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When looking at increasing demand going forward, Browne pointed to population growth. “Growth rates
in developing countries are certainly outpacing developed countries” says Browne. Developed countries such as Japan are actually going down in population. Developing countries are also becoming more urbanized,
and demanding more diverse food. Increasing populations, and in urban areas, are a major factor for the continued demand growth for commodities. Although population growth is expected to continue, it is beginning to
level off, and there are indications that population growth may stop around 2040, and perhaps begin turning lower.
Per capita income growth is a major driver of commodity prices. “In 1992 there wasn’t a pound of soybeans
being imported into China, but we’re projecting 70 mmt in 2015” said Browne. “People now have disposable income and they can buy protein for their diet.”
Urbanization is the primary driver in disposable income. “In 1980, you had 80 percent of Chinese populations in rural areas, and today it is 50 percent, and that is projected to continue to drop” said Browne. Although the demand outlook is positive, it is not without risks. Browne listed several significant risks to demand including a significant slowing of the global economy. Developing countries have seen rapid increases in their economic growth, and that could change. There may also be a change in imports from commodities to finished products. As with all economic projections, there is the riskthat the forecasts for global population and income growth are incorrect. Finally high agricultural commodity prices will limit the buying capabilities of emerging markets
.Browne challenged farmers to ask “Are we banking too much in Chinese demand?”
China could easily import corn from Argentina. They are also aggressively seeking feed grain supplies from the Black Sea region. Much of the growth in U.S. commodity exports has come from China, but the U.S. is facing stiffer competition from other countries.
When it comes to supply, the world does have the capacity of increase supply. “Arable land globally
represents 16 percent of the total world land, and 68 percent of that land is in commercial crops” says Browne. Of particular interest is the Black Sea area, where they are currently sowing less than 55 percent of
available arable land. “The one thing about the Black Sea expansion is that it was under production back in Soviet years, but it’s not under production today because of the collapse of the Soviet Union, and there
was no access to capital. People couldn’t plant the crops, or harvest, or sell them, and there was a complete breakdown. “ The land is very available once the capital becomes available.
Fertilizer use is also lacking in many areas. Once again, focusing on the Black Sea region, fertilizer use
per acre of land is 43 percent below world average, due to availability and cost. Seed genetics also hold the potential to help expand world production. “The availability of latest seed genetics is getting better in
South America, and once they catch up they’ll see benefits” says Browne.
Storage facilities also have the capacity to increase our supply. “If you’ve read about Khazakstan, about 20 percent of their crop isexpected to be spoiled because they just don’t have the storage facilities” says Browne. “That will change over time. There is a lot of money to be made providing storage facilities.”
“As long as prices are relatively high, you’re going to see the economics of expansion in many areas such
as Ukraine, Russia, South America, and Sub-Saharan Africa” says Browne. There are limits to supply expansion such as price, availability of capital and inputs and water availability, but the world does have the
potential for significant increases in production.
In the long run, Browne sees the U.S. share of global exports shrinking. It may expand in terms of dollars
or bushels, but the percentage of the world food provided by the U.S. is likely to decrease. “Efficient use of technology will be key for U.S. producers” says Browne. “There’s a very good chance we could see
inflation in the next three to five years and that could buoy prices, but you’ll also see significant increases in the prices of your inputs” advises Browne.
The long term outlook for agriculture remains positive, but the structure of our markets is likely to be
changing. The strength of global markets, particularly China, and the expansion of production in areas such as South America and the Black Sea region, will likely change who buys commodities and who sells them. U.S
farmers often take for granted the availability of machinery, fertilizer, seed and financing, but those factors are limiting production around the world. Browne’s glimpse into the future dynamics of world commodity
trade offered hope for farmers when it comes to demand, but not without the risks of increasing competition from other grain producing areas.
Rick Browne was a keynotespeaker at the 2011 Prairie Grains Conference.
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