solution providers, ship brokers and logistic firms.
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