DTN's Marcia Zarley Taylor reports on the precarious world stock situation -- particularly for corn -- could be the norm for global agriculture over the next decade, not the exception, speakers told 600 attendees at the annual Soya and Oilseed Summit being held here this week. But that fine balance between supply and demand spells good news for grain prices long-term and U.S. producers who act as the world's shock absorber in times of scarcity.
The world is used to turning to the U.S. in times of grain shortages and in order to keep fulfilling that role a world-class transport system is necessary. "The world is one short crop away from real tension in supply and demand," said Soren Schroder, CEO of Bunge North America when outlining his five- to 10-year vision for global ag exports and U.S. competitiveness. "God forbid we have one [short crop] in this country."
Not only could global corn stocks reach the tightest levels since 1995-96 this season, but USDA and other experts have consistently underestimated demand for soybeans in four out of the past five years. Some analysts believe that will set the stage for another acreage battle between those crops in 2011, much as it did in 2008.
Earning a reputation as a reliable export supplier sounds obvious, but consistent U.S. grain and soybean production has been critical to food security three times in less than a decade, Schroder added. He cited the U.S.'s ability to fill gaps when drought hit Argentine soybeans last year, Australian wheat in 2007/08 and the latest catastrophic damage to Black Sea wheat production this season. He expects current U.S. corn exports to match the 2007/08 record of 61 million metric tons due to surging global demand and the shortfalls in Former Soviet Union feed wheat supplies.
"The U.S. will increase its share of global exports over the next decade in corn, soybeans and wheat," Schroder said, adding that strains like the Black Sea region's 2010 drought could be the norm given shrinking stock levels globally.
Fueling this demand is that between 2000 and 2030, the world will add 770 million people to the middle class who earn $10 to $20 per day. That's the income segment that will spend more of its budget to improve its diet by consuming more meat, Schroder noted.
Bunge's Schroder expects China to boost net corn imports significantly, perhaps reaching 14 MMT by 2019-2020, up from nothing prior to 2009-2010. But instead of a gradual increase in demand, he sees the country's needs ramping up to possibly 10 MMT "very quickly" between now and 2015. Most of that new demand will need to be filled by the U.S. since its corn technology and infrastructure give it a competitive advantage in moving large volumes of grain to port.
Mike Steenhoek, executive director of the Soy Transportation Coalition, said he feels like "we're attaching a garden hose to a fire hydrant" given the volumes of grain and oilseeds that will be needed to meet world food demand.
At the moment, Americans aren't the world's lowest cost producers at the farm gate, but gain on Brazil and Argentina in low-cost transport, taxes and port handling. For example, Steenhoek says it cost $64.27 per ton to ship soybeans from Davenport, Iowa, to Shanghai, vs. $138.03 per ton from Mato Grosso, Brazil to Shanghai. That gives Americans almost $100 per ton advantage, when other costs are counted.
But no one in the grain industry is taking that advantage for granted. Some road and port improvements in Brazil could shave $30 per ton off Mato Grosso's export cost within the next three years. Meanwhile, parts of that U.S. infrastructure are fraying and in critical need of investment, Schroder and Steenhoek emphasized. More than 1,500 U.S. river barges have been taken out of service in the last decade while trade volumes grew, replaced by more efficient capacity. But the bottleneck is the nation's river locks which average 60 years of age, 10 years beyond their design life. Several on the Ohio River have experienced mechanical failures recently, Steenhoek added.
"The American river system needs investment and lots of it to do what we need it to do in the next 10 years," Schroder said. What's more he sees a need for more storage so both hemispheres can use rail systems year round, rather than congesting traffic just at harvest.
Prices will have to be above the historical average to meet the expected surge in global demand, Schroder added. "There aren't enough stocks on hand to match this growth cycle."
"Everyone feels a little bit on edge. With current stock levels [of corn, wheat and soybeans], we're only one crop away from real price pressure. And the buffer to match demand is getting smaller," Schroder said.
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