Beyond Turmoil, Solid Grain Demand

March 29, 2011 08:48 PM
 

Political upheaval in Egypt and the earthquake in Japan shook wheat and corn markets in recent weeks, but the critical importance of food persisted.

Japan's grain, feed, and livestock industries quickly worked around crippled ports and feed mills. The March 11 earthquake and tsunami severely damaged four of the country's major importing facilities and attached feed mills, reported the U.S. Grains Council. Those mills normally produce about 15 percent of Japan's compound feed, said the council. However, mills not damaged by the disasters promptly put more capacity to work and shipped feed into the quake region.
 
Japan has bought corn since the earthquake, noted Darrell Holaday, market analyst at Country Futures, Frankfort, Kan. “I'm not surprised by the prospect that they will come back and buy more than maybe what we thought,” he said. “But I'm surprised how quickly it occurred.”
 
Jay O'Neil, senior agricultural economist at the Kansas State University International Grains Program, cautioned that the situation is subject to change. “At the moment, based on what we know now, there was not much damage to Japan's animal infrastructure,” said O'Neil. “The animals are still there. They need to be fed.”
 
The Grains Council said most of Japan's herds and flocks are beyond the damage area: “Since the majority of livestock and poultry farms are located near Japan's mountain side (west side of Japan), minimal animal loss is expected from the tsunami,” reported Hiroko Sakashita, the council's associate director in Japan.
 
O'Neil said that even though Japanese feed compounders and animal producers are dealing with logistical battles, business is being accomplished. “So today,” said O'Neil, “I would say we don't see any drastic change in Japan's feed demand or their ability to receive grain.”
 

Radiation concern 

Radiation contamination reached milk and lettuce near the damaged nuclear facility in northeast Japan. “They are not interested in consuming their own lettuce or milk because of contamination,” said Dermot Hayes, economist at the Iowa State University Center for Agricultural and Rural Development. However, he added, “There's no evidence of pork or beef contamination in any way.”
 
Hayes doesn't think Japanese buyers are increasing their meat imports in response to the earthquake-related damage.“But if someone were to detect a problem with their own meat supply, then everything would change completely,” said Hayes. Japanese pork buyers likely would turn to U.S. suppliers.
 

Food politics in North Africa 

“We have fewer concerns about North Africa than Japan,” said O'Neil, who for much of his career was an international grain trader.
 
“Above all else, the one thing that we should know about North Africa is that there is one critically important job,” said O'Neil. “It must be done. You must feed the people.”
 
Unrest in North African nations grew out of unemployment, lack of economic opportunities, and rising food and fuel prices. “Underlying it all may be a lot of political unhappiness with leaders,” said O'Neil. “But what started it was economic. It was the ability of people and economic hardships of feeding their families.”
 
Those who want to govern in North Africa will focus on providing enough affordable food for citizens, and bread is the main source of carbohydrates in Egypt. The entities that purchase grain may change, but buying will continue, said O'Neil.
 
Holaday at Country Futures said some traders are concerned about what organizations will buy wheat in North Africa and the Middle East in the short term. But long term, he said, developments are bullish.
 
“Every time you watch an oppressive dictator or government go down, in the end their economies flourish,” said Holaday. “That increases their demand for food and energy. Eventually, we will see that in the Middle East and North Africa.”
 

 

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