The conference started with Dan Basse, president of Chicago-based AgResource giving a comprehensive overview of the state of world feed grain markets. Basse concluded that since the last GlobalGrains in Geneva, Switzerland late last year, markets had passed an important inflection point. He explained that whereas six months earlier, the market was in an uncertain sideways pattern, "markets are turning into a bearish phase assuming normal weather." According to Basse is that for the first time since 2008, the world is poised to grow more corn than it consumes.
While Basse anticipates softer prices in the near future, he believes that the bull market remains intact but with important changes. With Americans driving less, US ethanol output is approaching its legally mandated limits. This implies that far more of future increases in corn output will go into feed demand rather than biofuel. At the same time, China's growing need for corn imports means that while the ethanol supply constraint is eased, demand will, if anything, grow faster than before.
Basse also offered his explanation for an issue that has been vexing grain market observers for some time: Why the USDA has been getting its corn inventory and feed consumption estimates. By changing the grind size of corn, animal feed efficiency was enhanced, thereby allowing the same number of animals to achieve similar growth with less feed corn.
Basse's somewhat bearish outlook for corn was succeeded by a more bullish assessment of soy's prospects by Abah Ofon, director of agricultural research at Standard Chartered Bank. He pointed out that China's rural population is almost as large as all of Southeast Asia and that its rising meat consumption would boost soy demand.
Ofon also noted that while China's crush margins are thin, political considerations keep soy imports flowing in as much as they keep required corn imports out. In China's case, the need to keep meat price inflation under control is expected to boost this year's soy import total to 62 million tonnes this year and 67 million in 2013. While these totals are higher than those of most analysts, it must be said that China's rapid soy import growth has repeatedly caught market observers off guard. Against a backdrop of this year's drought shriveled Latin American soy export volumes, Ofon expects China's demand growth to boost soy prices.
While opening speakers gave excellent overviews of forces driving grain markets, those that followed explained the implications of these trends for specific subsectors. Bernard Belk, global head of agricorporate business, Swiss Re insurance explained how risk management strategies and new types of insurance can be used to insulate stakeholders against unstable crop harvests and wild price swings.
John Baker, Rabobank's head of food and agribusiness research and advisory explained how market volatility and attendant risk management strategies were both stressing and reshaping the agribusiness supply chain's midsection. According to Baker, risk management techniques used by stakeholders at the feed and retail stakeholders were transferring risk and market stress to the livestock farms, meat processors and integrators which dominate the supply chains middle. In response to these stresses, these mid-stream players are consolidating, becoming more adept at managing working capital, mitigating its attendant volatility and, "you increasingly see the service element becoming embedded into the supply chain."
In a similar vein, Peter Kerr-Dineen, joint chairman of Singapore-based ship brokers Howe Robinson & Company Ltd. explained how the rise of container-based grain shipping is changing the thousand year old relationship between shipping logistics and grain exporting. Expecting the fall off in shipping rates to be offset by rising fuel costs, Kerr-Dineen pointed to the Panama Canal's 2014 widening has the potential to transform grain trade flows and shipping formats. "In 2014, the Panama Canal will allow ships with 14,500 containers vs. 4,700 now. Can you imagine what that will do to grain shipping rates?"
His explanation of container shipping's advantages for grain exporting was further elucidated by Ozan Ozturk, presient of Dubai-based Agrozen Commodities. His presentation explained how Black Sea corn, wheat and barley exporters from Russia, Ukraine and Kazakhastan were using container shipping's superior cost economies to export feed grains into East Asian markets. All these speakers concluded that the coincident rise of container shipping and Panama Canal widening not only threatened to make bulk carriers redundant, but could make it unnecessary to construct grain handling terminals.
Presentations on price risk management strategies, panels discussions on maintaining feed milling margins amid market volatility, the Australian Wheat Board's privatization, and the implications for the Canadian Wheat Board's privatization dominated panel discussions.
