FEED Business Worldwide - October / November, 2011
Global Grains Congress 2011: Trade & the balance of food security
by Eric J. BROOKS
Corn, traceability and sustainability highlighted organiser IBC's Global Grains Congress, held from September 20 and 21 at Singapore's Grand Copthorne Waterfront Hotel. At the conference's opening, Abdolreza Abbasian, Economist and Secretary, with the UN Food and Agriculture Organisation's intergovernmental group on grains noted that, the world needed a 5% increase in grain production this year to restock inventories. After projecting a 3.5% increase, bad growing weather has cut this to 3%. He added that, "In a normal year of a bad harvest, all things being equal, you'd be out of it in a year or two but since 2007, you haven't had everything else being equal." He concluded that "we are in a serious situation" and that both scarce supplies and economic developments had permanently boosted prices to a high plateau.
In the panel that followed, it became clear that while wheat is recovering from a bad 2010 harvest, corn supplies remain thinly stretched. Gary C. Martin, CEO of the North American Export Grain Association highlighted that with inventories at very low levels, trade is what keeps food on our table and famine at bay: "It is the global trade of grain that makes the difference. Grain supplies that are traded internationally are not an overwhelming percentage of global needs but at 12% to 20% of global consumption, they make up the balance of food security."
Moreover, grain trading has been subject to numerous recent changes, not just in volume but in how it is conducted and the stakeholders it attracts. For example, Shi Haiguang, vice president, Canadian Wheat Board noted that in China, "In the past all the large volumes were imported by the government but today all the demand is from the private mills."
Legal aspects of grain trading were discussed by Maurice Thompson, a partner with HWL Ebsworth Lawyers and Brian Perrot, partner at Holman Fenwick Willan LLP. They examined liabilities and legal relationships that connect unexpected events such as market shifts, crop failures, export bans, international maritime law and one's grain trading position.
Later, Matthew Clarke, head of soft commodities at Commonwealth Bank of Australia addressed the issue of grain trading's increasing proportion of speculative, non-industry players. He opined that with fundamentals continuing to drive markets, "Most of their impact was to create a more exaggerated price movement of what was already occurring." Clarke also noted that today's intersection of market volatility and rising investor interest is driving regulatory reforms and new types of grain futures contracts, including over-the-counter investments.
Further up the supply chain, feed risk and food safety liability issues took centre stage. Nabil Chinniah, deputy president and procurement director for Trouw Nutrition Asia Pacific explained how sustainable feed supplies, food safety and feed to meat traceability are intimately related. Nonetheless, Martin elaborated that the world needs to develop a new territorial equivalent to America's corn belt. Reviewing various soil types around the world, he concluded that such a promising area existed in central Asia's Black Sea region.
Martin's concerns were accompanied by related commentaries from Ker Chung Yang, commodity analyst with Singapore's Phillips Futures and Abah Ofon, Standard Chartered Bank's head of soft commodities. They examined different aspects of the close relationship between China's pork demand, corn supply deficits and meat price inflation.
Noting that China had just released 3.7 million tonnes of corn from reserves, Ofon stated that, "Chinese investors have been to South Africa looking to import corn," Alongside ground level physical shortages, Ofon and Ker alluded to how macroeconomic policies and monetary stimulation played a role in raising both grain price levels and market volatility, and that prices could rise higher.
Only Dan W. Cekander, director of grain research at Newedge USA LLC held to a somewhat more conservative forecast. While conceding that, "corn divorced itself from the weakness in the equities" and that investors continued to hold long positions, he cited a rising US dollar value as putting a lid on prices. Even so, holding up an ear of Chinese corn, Cekander stated that a hot July had made some US corn ears only three-quarters of their normal size.
On the oil seed side, CEREALPAR analyst Steve Cachia traced the development of Brazil's soy sector, tracing its spread from ideal southern growing regions to more northerly interior zones and the Amazon basin. Indeed, his presentation solved one riddle: Whereas Martin earlier noted that the connection between soy futures and US inventories had broken down, Cachia indicated that soy's price was being kept soft by Brazil's abundant reserves.
While optimistic about Brazil's capacity to raise soy output, Cachia did highlight a slew of infrastructure challenges. These included insufficient road capacity, port costs two times higher than in the US and a lack of crop storage space in a country that produces two harvests a year.
Later in the conference, using alternative materials such as DDGS, palm meal or wheat in place of corn dominated some discussions. Yet, even under the most optimistic scenarios, participants were not convinced that we are any nearer to resolving the world's chronic corn shortfalls. Trouw's Chinnian stated that, "Based on current GDP and demand growth, we need three worlds to feed everyone and we are not going to get them.
To this, Davish Jain, managing director, Presitge Group, India commented that, "We need to have a technological breakthrough so we can address these remarks in a timely and effective way." Such questions will require many more Global Grain Congresses to answer, and they should prove to be just as interesting and insightful as this one was.
The above are excerpts, full versions are only available in FEED Business Worldwide. For subscriptions enquiries, e-mail firstname.lastname@example.org