Times just keep on changing. This is about as close as one can get to putting a single theme on the recent Barnett Hall/R&H Hall/ Precision nutrition conference.

Issues such as Brexit, the incoming administration in the US and the increasing production potential of Russia and South America are indicative of this continuous change.

It is increasingly easy to understand how all of these factors impact on the potential profitability of Irish grain growers.

We are producing against a background of very high global grain stocks. And even if there is a single year of depressed production globally, it seems likely that prices will not go into overdrive due to the high stock levels and so there is little room for optimism on the price side.

It may take two or three consecutive years of depressed production to impact on prices.

Four challenging years

Global grain prices have had four challenging years and Dan Basse(left) from AgResource asked if we could see a fifth. The answer must be yes, but that does not mean it will happen. Rebalancing of the grain markets would require the world to take 15 to 20 million acres out of production. And this needs to be done by governments in the big producing regions, as farmers will not do it.

The continuously increasing production is partly due to above-trend yield levels globally. It is also a consequence of an area increase of 179 million acres, Dan said. Basically, calorific demand is growing at about 1.8% per annum, but production has increased at around 2.9% per annum in the period.

Bioethanol production drove demand over the past decade or so, but this has since matured. Animal feed remains a big demand centre and is increasing. But this is being outpaced by supply, which is impacting on prices.

While the bioethanol market has matured, there is again worry about the pace of decarbonisation, Dan stated. The rise in electric car production is obvious and he foresees a time in the medium term when oil will lose its major relevance to global economics.

Dan also pointed to the fact that China will be a major uncertainty over the next decade. It has abandoned its agricultural price policy because it didn’t work and its existing stock levels are now to be used up.

Some believe that it will take six to nine years to use up these stocks, depending on the response of its own producers to lower internal price levels, which have dropped from $9/bu to $5.20/bu. This will mean no maize imports during this period and even the possibility of exports.

Currency will continue to be a major uncertainty also. Dan thinks that the dollar will remain bullish, but he expects increased volatility due to the Trump factor.

However, Dan and many others believe that if he surrounds himself with good people in government, as he does in his own business, then the US could well see better times ahead.

While the arrival of a small increase in global inflation is seen as good, Dan is worried that negative interest rates remove most of the power of central banks to drive their economies. The velocity of money, or the rate at which it is turned over, has also been decreasing over time in the US because people are saving rather than spending.

Even the dynamics of global grain trade have changed, Dan stated. The Black Sea is now the major exporter of grain globally and the world wheat market is now determined by what happens there.

Demand tends to grow in steps, but Dan stated that the growth in meat consumption in China, one of the big demand drivers in recent years, has now slowed for the second year running and meat consumption levels there are now close to those of the western world.

Brexit and its consequences

Brexit was the new word to enter the lexicon in 2016 and, according to the Oxford English Dictionary, it is the only word in the English language whose definition is itself.

Basically, no one really knows yet what it will mean for the United Kingdom as its government is only beginning the process of negotiating its consequences.

Chris Horseman of Informa Agribusiness Intelligence told the meeting that the UK appeared to have one of five options to progress its future relationship with the EU.

1. The Norway model: This would mean full European Economic Area membership with full integration into the EU single market (but not necessarily for agricultural products or financial services). The UK would have no participation in EU decision-making but free movement of people would be essential, along with UK contributions to EU budget. This option is highly unlikely.

2. The Swiss model: This would require multiple bilateral deals on market access. Other obligations make this unattractive to either the EU or the UK.

3. The Turkey model: This would not provide free access to the single market and trade would be based on harmonised external tariffs. This is also seen as an unlikely outcome.

4. The Canada model: This allows for comprehensive but incomplete free-trade agreements (FTAs) and enables the UK to have other FTAs with other countries. It has no requirement for the freedom of movement of labour. However, it will require lengthy negotiations with inevitable uncertainties. Some version of this is seen as a relatively likely outcome at this time.

5. The WTO model: This situation becomes the automatic default in the absence of any other specific trade agreements once Brexit is enacted. Full external EU tariffs would apply to products moving in both directions. Given the current timetables, this option is seen as potentially likely in the immediate aftermath of Brexit.

Chris said that while the UK is a member of the WTO, it does not have any trading rights in its own name. So might the EU give the UK a share of its trading quotas or will it be negotiating from scratch?

Realistically, negotiation is unlikely to be a rapid process and will be difficult to conclude by March 2019.

The UK is now in a situation where it will have to establish a new agricultural policy after 49 years of European membership. While this provides an opportunity for change, the UK must now debate what is best for its national interest. Even establishing what is best in its national interest could be a challenge.

South American potential

South America, and in particular Brazil and Argentina, have enormous potential for increased output, especially for maize and soya beans.

Pedro Dejneka(left) of AGR Brazil said that Brazil has the potential to at least double its current output level in the next decade and this could be even greater if proposals to further develop its limited internal infrastructure are implemented.

Pedro said that Brazil’s Cerrado region alone has over 60 million acres (size of the UK) of potential arable land that could be used for cropping.

A significant part of this infrastructure is already in place following the development of a number of ports on its northern coastline. These are now known as the northern arc ports and they help decrease the transport cost from northern regions to export facilities. They also help reduce shipping costs to Asia via the Panama Canal.

Looking forward, Pedro indicated that Brazil will be a huge producer of soya beans. Over the next 10 years, he sees production in Brazil increasing by around 30%, Argentina may increase by 15%, with US output likely to remain similar.

The drive to increase production in Brazil and Argentina is helped by both currency and tax changes. The weaker peso and real are helping producer profitability and this is driving output.

Transport logistics are the major limitation. Land transport is expensive and large producing regions like Mato Grosso are a long way from ports. The lack of water and rail facilities in Brazil increases the cost of delivery to ports, compared with the US.

Brazil plans to have a much lower dependence on road transport into the future. There are also plans to build a railroad to connect Porto do Açu in Brazil to Puerto Ilo in Peru. This would open up a vast swath of land to production and lower-cost transport.

Pedro suggested a road transport cost of $76/t to move product from Sorriso in Brazil to the port of Santos. This compares with $40/t from Córdoba in Argentina by road to Rosário. But barge transport from Illinois to New Orleans costs $20/t.

The northern arc has significantly reduced the total transport cost of Brazilian produce to China, and is now lower than the USA in some instances. Reduced transport cost through improved infrastructure is at the centre of plans to increase the export competitiveness from Brazil.