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Just like old times?

Could global grain markets be entering a long-term cycle of steady expansion and stability reminiscent of the 30-year period following the inflationary food price spiral of the mid-1970s?

That prospect seemed to be the consensus of a number of leading agricultural trade economists and industry figures speaking at a major feed grain industry conference, Oct. 20-22, in Seattle, Washington, U.S.

The presenters also concurred that ample ocean shipping capacity will keep transportation rates low for the foreseeable future, and that a strong dollar should help keep the lid on cereals prices. The only clouds on the horizon appeared to be inadequacy of inland infrastructure to move crops to port in North America as in other grain surplus regions and the rising specter of non-tariff trade barriers based on GMO concerns.

The bi-annual event, entitled Export Exchange, brought 500 representatives of feed milling companies, grain traders, shipping companies and U.S. suppliers of maize and other coarse grains, corn milling and ethanol by-products like DDGS.

Attendees of the Export Exchange in Seattle in late October heard predictions of steady expansion and stability

Attendees of the Export Exchange in Seattle in late October heard predictions of steady expansion and stability

Two industry groups, the US Grains Council and the Renewable Fuels Association, were the principal sponsors and organizers. Many of the attendees came from countries that are major markets for U.S. feed grains, particularly in Asia, Latin America and North Africa.

Looming over the speakers and audience were the impending record U.S. and global grain harvests this year and larger surpluses.

“Now we are entering a period when commodity reserves are building. Ethanol no longer drives the market,” asserted Terry Barr, senior director of the Knowledge Exchange Division of CoBank, a leading U.S. rural lender. “When you look to agriculture you see much larger supplies coming into the market place.”

Markets are “building inventory that will mitigate volatility in the market place.” This was badly needed he observed, “We’ve seen 50% increases in world wheat trade in the last 10 years.”

Barr contrasted the current U.S. dollar strengthening to the periods of weakening in the mid-1970s and from 2004-2008. “Both run-ups in (grain) prices occurred during a period of devaluation of the U.S. dollar,” he noted.

According to Barr, “If the Fed moves interest rates higher, the dollar will go higher which will impact trade flows. It will put downward pressure on commodity prices, too.”

Terry Barr provided inight into a variety of economic factors that could impact the grain markets.

Terry Barr provided insight into a variety of economic factors that could impact the grain markets.

However, financial market impacts on grain prices will not be sudden. “We are not talking about rapid rises in interest rates,” Barr said.

While increasing agricultural productivity and a stronger dollar should combine to prevent price spikes for years to come, continued economic growth in emerging markets will assure steady increases in demand for feed grains, thereby underpinning markets.

Barr pointed to the twin giants of the developing world. “It is not advanced economies driving the global economy, it is more China and India,” he said.

Gazing into crystal

Marty Ruikka, president of The ProExporter Network, a consultancy specializing in forecasting grain market trends, made a wide range of predictions. Such forecasting is particularly necessary for companies who must plan investment in hard assets like grain terminals and milling.

In particular, he pinpointed one basis for future expansion of global grain trade.

“In the U.S., agribusiness yields are growing much faster than demand,” Ruikka said.

Ruikka highlighted the extraordinary nature of the last 10 years. “The ethanol building boom and Chinese food import boom have been drivers of profitability in agriculture,” he said. “We have never seen this before. There has been nothing like this in history when large groups have made so much in production agriculture.”

Gross return over total costs for soy beans and corn have ranged from 15% to 30% in four of the last eight years, even without government support payments or subsidized crop insurance payouts, according to Ruikka’s data. He said this was unprecedented.

Prior to the price run-up that began in 2004, “there were four decades of flat earnings in agriculture,” Ruikka observed.

He further commented on the global nature of agricultural expansion in surplus regions.

“There are three export hubs: North America, South America and the Black Sea. These export hubs have 13% of world population but are 53% of feed grain and oilseed production.”

Marty Ruikka provided comments on the coarse grains markets.

Marty Ruikka provided comments on the coarse grains markets.

For now the primary customers of Black Sea feed grain are in the Middle East and North Africa, but Ruikka prognosticates that “by 2020, the Black Sea will be a formidable competitor in world markets.”

But Ruikka touched on two factors that are adding to the U.S. surplus. There is a “very positive trend in animal production that means less feed to grow animals.”

Secondly, American consumers, by far the largest per capita meat eaters, have given up 20 to 30 lbs. of meat consumption since the global economic crisis that started in 2008, he said. This means that more U.S. coarse grains are available to meet increasing demand in countries with rising meat consumption.

Curtis Jones, global director of economic analysis at Bunge Global Agribusiness, put a number on the anticipated food trade expansion, forecasting that combined international shipments of corn, wheat and soy beans would increase by almost 40% over the next 10 years from 384 million tonnes to 534 million tonnes, with soy beans growing at the highest rate.

“Population and income are key drivers of agricultural product demand,” he observed.

Barriers and bottlenecks

Though the long-term market outlook appears bright on both the supply and demand side, many of the conference participants were preoccupied with more immediate and medium-term issues concerning distillers grains (DDGS) exports and inland transportation bottlenecks.

In August, China declared a ban on imports of DDGS from the U.S., citing GMO concerns. China accounted for 52% of total U.S. exports of 9.7 million tonnes in 2013-14, a record level and 18% of all DDGS consumption. Suppliers have scurried to divert the supply to other markets, but the rate of increase of U.S. exports is expected to slow. The surge began in 2006 when distillers grains DDGS exporters were only 1 million tonnes at the onset of the U.S. ethanol boom.

DDGS has become a major new component in the rations of many livestock in the U.S. and around the world. Of the 130 million tonnes of corn now being processed for ethanol, up to 30% is converted to the feed by-product. Supply is abundant. Cost of other feed grains and oilseeds determines the share of DDGS in compound feed once corporate livestock nutritionists have been brought up to speed on its uses.

It was news to many overseas attendees that the U.S. transportation infrastructure is currently not up to the task of moving record grain harvest to ports for delivery to burgeoning overseas markets. Grain must compete with unprecedented volumes of petroleum now being moved by rail as a result of the fracking boom in regions without pipelines.

“We think changes in internal transportation in the U.S. are structural,” Ruikka said. “Getting grain to market will cost more. It is a permanent feature of the U.S. having more oil.”

The advent of corn ethanol exports from the U.S puts additional strains on the railroads’ capacity to move grains. About 7% of U.S domestic ethanol production will be exported in 2014. “For most of summer, ethanol has been one of the cheapest motor fuels in the world,” he said.

This was a consequence of the fall in corn prices while petroleum prices were still high before their collapse in October.

“We think there will be a big push in ethanol exports,” Ruikka predicted, but he qualified it by saying they “will happen as elastic economic events.”

One source of increased ethanol demand could be more countries requiring ethanol blending to reduce air pollution. The U.S. mandates a 10% ethanol blending in gasoline, but outside the U.S., average blending is still less than 3%.

Bulk shipping

When it comes to ocean transport of grains, the picture turns rosy again. Peter Borup, president of Lauritzen Bulkers A/S, observed, “If you can get crop to port, there is no problem to transport it. The problem is with U.S. infrastructure.”

He predicted 5% to 20% annual increases in global bulk shipping capacity and assured the audience, “There are lots of new ships on order.”

This was supported by data showing almost 200 dry bulk carriers of all sizes scheduled for delivery from 2014 to 2016 versus an existing fleet of 10,237 of 747 million dwt. “We can expect very decent and low shipping rates for years to come,” he said.

Lauritzen Bulkers, which specializes in the handy size segment (less than 40,000 dwt), handles 25% grains, said Borup, while estimating that 85% of bulk ocean freight is destined for Asia.

Containerized shipment of bulk agricultural commodities has increased greatly and helped to keep down bulk vessel rates.

Mathew Hill, Maersk Lines’ general manager of Trans-Pacific Trade, stated, “In 2013, 10% of water-borne grain out of the U.S. was in containers, mainly due to increased DDGS from 2010 to 2013.”

Farm exports have provided a backhaul for ocean containers across the Pacific. But despite the increased demand from agricultural commodities, a high percentage of containers are still returned to Asia empty, particularly during the lead up to the heavy Christmas shipping season starting in July and peaking in October.

One problem shipping companies face is that most incoming containers are destined for major population centers in the U.S., while outbound shipments of DDGS, corn gluten and corn meal originate in less populated areas centered in Iowa at the heart of the corn and ethanol belt.

“There is a heavy cost to repositioning empty boxes,” Hill said.

With China’s sudden ban on DDGS imports, containerized traffic in 2014 will likely drop back to between 7% and 8% of bulk agricultural exports, according to Hill.

“Lots of investment in bulk has gone to panamax size because handy size is worried about cannibalization from container trade,” Borup said. He noted that DDGS to China had mostly been transported in panamax vessels (65,000 to 100,000 dwt).

About the smaller bulk vessels, Borup said, “The handy size sector is aging. Average age is over 20 years. Investments are coming back. Handy size is used for other purposes: zinc, copper concentrate, logs.”

Borup also said that since the 2008 economic crisis, shippers are managing more efficiently and that has impacted rates.

He asserted that the Panama Canal extension does not make a difference in rates. “There is only a small percentage, 5% to 6%, of panamaxes that actually transit the canal,” he said.

Hill said the impact of containerization of agricultural shipping will be limited to byproducts like DDGS and corn meal. “Quite frankly there is not the number of containers to take dry grain,” he said. “The impact has been on rates more than anything.”

New story is old story

Abundant stocks, increasing crop yields, steady prices and low shipping rates are good news for the world’s rapidly urbanizing emerging economies.

“Asia cannot catch up to the need to import food,” The ProExporter principal declared. “People are more dependent on the world’s future commercial food delivery system.”

But Ruikka concluded, “The new story going forward is an old story. We will have a huge amount available for those who want to eat more.”

Focus on the Netherlands

Compound feed production, on a per capita basis, ranks among the highest in the world.

Two things distinguish the Netherlands demographically. It is the most densely populated country in Europe (among those with over 500,000 inhabitants), and somewhat counter-intuitively for such a crowded land, its people are the tallest in the world. From these facts one might conclude another two things: that the Dutch are particularly well-nourished and food production is intensive.

And, indeed, this is the case. According to United Nations Food and Agriculture Organization (FAO) data, the people of the Netherlands get 30% of their calories from animal products, compared to an average of 20% in all developed countries. Milk production, at more than 11 million tonnes per year, exceeds grain production (1.7 million tonnes) by nearly six times, and food processing is a U.S.$20 billion industry.

A large, highly sophisticated feed industry is a crucial link in the food chain that enables the country not just to put meat, eggs and cheese on its tables but to also generate significant surpluses for export. Total compound feed production is 12.5 million tonnes, which on a per capita basis is one of the highest in the world. It has been stable for several years.

About 45% of industrially produced feed goes to pigs, 25% to cattle and 25% to poultry, according to the Nevedi, the feed producers association whose members account for nearly all domestic output. The industry generates €2.5 billion (U.S.$3.25 billion) in annual sales and employs 5,000 people.

Cooperatives and private companies make up nearly equal parts of production. Competition is fierce, with no entity holding more than a 15% share. However, six of the seven largest producers have formed an alliance called Trusq, which has developed a set of safety standards for feed ingredients and inspects and certifies suppliers around the world. These six Trusq members, consisting of two private companies and four cooperatives, control about two-thirds of the Dutch feed supply.

Thanks in part to the intense competition on their own soil, Dutch feed companies do well outside their borders. A significant share of production is exported to Belgium and Germany, and in recent years Poland and Hungary have become important markets. Some companies have established manufacturing subsidiaries in the new European Union (E.U.) member states to the east.

Provimi, a publicly listed company based in Rotterdam, is one of the largest international suppliers of premixes, concentrates and specialty feeds, with more than 100 plants in 30 countries and 9,000 employees. It has a strong presence in central and eastern Europe and owns seven feed producers in Russia, where it is a market leader. The company boasts that its products are used in 40 million tonnes of feed annually.

Further burnishing the international credentials of the Netherlands’ feed industry is a large number of feed equipment manufacturers doing business globally. Finally, the city of Utrecht hosts the triennial Victam International feed industry conference and trade exhibition, the premier event of its kind, which took place May 8-10 this year.

At first glance the relatively small amount of grain and oilseed production in the Netherlands would seem to be a competitive disadvantage for feed production. But as resource-poor places are prone to do, the country has lived by its wits and turned this shortage into an advantage. Due to E.U. price supports for grain growers, feed grain prices have traditionally been high in relation to imported ingredients, not just grains and oilseeds, but also alternative sources of starch and proteins like corn gluten, tapioca meal, copra, palm expellers, sugar beet pulp and citrus pulp. Consequently, the short distance of most feed companies to the country’s two major ports, Rotterdam and Amsterdam, has played a key role in the industry’s growth. Two other major ports, Gent and Antwerp in Belgium, are nearby.

Rotterdam, the world’s largest bulk port, with 250 million tonnes per year of total cargo, is especially important. The port handles 10 million tonnes of so-called “agribulk,” the biggest part of which is for feed use. The port features 450,000 tonnes of grain silo capacity, including 18 floating grain elevators.

It is not surprising that the world’s two biggest grain and oilseed trading and processing companies have staked out major positions at the largest Dutch ports. Archer Daniels Midland Co. (ADM) owns a large oilseed crushing plant in Rotterdam that was originally built by Unilever. In 2004, ADM acquired one of the Rotterdam port’s largest grain and oilseed terminals, adjacent to its oilseed plant at Europoort, which is the western portion of the Rotterdam port where grain and oilseeds are concentrated.

Cargill has a multi-faceted presence in the country, with much of it clustered at or near the port of Amsterdam. This includes the Netherlands’ other large oilseed crushing plant and the IGMA grain terminal, not to mention major corn and cocoa bean processing plants, a malting plant and a food ingredients company.

A big part of the edible oil and oilseed meal producted locally by both companies is sent in river barges up the Rhine and its network of canals, or it is re-exported to Scandinavian and Baltic countries, including Russia.

Total grain imports to the Netherlands are about 8 million tonnes, to go with 1.7 million tonnes of domestic production. About 2 million tonnes of grain is exported. The competitive advantage enjoyed by the Dutch feed industry rests on twin pillars. The first is the proximity to major ports and imported ingredients from around the world. The other is the availability of a wide range of by-products from the Netherlands’ diversified food processing industry. Potatoes, maize, sugar beets and processing in many oth- er sectors generate low-cost substitutes for grains and oilseed meals in animal feed. FLOUR MILLING

One industry where Netherlands does not enjoy a particular advantage is flour milling. In fact, the country accounts for nearly half of the 1 million tonnes of intra-European trade in flour, importing 450,000 tonnes annually, primarily from mills in Germany and Belgium.

Despite this import competition, the three biggest milling companies hold a 75% market share, making the Dutch industry the most consolidated in Europe. The number one player, Meneba, ranks third among European flour millers with 1.3 million tonnes in annual production at just three mills, which are among the largest in the E.U. Closure of a mill in 2005 has raised the company’s capacity utilization to close to 90%. The rapid decline in export demand for European flour in the last 10 years has hurt the Dutch millers as it has other European producers. However, restructuring has been swifter in the Netherlands, as witnessed by the current high levels of industry concentration and capacity utilization.

Myriad domestic food processors provide Meneba with a wide customer base for all kinds of higher-value specialty flours, and the feed industry means steady local demand for bran.


The biofuels fever sweeping Europe has not left the Netherlands untouched. There are at least six ethanol projects in various stages. While these are mostly based on traditional grain feedstocks, the Netherlands may take a course different than other European countries. Rather than importing barley, feed wheat and triticale, which are the normal feedstocks for ethanol in Europe, Dutch ethanol producers could join the feed industry as a consumer of by-products of the food processing industry. A recent Rabobank report estimates that the Netherlands’ output of 6.7 million tonnes per year of potato waste, citrus and sugar beet pulp, molasses and many other types of agribusiness biomass sidestreams could yield enough ethanol to replace 3% to 4% of the gasoline burned in the country. Cattle numbers have fallen steadily since 1997, and the food industry would certainly welcome a new source of demand for its secondary products.

Will greater demand and higher prices for these by-products improve profitability of food processors and help keep prices stable for their main products? At the same time, could they result in increased prices for meat and dairy products via higher feed ingredient prices? The food-for-fuel debate could take a new twist in the land of wooden shoes and windmills.

Focus on the Netherlands PDF version.