Doane Spotlight: Highlights of the Annual Fall Outlook Conference
Dan Manternach, 12/07/2012
Doane Senior Economist Rich Pottorff provided multiple insights at the Doane Commercial Advisor’s Annual Fall Outlook Conference for 2012. Here are some of the highlights from his keynote address.
The World Grain Situation: Grain prices launched into a new, higher trading range in 2007-08 following a global deficit in production versus consumption of all major grains totaling more than 191 million metric tons (mmt) during the 2000-2006 period! Global production has become substantially more “volatile” than global consumption over the past two decades. The evidence?
• For 2007-09 period, total global grain production exceeded consumption by 171 mmt, nearly closing the gap, but a “new price era” was still evident.
• However, for the 3-year 2010-12 period, there is again a 71 mmt gap in global grain production, 47 million tonnes in 2012/13 alone!
DEBUNKING SOME "MYTHS" IN THE "CONVENTIONAL WISDOM"
• World grain yields are not slowing down. To the contrary they accelerated to a steeper rising “curve” in the mid-90s after stalling in the early 90s.
• Since 1990, world grain yield increases have averaged 1.3 percent per year; keeping just ahead of global population growth of 1.12 percent per year.
• We are not running out of cropland, globally. Acreage planted to the top 13 global crops increased by 190.5 million acres from 2000 to 2012.
• Major gainers were Brazil, Argentina, Ukraine, China, India, Pakistan, Kazakhstan.
• Perhaps surprising to some, Iran, Tanzania and Paraguay, followed with more than 5 million acres each beyond what they planted back in 1980.
KEY FACTORS FOR THE WORLD FOOD BALANCE
• Where “new” tillable land is most likely: Brazil, Argentina, former Soviet Union (FSU) Africa and the USA (through reduced CRP acreage.)
• Per capita grain demand is still up only about 6 percent since the early 2000s. And soaring ethanol demand accounts for most of that.
• If you take out especially fast growth in per capita grain demand in China and developing countries, consumption has actually declined in the rest of the world.
A CLOSER LOOK AT CHINA AND IMPLICATIONS FOR U.S.
• Corn demand accelerated to nearly twice the previous rate of growth 2006 through 2012, taking China from perennial net corn exporter to consistent net corn importer.
• Area planted to corn in China accelerated markedly from 2004 through 2012.
• Even in China arable land rose by more than 15 million acres from 2000 to 2012. But corn, rice and cotton absorbed all the increase and then some. Acreage of soybeans, rapeseed, wheat and peanuts declined over the same period.
• Chinese soybean consumption has soared since 1995 but production was barely steady. That’s why China has become such a huge export customer for U.S. beans.
• Chinese cotton usage is dropping faster than production; reserves are now thought to cover any production/consumption deficit six years into the future!
OTHER DRIVERS AND WILDCARDS FOR THE U.S.
• U.S. feed use is not likely to recover. Cattle on feed will be down; hog numbers will be down; broiler production declining and even milk cow numbers are declining.
• Ethanol future is fairly solid due to 1) mandated usage of 15 billion gallons by 2015; 2) Clean Air Act requires an oxygenate in gasoline; 3) Refiners and blenders find it profitable to use ethanol to boost octane.
• Shifting from ethanol to some other octane booster would be too expensive.
1) Crop supplies are very tight, but a) more land is available, b) yield growth is not slowing and c) global per capita demand growth is modest.
2) China is key to continued growth in global corn demand.
3) The U.S. needs to earn a bigger share of rising global grain export markets.
4) The farm sector is still generally healthy despite the drought (Net farm income likely peaked in 2012 at $140 billion; will likely back off about 14 percent, to just more than $120 billion in 2013; but still the third highest ever.