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U.S. Farmers To Gain From Expanded World Food Demand
An undisputed claim of analysts and experts is that incomes will grow significantly in big countries like China and India for a while. As a result, there will be more demand for proteins and, consequently, for grains. For U.S. farmers, that means that exports will continue to be steady and will be a bullish factor for grain prices in the coming years.
MORE U.S. CORN, SOYBEAN CONSUMERS
Data released from the Food and Agriculture Organization of the United Nations revealed what the world and what each country specifically consumes of food on a per capita basis and the evolution of those numbers from 1961 to 2011. That historical evolution and the economic trends can give us some clues to guess what lies ahead for farmers and consumers all over the world.
In the case of China, each person used to consume nearly 57% in grains, 28% in produce, and just 2% in meat in 1961. As of 2011, each Chinese used to eat about 47% of grain, 15% in Produced and 17% in meat. This meant that humans ate less grains such as rice and wheat, but animals consumed more meal such as corn and soybean in that country; That was explained by a big income growth in China and resulted in a major demand for commodities in agricultural countries, such as U.S. and Brazil, over the last several years.
Despite the recent falls on those grain prices, China is expected to have a consumption increase of 21.1 pounds of meat per person until 2023, according to data sent by Brazilian market analyst Carlos Cogo.
"The demand will continue to grow for poultry, hogs, beef, fish, and dairy products. Brazil is surging as number one supplier in the world of beef, sugar, soybeans, and corn," said Carlos Cogo.
David Hightower, market analyst and author of The Hightower Report, says that an important shift could come from a replacement of fishmeal as an input in China to soy meal. Fishmeal prices skyrocketed in the Asian country earlier this year and as recently as December 1st Chinese sources were reporting a significant shortage in fishmeal supplies, according to Hightower.
"We might have a significant above ground supply of grain protein but the below surface situation might be the next big thing in grain market uncertainty. At times fishmeal is 7 to 8 times more expensive than soybean meal. If large production and or supply ahead sends soybean meal prices cascading lower fishmeal users might decide to use an input that is 10 times cheaper," Hightower predicted.
But the most stunning news perhaps comes from India in a longer-term perspective. As of 2011 (considering the FAO data), the country's personal diet is 32% of grains, 34% of Produce, and just 2% of meat. That came from a consumption of 43% of grains, 23% of Produce, and the same 2% of meat in 1961.
Indian analyst Anand Ramanathan, director of KPMG consultancy, says that his country will move quickly from that carbohydrate-based diet to a diet richer in animal proteins, dairy, fresh fruits and vegetables and packaged foods on account of increases in per capita income and greater awareness and expenditure by the government on a balanced nutrition.
The key factor is that today India produces nearly 200 million tons of all grains and currently meets the total demand. But by 2026, demand is expected to grow in over 150 million tons with a small increase of production, according to an estimate from the Consulate Group on International Agricultural Research. The country would have over 100 million tons of grains in shortfall.
India has over 400 million farmers in an average land of 2.2 acres, but the population tends to migrate in droves to the cities and has yet other limitations. Agriculture uses about 90% of the water supply in the country, while the global usage on agriculture is 54%.
"The big opportunity for U.S. and Latin America is pulses and oilseeds where supply in India is less than demand. Also packaged food companies have opportunities across dairy, snacking, fruit beverages, Ready to eat, breakfast cereals which are the fastest growing segments within packaged foods. Agriculture in India is low on productivity. There is pressure on land and water resources along with labor shortages. Fragmentation in land resources is also impacting productivity," summarized Anand Ramanathan.
OPENING INDIA SOYBEAN MARKET
For Erick Erickson, vice-president of the U.S Grains Council, it is quite hard to forecast when the United States will be able to export corn and soybeans to India. But he agrees that this will be inevitable by some time. Asked if better technology and increased yields tend to push commodity prices down, Erickson said there are other items that can balance supply and demand, and even bring a bullish long-term scenario. He added former Soviet Union countries as other places with potential grain consumption rises.
"There is a major shift of a diet of rice and wheat to a protein-based diet in all countries with more people coming to the middle class. That will require significant increase of grains to feed the animals. The grains that will have more demand will be corn and soybeans, and a volume of sorghum. But soybeans are very very important. Yet, nature can turn against us as it did in 2012," Erickson emphasized.
In the opinion of David Hightower, the good U.S. crop was a result of a major help of mother nature. "With perhaps the most perfect weather in modern history we are poised to come away with a minimally supplied corn market and a moderately over supplied soybean market. We are already seeing demand soar in the face of falling prices but since the Dollar is strong Non-Us supplies are tightening first. While we might enter 2015 with a larger supply cushion than at any time in the last 10 years, the markets will still see minor weather issues as a problem," highlighted Hightower.
Experts tend to agree that Africa has a great agricultural potential, but still it would take decades to achieve its potential because of a lack of infrastructure. With Africa out of the game until 2026, the only big competitors that the United States would face in the world's food supply are in South and North America along with Australia. Brazil is a highlight as a tough competitor because it uses just 12% of its arable land.
"I think the nature of competition is pretty dynamic. Brazil has the constraint of infrastructure, but I think the infrastructure will get better," Erickson says.
Brazil has built ports in the Northern part of the country that will make the shipping of grains to China easier in the next few years. The road BR-163 in Mato Grosso is being paved and the soybeans grown will be trucked to Mirituba, in the Northern state of Paraná. From Mirituba, the cargo goes over to the Santarém port or Barcarena. Adding to that corridor, a way using the Tapajós river in Mato Grosso is also being built.
"Traders are building overflow units in Mirituba (Pará) and terminals in Itaqui (Maranhão) and Macapá (Amapá). The highest costs in Brazil are fuel and crew. But with global oil prices going down and the U.S. dollar value increasing, the competitive advantages of Brazil may grow," affirmed Jorge Valentim, a transport expert at Abrava Shipping.
In one decade or so, Brazil is likely to ship 20 million tons of grains through its northern ports with a significant reduction of the overloads in the Southern ports of Santos, São Paulo, and Paranaguá, in the state of Paraná.
Regarding Argentina, the problems are more political. The economic interventionism on agriculture through taxes and quotas on exports diminishes the country's possibilities on the world's market. It could potentially explore 19.7 million acres of agricultural frontiers. "Our current grain product is 100 million tons and without the political problems could be up to 160 million tons," added Gustavo López, director of consultancy Agritrend in Buenos Aires.