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Globetrotting grain gains

Emerging countries’ growing demand for meat, and weather events in many grain-producing countries, have driven the trade in cereals and animal feeds in recent years.

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The trade in grain has been strong over the past three years with figures published by the International Grains Council (IGC) showing volumes rising from 310 Mt in fiscal year 2013/14 to an estimated 343 Mt in 2015/16 (see table, below).This year (2016/17), traffic levels are forecast to be slightly lower, as global stocks are higher and production levels hit a record 2.07 Bt.

 

Nonetheless, prospects for grain, which includes wheat, maize and soybeans, all important ingredients in the production of animal feed, remain strong. The animal feed market itself is expected to register annual growth rates in the 2.5% to 3% range over the next decade as higher volumes of protein food are produced and consumed.

 

China’s expanding middle class, with its rising levels of disposable income and an insatiable desire to eat pork, beef and poultry, is being joined by Asean economies such as Vietnam, Thailand and Malaysia, where the consumption of fish is also rising rapidly. This has led each country to significantly increase its imports of grainrelated commodities, and resulted in a rising demand for Panamax tonnage on trades from North America, the east coast of South America and more recently the Black Sea.


In India, Africa and emerging economies in the Middle East, diets are also changing with populations consuming foods with much higher protein content. This increases the demand for animal feeds. Elsewhere, a significant drought in South Africa, which looks as if it will extend into a second year (2017), has meant that country having to import considerable volumes of grain for the first time.


Meanwhile, the demand for tonnage has risen because of changing trade patterns, as the past two years or so have seen China buy more grain from Russia and Ukraine than from the US, and the shipping distances involved are longer.

 

Russia is now the largest exporter of wheat grain in the world with the Londonheadquartered IGC projecting that the country will ship almost 31 Mt of the commodity globally in the 2016/17 fiscal year. This would be equivalent to more than 30% of the total market.

 

Asian influence


At Global Grain’s latest conference held in Geneva on 9-10 November, Dave Hightower, principal of Chicago-based The Hightower Report, a research group that specialises in the commodity and financial futures markets, highlighted
the growing role that Asian economies would play in the international grain trade.


“If we look specifically to South East Asia fish and meat production, what we can see is that fish production has sky rocketed. A key consideration of this is an increase in the demand for imports used for fishmeal, including both grains and protein sources,” he said.


“Demand in this region, particularly for soybeans, continues to outshine expectations, especially in China. The global hog herd is climbing, so it’s expected that demand for feed won’t decrease unless there is a major outbreak of disease.”

 

The executive does not expect such an occurrence, given that vaccines used against swine disease have improved, and China has introduced much better herdsmanship practices.


But what he does expect is for the latter to result in more efficient production processes and for this to ultimately reduce the amount of grain consumed per tonne of pork produced. Hightower also raised some concerns over the Chinese Government’s plans to use more locally produced grains in their animal feed industry. Both factors could have a significant bearing on the country’s future grain trade.


Chinese chickens


China’s poultry sector is also expanding rapidly and consuming an increasing amount of maize and soybean. Globally, data published by the OECD/United Nations Food and Agricultural Organization (FAO) suggests the industry is worth more than 113 Mtpa of meat production and close to 70 Mtpa of eggs. For the production of meat alone, the sector’s feed requirement is estimated to be at least 300 Mtpa.

 

Based on FAO forecasts, poultry will be the main driver of animal protein demand up to 2025 with annual growth of at least 1.5%. However, given that this level of increase is half that experienced in the 2000 to 2015 period, it will mean the demand for feed will also grow at a slower pace.

 

The FAO also expects better husbandry to result in the need for less feed to be used in the poultry sector. Moreover, plans by the Indonesian Government to become selfsufficient in the production of maize in 2017 could have an impact on trade in this commodity and lead to more wheat being used.

 

Traditionally, maize has been Indonesia’s primary feed grain, with domestic production topped up by imports. The ending of the latter will, according to the Indonesian Feedmill Association (IFA), result in the country’s poultry sector having to buy more feed wheat. The IFA estimated this could lead to imports of this type of grain jumping more than 35% to 3 Mt next year, and it is more likely to favour European suppliers.

 

While production costs and the impact of the weather on yields are the main factors affecting the global grain trades, the robustness and efficiency of the total supply chain are becoming increasingly significant. This is partly driven by changes in purchasing patterns, with buyers generally preferring to acquire their grain in smaller lots and then have it delivered more regularly.


Just-in-time


In an ideal world, this means using the ship as the warehouse and, as in the container trades, managing justin-time inventories. This requires good infrastructure and efficient transport facilities, including in the ports handling the commodities.

 

In Brazil the government, along with private enterprise, is making real efforts to improve the efficiency and capacity of the nation’s grain chains, with one objective being to expand soybean exports by 30% by 2025.


Specifically, the measures mean developing new grain terminals and/or expanding existing facilities, especially at ports in Brazil’s Amazonia and north-east region. Linked to these developments is the plan to move more of the country’s cereal exports by rail and barge. It could mean farmers in the state of Mato Grosso, for instance, seeing reductions in their transport costs of up to 40%.

 

Currently, an estimated 70% of Brazil’s soybeans and maize, which is mainly grown in central regions of the country, is moved on over-used highways to congested ports, such as Santos, located in the south of the country. It is costly and unreliable.

 

While several projects have been delayed by Brazil’s recession and the government’s much delayed and highly bureaucratic port/terminal concession programme, some progress is being made.


Earlier this year, Sao Paulo-based VLI SA, a Brazilian logistics and rail operating group, opened two new rail grain terminals in the northern state of Tocantins. Representing an investment of about BRL265M, the facilities allow an increased volume of maize and soybeans grown in areas, such as Maranhão, Tocantins, Piauí, Bahia and eastern Mato Grosso, to be consolidated and transported on the North-South railroad to the port of Itaqui.

 

Capacity boost


According to VLI, its move will boost capacity on the line by at least 6 Mtpa, which is highly significant, given that in 2015 an estimated 4 to 4.5 Mt was moved on the corridor. Moreover, the planned development of new grain handling facilities at Itaqui could raise volumes by up to 10 Mtpa.


But developments in the northern part of the country are not stopping projects taking place in the south, and Santos will retain its status as Brazil’s leading grain port for the foreseeable future.

 

The LDC Consortium, which is a joint venture between the multinational trading companies Cargill and Louis Dreyfus (LD), for example, is ploughing over BRL300M into a new grain terminal at Ponta da Praia, where it has secured a 25- year operating concession from the government.


Rival grain trader Archer Daniels Midland (ADM) is also active in Santos. It is expanding the storage and processing capacity of its facility by a third to 8 Mtpa, and installing new equipment and systems that will reduce dust emissions. The work is expected to be completed by the end of 2017.


Elsewhere, ADM is continuing with its expansion programme at its jointly-owned terminal at Barcarena in the north eastern state of Para. Here, capacity is being raised to 6 Mtpa.


“When these improvements are completed, we will be able to move even more crops out of Brazil, and we will be able to do so more efficiently, enhancing both our capability to meet global customer demand and our ability to grow our returns in South America,” explained Greg Morris, president of ADM’s oilseeds processing business.

 

In Argentina, LD has just finished a US$16M expansion programme at its grain terminal in the port of Bahia Blanca. In addition to dredging the facility’s water depth to 45ft, a new grain conditioning plant has been installed and handling capacity has increased to at least 2 Mtpa. According to LD, this compares with a throughput volume of 1.2 Mt in 2015.


Important hub


Bahia Blanca is one of Argentina’s most important grain ports, and the investment by LD represents a long-term commitment by the company to developing its business in the country. It also believes its move will raise Argentina’s
overall competitiveness in the global market.


“This investment improves the logistics chain in southwest Buenos Aires [province] and will allow producers from that area to obtain higher prices and have access to better infrastructure,” explained Javier Racciatti, LD’s CEO for
the region. “An efficient logistics network is key for agro-industrial exporters in this country.”


As in Brazil, investment is taking place at several river ports in Argentina, as cheaper and more efficient ways of moving grain are being sought by producers. The use of barges is increasing and many grain traders established in
the country have been buying new cargo handling equipment to boost productivity levels.


Grain crane


At Quebracho, Cargill is in the process of installing a new 1500B series equilibrium crane designed and built by Belgium-based E-Crane Worldwide to handle the growing volumes of grain/soybean being shipped, and to replace a much older and slower cable crane.


The trading company selected an E-Crane 1500B model because of its flexibility compared with other units, citing its longer outreach and handling capacity ranges at different operating cycles. In particular, Cargill needed a crane that could handle efficiently both Mississippi and Parana class barges used to move grain in the area.


In parallel with the growth in demand for grain, fuelled in large part by people’s growing tastes for protein foods, is the increasing role of South America in the global animal feed trades. This is set to continue, given the significant
improvements that are taking place in the region’s ports and supply chains.

 

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