Global grain trade amid rising bio-fuel demand 

An eFeedLink Exclusive

Moving grain between countries has been a challenge, bringing with it implications such as varying freight rates, the changing nature of supply and demand, and logistical adjustments.

Held from Jun 28-29 at Raffles Hotel, Singapore, Grain Shipping 2007 highlighted these implications, with some 70 delegates from both the grain and shipping industries gathering to exchange insights into one another's businesses.

A particular issue continued to stand out among the challenges discussed as various expert speakers presented their perspectives, namely the increasing strain on global grain supplies in recent years as countries turn more towards production of grain-based bio-fuels.

Unsurprisingly, the biggest share of global grain demand comes from Asia as the region accounts for more than 50 percent of the world's population. In particular, USDA data has shown that China's corn, wheat and soybean supplies have fallen short of domestic demand since 2000, due to the impact of flood and drought, rising population and governmental policies. Consequently, China has been a net grain importing country from 2000 to 2004.

Rising global meat consumption has driven meat production and hence feed grain demand. Pork and poultry demand have risen faster than that of beef in recent years, with significant long-term growth potential seen for poultry consumption due to lack of religious constraints. In the short term however, pork demand is expected to continue growing the fastest thanks to China's huge appetite for the meat and lingering global concerns over mad cow disease and bird flu.

Expansion of the livestock industry in countries that are not self-sufficient in meeting their own feed demands significantly affects growth of coarse grain trade. Looking at South-east Asia, rising demand for livestock products is expected to outpace the region's ability to expand its own feed grain production. Consequently, corn imports into South-east Asia are seen to total more than 1 million tonnes over the next 10 years.

China's expansion of its soy crushing capacity significantly boosts international demand for soybean rather than soymeal. The country is expected to increase soy imports instead of expanding domestic soy acreage.

On the other hand, Brazil's soy acreage is rapidly growing, allowing it to export more soybeans and soymeal. However, the increase in Brazilian soymeal exports is seen to be limited amid rapid growth of the domestic pork and poultry sectors. Additionally, Brazil's export tax system favours exporting soybeans rather than soymeal or soyoil, due to its differential nature. 

While not considered a substitute for soymeal, distillers dried grains with solubles (a by-product of ethanol production) and other protein meals are also expected to affect demand and hence prices of soymeal.

Another highlight was the impact of bio-fuels on agricultural commodities markets. Crops specifically grown for use in producing bio-fuels include flaxseed and rapeseed in Europe, palm oil in South-east Asia, corn and soybeans in the US, and sugar cane in Brazil.

To ease the strain on food and feed crops being also used in bio-fuel production, several countries worldwide such as the Philippines and Indonesia have accepted Jatropha curcas as an alternative bio-fuel feedstock.

Jatropha was chosen due to its low cost seeds, high oil content, short gestation period and ability to grow in poor soil and low rainfall regions. As it is not part of the food chain, the plant prevents any potential competition between food and fuel demands, and is expected to become the bio-fuel feedstock of the future.

Speaking at the sidelines of the conference to eFeedLink, Jay O'Neil, Senior Agricultural Economist of Kansas State University, said the US is exploring the use of cellulosic ethanol produced mainly from corn and wheat stalks as a replacement for conventional grain-based ethanol. Cellulosic ethanol is considered to reduce greenhouse gas emissions by a much greater extent than starch ethanol, when compared with gasoline.

O'Neil commented that while the US has the technology to produce cellulosic ethanol, the country has not yet acquired the ability to produce it in a cost-efficient manner. When asked how long it would take to achieve this objective, he lamented that it might take five to six years "or even longer", but said that the American government is currently funding research into this area.