GlobalGrain Asia 2016: Shining light on the bears, pointing to a brighter future ahead
Far-sighted speakers peer beyond today's deflated market, identifying the next grain rally's origins.
By Eric J. BROOKS
Noticeably more crowded than before, GlobalGrain Asia was held from March 1st to 3rd at Singapore's Shangri-La Hotel. Organizer Euromoney PLC noted that with over 420 attendees, attendance was up by 23% over the previous year's edition.
At the conference's opening, chairperson and Interflour CEO Greg Harvey identified a deflationary confluence of macroeconomic factors; notably the Malaysian ringgit's 26% devaluation and Indonesian rupiah's 36% fall. With imported grain becoming a third more expensive, "Indonesia went from 6% annual grain demand growth to minus 3%." Harvey then answered the question on everyone's mind: Are we in an extended period of low grain prices and marginal returns? With ethanol no longer driving grain demand, "Two-thirds of it is just part of the normal market cycle, but one-third of the drop in returns will be difficult to recover."
He was followed by ConsiliAgra founder Emily French, who observed that Asia's demand destroying currency devaluations paradoxically expanded corn and soy harvests. Feed crop export revenues are priced in US dollars. Consequently, a 40% devaluation of the Brazilian, Argentine and Ukrainian currencies perversely encouraged overproduction, worsening grain's oversupply situation.
Interestingly, after painting a bearish assessment of medium term market fundamentals, French's long-term grain and oilseed forecasts were surprisingly bright. She cited India's dwindling feed crop exports and its projected 32 million tonne rise in soymeal consumption by 2030. Having accurately forecasted today's bear market at last year's conference, French boldly predicted that, "Agricultural commodities are going to divorce themselves from the [deflationary] commodity supercycle."
Panelists then discussed ongoing changes in Asia's grain trade. On one hand, CBH Group general manager Jason Craig and AEGIC wheat quality manager Larisa Cato explained why, despite today's market glut, Australian grain exports cannot expand fast enough to satisfy rising Southeast Asian consumption. On the other hand, Leader Trading Commodities manager Oksana Staryna explained how dwindling Indian exports and currency fluctuations enabled Black Sea grain to penetrate East Asian markets.
Similarly, Adolfo Jiminez-Castellanos, product line manager at Cargill GOSC Asia, notes that 85% of ASEAN soymeal imports are now sourced from Latin America rather than India. Thereafter, Agrosud SA director Ezequiel Hajnal predicted that Argentina's economic liberalisation will inevitably boost its share of Asian corn and soymeal imports. Kevin Roepke, US Grains Council regional director for Southeast Asia explained that America's falling Asian market share reflected higher returns gained by transforming grain into exported red meat, DDGS or ethanol.
Thereafter, COFCO Futures managing director Wang Lin tackled the conference's most paradoxical question: China's livestock disease outbreaks and faltering economic growth caused 2015 feed output to fall 5% to 6% –but why did soymeal consumption still jump 7.1%? Apparently, the substituting of cheaper soymeal and cassava in place of wheat, corn and DDGS caused China's soybean import requirements to rise strongly, even in the face of declining feed and meat production.
Soymeal is becoming an ever larger factor in Asia's grain trade and Soon Group managing director Neoh Soon Bin discussed if cost-effective alternatives to this key feed input are available. Thereafter, he also chaired a panel on how currency fluctuations, falling crop prices and quality standards are transforming Asian grain procurement strategies.
Having fleshed out issues relating to supply, demand and shipping, day two opened with Julien Hall, Platts senior managing editor for Asia Pacific agriculture discussing how spot price benchmarks can be used in place of CBOT futures, which do not fully reflect regional market circumstances. He was followed by a panel which explored issues unique to Asian grain trading.
According to Agrocom Pty Ltd director Brett Donoghue, "With the market in a bear phase, volatility has dropped but liquidity has dropped too, so finding trading opportunities has become more difficult." Luke Mason, head of Asian grains for Concordia Agri Trading Pte Ltd noted that the only cure for a flat market is a volatility-inducing market shock. Mason then opined that, "As La Nina develops, most of the crop [drought] risk will center around South America later in the year."
As difficult as deflation makes things for traders, the situation is even worse for exporters. Tom Guthrie, Asian wheat trading manager for Noble Agri stated that, "Yesterday, for a Korean corn tender, there were 20 people offering corn all within with $2 [a tonne] of each other." Donoghue traced this rise in supplier tenders to a narrowing spread between short and long haul shipping rates, noting that, "We see new trade flows starting. For the first time in quite a number of years, we are seeing US corn from the Gulf trading to Korea, we're seeing French wheat going to Asia."
Following this realistic assessment of grain trading's intensified competition, Sumit Gupta, McDonald Pelz Global Commodities business manager for India and Southeast Asia opened his presentation by calling India, "a bright spot in a global low price scenario." Gupta noted that during his three years of speaking at GlobalGrain Asia conferences, he transitioned from talking about India's grain export potential to its impending future as an importer. Demonstrating an inverse relationship between India's corn exports and those of America, the implication is obvious: When India transitions into a net feed crop importer, higher prices will be needed to pull corn and oilseed shipments from the Americas into Asia.
All this is a long way off in the future but then, that is precisely GlobalGrain Asia's greatest strength: While providing unparalleled guidance on current market conditions, it never loses sight of long-term trends. Three years ago, when grains were booming, GlobalGrain speakers warned us of the deflation to come. At today's conference, panelists went beyond analyzing today's grain deflation, keeping a distant eye focused on factors which will power the next market rally.
That is why even at a time when speculators have exited grain market trading in droves, the number of GlobalGrain Asia attendees keeps rising, and will continue to do so in years to come.
Global Grain Asia 2016
Date: March 1-3, 2016
Venue: Shangri-La Hotel, Singapore
Organiser: Global Grain Events
Tel: + 44 (0) 20 7779 7222
Global Grain Asia 2016 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.
We invite organisers of industry-related exhibitions, trade shows, product seminars, technical symposiums, training sessions, or any industry-related event, to make your announcements on eFeedLink. Posting is free-of-charge. Please submit your notice of events to email@example.com.