2016

Global food stocks or the highest level in history! Income of largest grain merchant falls

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Some of the world's leading agricultural trading companies believe that the era of plummeting prices and low volatility is not over yet.

MATt Jansen, CEO of COFCO Noble Agriculture Co., Ltd., said at the Financial Times Global Commodity Summit Forum in Lausanne, Switzerland that agricultural prices have continued to fall in the past three years, but they are not low enough to encourage grain production reduction.

Louis Dreyfus and Cargill said it was harder for trading companies to profit from low volatile prices.

Louis Dreyfus CEO Gonzalo Ramirez Martiarena said the state of the agricultural market in 2015 is a lack of volatility. The situation will not change much in the future.

Bloomberg's agricultural index volatility is near a two-year low. Global agricultural countries, including Brazil and Russia, have had bumper crops and a global oversupply, causing agricultural prices to fall by about 45% from their peak in 2012. The currency exchange rate of the major producing countries is weak, encouraging farmers to increase production. The London-based International Grains Council (IGC) says global food stocks will be close to their highest level in 30 years.

Agricultural trade was adversely affected by the collapse in commodity prices and low volatility. Louis Dreyfus, the world's largest rice and cotton trader, saw its earnings fall to their lowest level in a decade last year. Monsanto, the world's largest seed company, reported a decline in second-quarter revenue. Cargill's net income rose 8% in the three months to February, but sales fell 11%.

GErt-JanVanden Akker, head of Cargill's agricultural supply chain, said the market conditions were poor. Given the increase in supply, demand must increase to keep up with supply.

Ramirez and Vanden Akker said the only hope for trade conditions to improve in the short term was major weather problems that damaged crops, strained supplies and increased market volatility.

Jansen said that although South American currencies have weakened, soybeans in the region are expected to hit a record high again this year, and corn production may also hit a record high. Ukraine and Russia will grow more corn and wheat because exports are profitable and field technology improves, the Ramirez said.

Vanden Akker said that due to the peso exchange rate, Argentine farmers are currently receiving higher prices than last year, so there is no reason to reduce production. He said prices needed to fall further to encourage farmers to reduce production.

Although Cargill said low prices hurt U.S. farmers, the U.S. Department of Agriculture said that this year's U.S. corn acreage may hit the third highest level in 70 years. Jansen said $9.50 in soybean prices and $3.75 in corn prices will encourage production growth, especially in Brazil.

Global crop yields come at a time when China, the number one importer, plans to end its corn storage program, which has led to speculation that feed corn supplies will further increase, leading farmers to reduce sorghum and barley use, which will reduce imports.

Cargill said that China has 0.2 billion to 0.25 billion tons of corn stocks, higher than the 0.109 billion tons predicted by the U.S. Department of Agriculture.

Jansen said China tends to no longer maintain inventory, trying to let the market determine the price. Considering the size of China's inventory, it will take some time to digest these inventories, which is estimated to take several years.

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