Complexity In The Market

January 28, 2014 06:53 PM
 

It’s not just commodities

Is the future of the grain industry moving more toward growing ingredients for value-added products for diverse global markets, or will it continue to be commodity oriented? The answer could impact how you farm and how you’re paid.

"The conventional commodity approach is less relevant in the era of global value chains," says Grant Aldonas, principle managing director, Split Rock International, a business and investment advisory firm. Value-added imports have been increasing and will continue to rise, he says.


"The conventional commodity approach is less relevant in the era of global value chains."


"Grain markets will become more fragmented and require a higher degree of sophistication," Aldonas says. "We have a world ag market that is more complex."

While the U.S. faces increasing competition for grain and oilseed commodities, Aldonas says it has a significant advantage when it comes to value-added products.

Grain companies aren’t on the same page as Aldonas. "The vast majority of the market is bulk commodities," says Karl Skold, director of economic research for Bunge. "The value-added segment is growing but on a relatively small scale."

Warren Feather, vice president and merchandizing manager for one of Cargill’s divisions, adds, "We are meeting the demands of customers." Still, Cargill is involved in the value-added segment. "It’s know thy customer," Feather says. "If a customer demands it, we’ll supply it."

 Overall, global demand is growing, but it’s a two-way street. "The world is getting smaller and smaller," says Matt Jansen, president of ADM’s oilseed processing business unit.

The increased demand for soybean oil also brought growth to the canola and palm oil markets, Feather notes.

China continues to be a major market mover but can be a wild card. Jansen expects China to become a larger corn buyer, but their purchases won’t be as predictable as with beans.

Demand Expands. While China’s import growth has created a lot of buzz in recent years, there’s more to consider. "One of our three major customers is Africa," Jansen says, noting that ADM has small projects there. However, he does not look for major production increases in Africa during the next five years.

As for demand increases, Bunge’s Skold looks to Asia, North Africa and the Middle East.

Still, the Chinese market is huge. "From October through December 2013, the Chinese soybean crush was twice that of the U.S.," Feather says, adding that it’s caused soybean basis to jump post-harvest.

One response that’s an advantage for the U.S. has been natural gas prices. "We have access to fairly cheap energy compared to Argentina," says Feather. "That’s a major advantage.

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