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Global bull market

Gene Johnston 04/05/2011 @ 3:29pm On the scene at the 2012 Cattle Convention, Nashville

Structural change in China's pig farming will drive exponential growth in feed grain demand in the next few years..

It's not just ethanol fueling the grain market bull. Global demand keeps growing, too, leading to more acres all over the world, says Bill Cordingley, head of the agribusiness research department for Rabo AgriFinance. For instance, the Black Sea area between Europe and Asia used to grow 5% of the world's grain. Now it's up to about 25%.

“Those areas tend to have more volatile yields than in the U.S. That will contribute to market volatility. And the U.S. is not the grain giant it once was. It's share of world production is now at 30%, down from a peak of 45%,” Cordingley says.

Other nations broaden growth

That's part of Cordingley's message to the recent Cattle Industry Convention: Markets are global and volatile.

“The developing world is actually leading this bull run in commodity values,” he says. “It's a broader-based bull than in 2008, with many new commodities, like sugar and cotton, participating. Now, 40% of the world's population lives in countries where the growth in GDP is 8% or greater.”

Pay attention to China. “It has many social, economic, and policy challenges as it grows so rapidly,” says Cordingley. “It has to have access to more food for social stability.”

The Chinese hog industry is an example of the change that is happening. “It used to be that 74% of Chinese hogs were raised in backyards. By 2013, that will be 30%; the other 70% will be grown in the industrial model. China will need more corn,” he says.

To feed those hogs, he says China will need far more feed grains. He sees a very real need for more imports of corn, which to date have been minimal.

“This could all change very quickly,” he says. “With around 40 million tonnes [metric tons] of meal produced from the 60 million tonnes of beans imported, new corn demand could be as high as 80 million tonnes per annum. Chinese corn production has only increased 30 million tonnes in recent years. So there's potentially a huge shortfall in its industry it will need to close. China will do this by growing more, but inevitably the world market will be part of the solution. China needs access somewhere – it may be Argentina and not the U.S. Wherever it comes from, it is going to further force the corn market to adjust.”

Meat will be a smaller industry

There will not be much growth in the meat markets for the foreseeable future, Cordingley says. “Who's going to pay for expensive meat? The cost of using grain and the profitability of growing it will continue to squeeze the beef industry through feeding costs and lost access to productive pastureland traditionally used for grazing. This means it's a smaller, higher value industry going forward.”

Exports hold promise for beef, however. All U.S. beef export competitors have problems, he says. Like the U.S., none of them is growing their beef industries, either.

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