Transitioning to a greener carbon-sensitive global economy seems likely to impact significantly on global commodity markets in the years ahead.
This was a central theme in Dan Basse’s address to the R&H Hall/Barnett Hall virtual conference earlier this week.
World grain demand is growing at about 1.8% or 41mt per annum.
New acres are no longer available in the US
This has been happening for the past two decades and Basse, a markets analyst based in Chicago, is questioning our ability to maintain this pace of production growth.
He said that global grain yields appear to have flattened and new acres are less available.
“New acres are no longer available in the US, so commodities must compete on price for those acres,” he said.
Meanwhile, global population continues to increase, which leaves the amount of grain available per capita likely to decrease over time.
Peak acres and flattening yields point to food and feed supply pressures in the years ahead
Basse estimated that the world would need an additional 20m to 25m acres every year to meet this increasing demand but those acres are just not available to the big producers.
He believes that markets are heading back into a period of “demand pull”. Peak acres and flattening yields point to food and feed supply pressures in the years ahead. He pointed to the high ongoing feed demand from China to feed its new seven-storey biosecure “hog hotels”.
While the transport sector is transitioning to electrification, there will still be a big demand for fossil fuels up to 2030 and beyond
He also talked about “renewable diesel” as a new source of soya bean oil demand in the US. This will increase the demand for oils and fats and soya oil will be one of those inputs. He sees a need to substantially increase biofuel production in the US as there has not been sufficient recent investment in fossil fuel production to meet demand.
While the transport sector is transitioning to electrification, there will still be a big demand for fossil fuels up to 2030 and beyond. Biofuels will be essential to help supply this demand.
However, increasing soya production to grow this oil will mean an increasing crush level in the US, which will produce more soya bean meal.
Basse feels that the need to secure export markets for this additional production will see soya bean meal prices weakening in the coming months/years.