Weekly Media Monitor

The Rockefeller Foundation has joined the crowd wanting to transform the US food supply system. They say America faces a hunger and nutrition crisis unlike any the country has seen in generations, with 33 per cent of families unable to afford the amount or quality of food they want. You can access the report entitled Reset the Table: Meeting the Moment to Transform the US Food System here.

Announcing new EU legislation to cut greenhouse gas emissions by 55 per cent, the EC Executive Vice-President has struck an alarmist tone. He says that if we fail to act, “we would fail our children and grandchildren, who will be fighting wars over water and food.”

The Guardian believes that the problem lies with the few transnational companies who dominate every link of the food supply chain from ‘seeds and fertilizers to slaughterhouses and supermarkets to cereals and beers’. It argues that these mega-companies dictate what farmers grow, how much they are paid, what consumers eat, and how much our groceries cost.

The Guardian is also worried about the future of regenerative agriculture, concerned that it doesn’t pay to rewild farms.  Reuters joins the debate, writing that critics want to ban the conversion of wildland for organic farming. They say that transitioning conventional farmland into organic is a three-year process, and some farmers may be converting untouched land instead. (In any case, yields are usually lower with organic farming than conventional farming, requiring a more significant acreage for the same production.)

Although selective breeding and genetic modification have made corn and soybeans more tolerant to heat and drought, a recent study has found that the gain is offset by reduced productivity under normal conditions. As one of the researchers explains, ‘There’s been this trade-off; crops become better adapted to extreme weather, but less adapted to normal conditions.’

In a special report on sustainability and agriculture, the FT looks at the increasing role of green finance. At the same time, Euronews argues that food must be at the heart of environmental action ahead of the COP26 meeting in November.

Palm oil is once again in the spotlight with a new report by a coalition of NGOs which accuses the Indonesian palm oil industry of human rights abuses. The piece is critical of the RSPO complaints system, which it calls ‘slow and ineffective.’

Last week, sugar taxes were back in the headlines with the publication in the UK of a government-commissioned report that called for a surcharge of £3 a kilo on sugar and £6 a kilo on salt sold wholesale for use in processed food, restaurants, and catering. The British Prime Minister seemed unimpressed by the idea. An expert at GlobalData suggested that one of the tax goals would be to force product reformulation. Still, food makers are unlikely to find alternatives without affecting taste and texture or increasing price.

Impossible Foods Inc. plans to launch a plant-based chicken nugget made from textured soy protein and sunflower oil, but Bloomberg wonders whether it is entering the market too late. The news agency is more optimistic about lab-grown foie gras, which it finds delicious. Meanwhile, Popeyes, the US fast-food chain, is worried about shortages and is stockpiling chicken ahead of its launch of a new chicken nugget product at the end of July.

Is lab-grown chocolate next on our shopping lists? The answer is apparently ‘No’. Although possible, it will be too expensive compared to the real thing.

Chinese pork imports should drop significantly after a 50 per cent fall in domestic pig prices. US pork is now more expensive than domestic meat after tariffs and freight, and the Chinese government can now replenish state reserves more cheaply from the local market.

Environmentalists often criticize the global shipping industry for its environmental footprint, even though it transports about 90 per cent of world trade by weight while accounting for only 3 per cent of human-made CO2 emissions. The sector is looking for solutions – is sail one of them?

The Wall Street Journal looks at how the recent US Presidential executive order on increasing competitiveness may affect the railroads and ocean shipping. Meanwhile, even though the Ever Given, the cargo ship famous for blocking the Suez Canal has now left Egypt, the vessel’s owners are worried about legal claims against them.

Raízen, a joint venture between Cosan and Royal Dutch Shell, is selling 8 per cent of its shares through an initial public offering, seeking to raise R$6.9bn ($1.34bn). Raizen is Brazil’s fourth-largest company by revenue, with a workforce of about 30,000. If successful, the offering would put it among the top-10 IPOs on record in Brazil.

Finally, and while on the subject of alcohol, hope may finally be at hand with a hangover-recovery drink attracting attention from major drink companies. And no, it’s not a Bloody Mary!

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Weekly Media Monitor

The UN FAO food price index dropped 2.5 per cent in June, down from a nine-year high. Prices of vegetable oils and cereals fell, offsetting gains in meat and sugar. However, the heatwave and severe drought in the U.S. Pacific Northwest continues to damage crops, including wheat, canola and fruit.

Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522 – up 547 per cent on the seasonal average over the last five years. Drewry Shipping Consultants predicts that container shipping liner profits will surpass $100 billion in 2021 after posting a record EBIT in 1Q21 of $27.1 billion, beating the full-year 2020 EBIT of $25.4 bn. Drewry predicts freight rates will increase a further 50 per cent on average but warns that there is a danger that shippers will view carriers as “profiteering villains.”

The US White House has released an executive order to encourage the Federal Maritime Commission to vigorous enforce competition rules in the shipping industry. The European Union is also shining a spotlight on the sector to ensure that container shipping companies follow competition rules.

High freight rates are encouraging the world’s sugar refineries to delay shipments and run-down stocks, resulting in a 60 per cent drop in shipments from Brazil so far this year and encouraging Brazilian millers to produce more ethanol and less sugar.

The shipping industry is worried about Covid infections among vessel crews but face difficulties in vaccinating them. Some ports continue to restrict access to vessels with unvaccinated or infected crews. Sadly, shipping delays have adversely affected the welfare of live animals shipped overseas.

Reuters looks at the double whammy of rising grain prices and increased freight rates, but the FT takes a different tack, writing that commodity prices have slipped on Covid fears. Bloomberg highlights the recent collapse in lumber prices. The Guardian worries that the UK’s truck driver shortage will lead to increased food prices and shortages at Christmas. CNBC is worried about the pending ‘rubber apocalypse’ and how producers must adapt to climate change and tree disease.

The White House executive order (mentioned above) also includes measures to increase competition within agriculture, especially in the beef sector, where four large meat-packing companies dominate over 80 per cent of the market.

Following the European Commission recent commitment to table a proposal to phase out the use of cages in farming by the end of 2023 and enforce the ban from 2027, the EU’s biggest egg producer, Eurovo Group, has committed to phasing out cages for laying hens on its Italian-owned farms by 2022.  Across the pond, Massachusetts lawmakers have warned of a looming egg shortage ahead of the introduction of legislation mandating that all eggs sold in the state come from cage-free hens.

Nestle SA plans to enter the cultured meat market, working on alternative meat products that blend cultivated meat with plant-based ingredients. Aleph Farms Ltd has completed a $105 million Series B funding and will use the money to commercialize its cultivated beef steaks, scale up manufacturing and expand the product range.

IHS Markit finds that the price of Brazil’s agricultural land reached the highest average value of the past 20 years. The cost of grain land gained 30 per cent in the year to April, while cane land gained 10 per cent in value.

The world’s trade ministers held a virtual meeting this week to try to hash out an agreement to eliminate or reduce the $22 billion that rich countries spend each year subsidizing fishing. In their annual report, the WTO writes that “reaching an agreement will be critical for marine sustainability and the WTO’s credibility as a negotiating forum.”

China plans to broaden its agriculture insurance policies to protect farmers and increase rice, wheat, and corn production. The government will subsidize insurance costs for farmers to cover natural disasters, pest damage and other losses. In a further move to improve food security, the Chinese government harvested its first batch of “space rice” from seeds that returned from a lunar voyage last year. Scientists hope they could help create new plant varieties.

Chinese farmers have increased corn planting this year mainly at the expense of soybeans and other crops, including sorghum and edible beans. Pig farmers in the central province of Sichuan of China are still battling severe outbreaks of African Swine Fever (ASF). The disease has been spreading in the region since early March.

In longer reads, the Maritime Executive looks at how shipping companies are experimenting with biofuels to reduce their carbon footprint. In contrast, Rolling Stone looks at how US farmers can profit from carbon capture. FoodDrinkEurope, meanwhile, has published a report that finds that farm-to-fork food production represents 30 per cent of total carbon emissions within the EU.

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Weekly News Summary

The ongoing drought in the Americas continues to cause concern. Water levels in the Parana River are still falling, delaying Argentina’s soybean shipments. In California, a shortage of water is threatening the state’s almond industry. California grows about 80 per cent of the world’s almonds. The CME believes that their water futures contract could help.

But just when you thought the situation couldn’t get any worse, swarms of grasshoppers are now devouring crops across the US mid-west. The drought has provided ideal conditions for grasshopper eggs to hatch and survive.

Mexico is also suffering a severe drought but hopes that the upcoming rainy season will replenish parched reservoirs. The country gets between 50 and 80 per cent of its annual rainfall between July and September.

Bloomberg wonders whether weather problems will strengthen the supercycle but complains that ‘Commodity Traders Harvest Billions While Prices Rise for Everyone Else’. General Mills is undoubtedly worried about rising prices. The company expects total input cost inflation of about 7 per cent during the current fiscal year.

A new study predicts that climate change could result in a ten per cent fall in corn, rice, soybean and wheat crop yields by 2050 and that this figure could rise to 25 per cent by the end of the century.  The researchers argue that agriculture is falling behind on climate adaptation.

Another study finds that food – and GHG emissions from the farmers that produce it – are killing us. It estimates that 4.1 million deaths in 2018 were associated with dietary health risks, 6.0 million with overweight or obesity and that 730,000 infant deaths resulted from malnutrition. Researchers estimated that air pollution caused by food production lead to about 530,000 premature deaths per year globally, with 85 per cent occurring in Asia.

Bloomberg has an interesting video that asks whether we need a new green revolution in agriculture. The news agency argues that an excellent way to start the process would be to reconfigure subsidy programmes to incentivize farmers to improve soil health and build resilience to extreme weather.

But the revolution is already ongoing. Reuters highlights what one company, in this case, Olam, is doing to improve the food journey.

Politico questions US government plans to encourage farmers to capture carbon, arguing that the carbon price is too low to make it worth their while. Farmers receive around $15 per ton of sequestered carbon, but the price needs to be above $30 for the scheme to pick up momentum.

EU ministers last week backed a provisional agreement to revamp the bloc’s Common Agricultural Policy to help promote greener farming methods. Environmentalists called on the European Parliament to vote down the deal; they say that the reforms do not go far enough.

Major food manufacturers have signed the EU Code of Conduct on Responsible Food Business and Marketing Practices, a voluntary code to support ‘the sustainable transition of our food systems’. The Code of Conduct is part of the EU’s new Farm to Fork strategy, but Food Navigator asks whether it will deliver on its lofty ambitions.

The European Commission will propose legislation in 2023 to phase out and eventually ban farming caged animals, possibly by 2027. The European Parliament had earlier voted to support the ban.

Bloomberg takes a long look at how high prices and changing consumer tastes negatively affect global meat demand. The meat industry will face more competition from Nature’s Fynd, a start-up company that ferments a volcanic microbe from Yellowstone National Park to produce protein.

The Guardian asks what foods we, as consumers, should be eating to save the planet. Grass-fed beef and lamb top the list, followed by oats, locally grown vegetables, mussels, pulses, seaweed, venison, and waste food.

The WWF has published a new study that argues that insect protein in animal feed could replace 20 per cent of the UK’s soya imports by 2050, cutting deforestation and GHG emissions. The WWF calls on the UK government to follow the EU’s lead and permit insect protein in pig and poultry feed.

Euronews has published an extract from Planet Palm: How Palm Oil Ended Up in Everything-and Endangered the World by Jocelyn C. Zuckerman. The excerpt focuses on the murky world of lobbying. Meanwhile, Malaysia’s palm oil producers are coping with a labour shortage that may leave some trees unharvested.

Although the European Commission may include shipping in its carbon trading scheme in 2023, the FT asks whether Brussels will be brave enough to extend the project to all ships coming into EU ports, rather than just those travelling between European countries.

Meanwhile, Quartz looks at the container shortage and writes that the three Chinese manufacturers that supply about 80 per cent of the world’s shipping containers are operating at full capacity. It argues that demand still outstrips supply and that inventories of new containers remain low. An executive at Maersk is more optimistic, predicting that ‘the container shortage is temporary in nature’.

Senators from the US farm belt have introduced three bills to promote biofuels in the face of a growing threat from electric vehicles. One would provide $1 billion in grants to pay for pumps and storage tanks with higher gasoline blends of biofuels. A second would give a $200 per-car tax credit for automakers who make flex-fuel vehicles. A third would provide fuel blenders and retailers with a tax credit for each gallon that they sell of fuel containing 15 per cent or more of ethanol.

Finally, US biofuel and corn industry groups have asked the Environmental Protection Agency to use restraint in its use of waivers exempting refiners from their biofuel blending obligations.

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Weekly News Summary

In an opinion piece in the FT, economists from CRU argue that there is nothing super about this commodity cycle. They believe that the current supply and demand imbalances will soon be resolved. Goldman Sachs seems to agree. In a research note this week, the bank writes that the US is in a one-time inflationary blip that will eventually become a one-off “disinflationary drag”. They see no signs that the US economy is overheating.

We may worry about Covid variants, but China’s pork producers are concerned over the spread of new variants of African Swine Fever. The new variants have a more extended incubation period, making them difficult to diagnose before the infection spreads across farms.

In a setback to the US biofuels industry, the US Supreme Court has made it easier for small oil refineries to win blending exemptions for ethanol and other renewable fuels. The court ruling gives the US Environmental Protection Agency (EPA) wide latitude to exempt refineries from federal mandates. Meanwhile, I recommend the latest HC Insider podcast; it shines a spotlight on the future of the biofuels sector.

Bloomberg takes a deep dive into the Suez Canal with one maritime captain saying, “I’d rather have a colonoscopy than go through the Suez.” Meanwhile, Egypt expects to finalize soon an agreement for compensation over the Evergreen container ship that blocked the Suez Canal in March – and that has been kept in the country ever since.  And while we are on the subject of canals, the Turkish president has inaugurated work on the controversial Kanal Istanbul.

Still on the subject of shipping, the port of Yantian in southern China is now fully operational after being closed due to a Covid outbreak. However, bottlenecks still exist elsewhere, for example, in the Port of Hamburg, where there is ‘high (container) yard density and exceptional waiting times’ for vessels.

Tanzania has started talks with China to revive the planned $10 billion Bagamoyo port project, 75 kilometres north of Dar es Salaam. Construction began in October 2015, but the government suspended the work shortly after.

The Guardian has seen a draft of FuelEU Maritime, the green fuel law for EU shipping, due to be published on 14th July. The European Commission has rejected requiring specific green fuels and instead opted to set stringent greenhouse gas intensity targets. The newspaper describes the draft law as an environmental disaster, saying it will lock in the use of fossil fuels for decades to come and make the EU’s target of net emissions neutrality by 2050 unreachable’.

A senior shipping official has also criticized the draft law, telling the FT that it will mean vessels will have to slow down. He argues that this will result in more ships on the seas, thus raising, not lowering, carbon emissions

The Nigerian central bank has restricted the use of the US dollar to import grain. Nigeria is Africa’s biggest buyer of wheat, and flour millers struggle to find dollars to pay for imports.

Remaining in West Africa, Côte d’Ivoire is building an electricity generating plant using waste biomass from cocoa farms. The facility will meet the electricity needs of 1.7 million people.

California’s drought has led to a shortage of irrigation water irrigation for the state’s almond producers. Farmers are letting many of their trees die.

In the UK, Foundation Earth, a government-backed NGO, has joined forces with Nestlé, Marks & Spencer, Sainsbury’s, the Co-op and Costa Coffee to introduce a pilot scheme for environmental traffic lights on food packaging, possibly a world first.

A new report by The Economist Intelligence Unit, commissioned by the WWF, has highlighted consumers’ growing awareness of the environmental impact of what they buy, particularly in the cosmetics, pharmaceutical, fashion and food sectors. The most dramatic growth in engagement and awareness has occurred in Asia, notably India, Pakistan and Indonesia.

In what might be another world first, the UK is considering a tax on meat to reduce consumption and help the environment. Meat processors around the globe are under pressure both to reduce their carbon footprint and prove that their cattle do not come from recently deforested areas.

Environmental and animal welfare activists are not just attacking the meat industry: they also have dairy in their sights.   The good news is that meat lovers in Israel can already try out lab-grown or cultured chicken.

The Guardian reports that the UK will face food shortages this summer due to a lack of lorry drivers. The lorry driver shortage is already affecting deliveries of fresh food. The newspaper highlights the looming shortage of tinned tomatoes – and what it may mean for the cost of your favourite pizza.

The Guardian also writes about the mismatch between the public perception of farming and its reality. The newspaper warns that the future of agriculture is at risk.  However, in a separate article, the Guardian argues that traditional farming could one day become obsolete. Food in the future will come from microbes grown in bioreactor vats and processed into dry protein powders.

Until then, the Wall Street Journal argues that combatting climate change and environmental damage will come at a cost to food companies. But there is hope. Scientists have published a study that shows innovation in technologies and agricultural practices could reduce GHG emissions from grain production by up to 70 per cent within the next 15 years.

As for this week’s long read, you might enjoy the FAO’s Biannual Report on Global Food Markets. I confess that I didn’t read many of its 188 pages. However, I did enjoy this piece on the history of palm oil – and how it became the most used and the most hated vegetable oil.

© Commodity Conversations ® 2021

Weekly News Summary

This past week has been a volatile one for the markets – a rollercoaster ride for commodity traders. First, Business Insider published an overview of the factors driving food price inflation, but it was quickly followed by a collapse in the corn and soybean markets. Bloomberg attributed the selloff to the prospects for better weather and fed tightening and wondered whether it marked the end of inflation worries.

Spring rains may have improved prospects for the approaching winter-wheat harvest in the Northern Hemisphere. However, Brazil is still struggling with their worst drought in a century, affecting crops and hydroelectricity generation. Brazil has announced that it will allow GMO corn imports from the US following the failure of the country’s second safrinha corn crop, responsible for over 70 per cent of the country’s corn output.

In an attempt to dampen prices, China ordered state-owned enterprises to limit their exposure to overseas commodities markets and, in a clear case of ‘shoot the messenger’, arrested key grain analysts. However, Bloomberg argues that it will be tougher than China thinks to dampen prices. Still, markets may do the job without government intervention: wholesale domestic pork prices have fallen by 50 per cent since their highs in January.

Top ag traders who attended last week’s FT Commodities Global Summit are still (moderately) bullish on grains and oilseeds. However, others who attended the event were less convinced, warning that a slowdown in Chinese growth rates will reduce their imports.

High commodity prices have increased food fraud: adulterating food, replacing it with an inferior product, or faking its origin. Traders not only have to watch out for fraud, but they also have to watch out for wild boars. Last week, Algeria rejected 27,000 tonnes of French milling wheat after two dead boars were found in the cargo. No one is quite sure how they got there.

Talking of meat, Reuters has published an interesting explainer on the US meat industry where four companies – Cargill, Tyson Foods, JBS and National Beef Packing – slaughter and process about 70 per cent of total US beef production.

Still on meat, yellow pea is the fastest-growing source of protein for plant-based meat alternatives. The yellow-pea market is expected to be worth $140 billion globally by 2029, up from $14 billion in 2019. Insect-based pet food continued to make the headlines with start-ups and pet food manufacturers trying to formulate meat alternatives from sources such as fly and mealworm larvae.

On the ethanol front, rumours circulated that the White House is looking to keep RFS biofuel blending targets unchanged from last year – or even lower them. There were suggestions that the government would provide oil refiners with more RIN waivers. Some small refineries are reportedly not purchasing credits, waiting instead for a Supreme Court ruling. Reuters estimates that US oil refiners have amassed up to a $1.6 billion shortfall in RIN credits.

And a warning to Brazil’s ethanol producers as the country’s motorists slowly switch to EVs. A recent study found that ethanol demand could start declining as early as 2025, falling about 40 per cent through to 2035 – and a further 20 per cent to 2040. This would leave demand at 40 per cent of current levels.

The famous Ever Green container ship that blocked the Suez Canal for six days in March is still stuck in a legal battle regarding compensation claims by the Suez authorities.

The EU is expected to propose the widening of its emissions trading system next month to include maritime transport. The International Maritime Organization, the UN agency that regulates shipping, concluded six days of meetings last week but failed to make much progress on the (admittedly difficult) issue of how to cut emissions.

ADM, Dreyfus, Cargill and Amaggi have joined forces with the payments company TIP Bank to create a joint logistics platform to handle road freight in Brazil. Bunge launched a similar initiative last year.

Brands are fragile and increasingly so in the era of social media. For example, Coca Cola suffered a $4bn fall in its share price when Cristiano Ronaldo removed two Coca-Cola bottles from his desk during a press conference, replacing the soft drink with water.

British food and drink exports to the EU fell by £2bn in the first three months of 2021, with sales of dairy products plummeting by 90 per cent. Brexit checks, stockpiling, and Covid have been blamed. Meanwhile, the UK meat industry is cutting production due to Brexit-induced labour shortages.

The U.S. Supreme Court threw out a lawsuit that accused Cargill and Nestle of helping to perpetuate slavery at Ivory Coast cocoa farms. The court sidestepped a broader ruling on the permissibility of lawsuits accusing American companies of human rights violations abroad. Unfortunately, child and slave labour continues in the cocoa supply chain, raising a dilemma for both chocolate companies and investors: disengage or engage?

From next month, you will be allowed to buy and sell farmland in Ukraine for the first time since it was banned in 2001. Transactions will be limited to 100 hectares.

Finally, in an opinion piece for the FT, a senior policy advisor for the UK government makes a case for genetically edited crops and livestock. CRISPR fried chicken, anyone?

© Commodity Conversations ® 2021

Weekly News Summary

The news this past week has primarily focused on what effect sky-rocketing agricultural prices will have on price inflation. But, unfortunately, the problem is a serious one: the FAO has warned that the cost of importing food will rise this year by 12 per cent to $1.72 trillion, led by increases in grains, vegetable oils and oilseeds.

Inflation fears were further stoked by another fall in US corn stocks to their lowest levels since 2013. The only bright spot, it seems, is that despite climate change, the world could be heading for a bumper wheat crop.

China’s National Development and Reform Committee (NDRC) said it will take further action to stabilise hog production and pork prices and will impose additional price controls on other essential agricultural commodities. It will also set up additional temporary reserves and adjust an early warning system. Meanwhile, the FT takes a look at how Chinese demand is boosting revenues for US farmers.

Rising beef and mayonnaise (from soy oil) costs are already impacting the price of a burger. But before vegetarians start feeling too smug, the price of tofu is also heading higher. (The good news for vegans, though, is that Nestlé has launched a vegan version of their popular Kit Kat chocolate bar.)

Container freight rates continue to stoke inflation fires due to a shortage of containers in the right places, along with port disruptions in China due to renewed Covid outbreaks. These rising shipping costs are pushing up prices from coffee to toys.

Some warn that stretched global supply chains may keep ocean-freight rates high into 2022. However, capsize rates have recently begun to ease in what may prove to be a warning sign to the freight bulls. In the meantime, vessel owners are making three times what they were making just six months ago.

Landowners are also gaining from higher agricultural prices. As a reminder, Bill and Melinda Gates are the largest farmland owners in the US, with almost 270,000 acres. Observers are curious as to how they will divide it up in their impending divorce.

The food versus fuel war continues to rage with the publication of a study by the University of Illinois that found that vehicles using E30 can have significantly lower GHG emissions than EVs in certain conditions, like in rural Illinois during the winter where most generators rely on fossil fuels.

There has been a lot in the press about the $11 million ransom that JBS, the world’s biggest meat producer, has paid after a cyber-attack shut down their US, Australia, and Canada operations. But, unfortunately, cyber-attacks are not the only thing we have to worry about. Fraud is driving banks out of commodity trade finance.

In what may have a long-term effect on animal farming in the EU, MEPs voted last week in favour of a resolution (not a law) calling for a ban on the use of cages across the EU for farmed animals by 2027. They also called on the EU Commission to ban the force-feeding of ducks and geese to produce foie gras.

New research claims that when you take the entire food system—including crops and livestock, the conversion of land to agriculture, transportation, retail sales, food consumption and food waste—food could be responsible for up to 40 per cent of the world’s GHG emissions. (Most people estimate that figure at around 25 per cent.)

Cargill has announced a project that will use corn to make spandex and biodegradable plastics. Cargill will add the $300 million plant – a joint venture with Germany-based HELM – to their existing corn-processing complex in Eddyville, Iowa. They expect to open in 2024.

The UK faces a shortage of fruit and vegetable pickers this season as tighter post-Brexit immigration rules kick in.  And in sad news, the International Labour Organization and the UN children’s agency report that child labour is increasing worldwide (but not just in farming).  It marks a reversal of a downward trend that had seen child labour numbers shrink between 2000 and 2016.

A private-public coalition of 34 diverse partners is pushing to create Canada’s first agri-food sustainability index in an interesting development. If they succeed, it could be the world’s first sustainability benchmark.

Finally, this week’s long read recommendation is on the future for the oilseed markets.

© Commodity Conversations ® 2021

Weekly News Summary

The UN FAO monthly food price index has reached its highest since 2011, up 6 per cent so far this year and up 40 per cent versus a year ago. The Bloomberg Agriculture Spot Index is up 70 per cent in the past year.

Ahead of its first-ever Food Systems Summit in September 2021, the UN has launched a ‘Transformative Partnership Platform’ on agroecology (regenerative agriculture). The UN has called for a transformation in the global food system to end hunger and reverse the environmental degradation caused by farming.

The worst drought in 20 years is affecting almost three-fourths of the western US. Mountains across the West have seen little precipitation, robbing reservoirs of snowmelt.

Following the cyberattack on meat giant JBS SA, Bloomberg argues that giant food companies have become ‘sitting ducks’ for hacker groups. The news agency blames the recent wave of consolidation in the sector. However, the major trading companies have been aware of the risk for some time. JBS’s plants are only slowly recovering after the attack.

One example of this consolidation is Poet Biorefining. Already the largest ethanol producer in the US with a capacity of two billion gallons per annum across 27 plants, the company has acquired the bioethanol assets of Flint Hills Resources, the US’s fifth-largest biofuels producer. The acquisition includes six bioprocessing facilities located in Iowa and Nebraska and two terminals in Texas and Georgia.

This consolidation may be occurring in a shrinking market for ethanol as drivers witch to electric vehicles. The Star Tribune asks whether US farmers are ready for a world without ethanol, a fuel that currently absorbs 40 per cent of US corn production.

Meat companies may also be wondering how to grow their businesses in what may become a declining market. Cargill’s CEO has warned that in ‘three to four years plant-based (meat) will be perhaps 10 per cent of the meat market.’

The FT writes that the buzz around insects is growing. VC funding to the insect protein sector has been creeping up since 2018, with $210m in equity investments last year. The most significant investments are going to start-ups focused on feeding livestock, fish and pets.

The Guardian is concerned about the falling number of farms in the US, particularly in the dairy sector, where there has been a 55 per cent drop between 2002 and 2019. The dairy herd increased over the same period, explained, in part, by increased demand for cheese and butter. US per capita cheese consumption has risen 25 per cent since the early 2000s, while butter consumption is rising even faster.

The US is forecast to export a record $37.2bn worth of farm goods to China this year, 23 per cent of total US agricultural exports. Cargill’s CEO says that China will continue to import and their feed grain industry is unlikely to become self-sufficient despite government efforts to ramp up domestic production. “They need to depend on trade,” he said.

Goldman Sachs has warned that China’s attempts to dampen rising commodity prices are likely to fail in the long term. However, China is not the only country struggling to control food price inflation. Russia is trying to manage their domestic supplies through export restrictions on grain and price caps on other food commodities. At the same time, Russia is looking to build a new berth and increase silo capacity for grain transshipments in Novorossiysk.

Cocoa hit the news last week with the upcoming US Supreme Court case against Cargill and Nestlé.  Former plantation workers claim the two companies were complicit in human rights violations in cocoa production in Ivory Coast.

Meanwhile, the FT looks at Ghana’s plans to capture a larger share of the value chain by exporting more chocolate and fewer beans. The FT estimates that the world’s cocoa farmers retain only 7 per cent of the value chain.

The FT also looks at how Nestlé can move on from their ‘unhealthy food’ problem. Nestlé is trying to manage the fallout from last week’s leaked internal document that showed that 60 per cent of its product lines fail to meet health standards. The company says that the true figure is less than 30 per cent and that the media took the news out of context.

Cargill has announced that it is building a $200-million palm oil refinery in Indonesia. It hopes to complete construction in late 2022. The company said the new refinery is part of a push to oversee its palm oil supply chain “from plantation to customer”.

Maersk has warned of increased congestion and vessel delays in ports in Southern China. Further positive COVID cases have been confirmed in Shenzhen and Guangzhou, where major ports are located.

The UK is expected to soon remove EU-imposed restrictions on gene editing, such as CRISPR, in plants and animals.

This week’s ‘long read’ concerns over-fishing: how government subsidies encourage it and what to do about it.

Finally, ex-floor traders continue to regret the end of open outcry trading in Chicago. Some suggest that price volatility has increased since the industry moved to electronic trading.

© Commodity Conversations ® 2021

Weekly News Summary

China’s banking regulator has told banks to stop selling to retail customers any investment products linked to commodities futures and to unwind any existing positions.

Chinese customs authorities are restricting corn imports into free trade zones. Importers may have cancelled up to 1 million mt of corn purchases as a result.

The International Grain Council has warned that global grain stocks could reach 595 million mt in 2021-22, the lowest level in seven years. The IGC says the drop is due to rising animal-feed demand and drought in Brazil.

In a sign that environmental concerns may soon affect trade flows, British supermarkets have announced that they will look at alternatives to Brazilian soy if Brazil passes new legislation to weaken environmental protection for the Amazon rainforest.

New Zealand’s Fonterra, the world’s biggest dairy exporter, has forecast that milk prices could hit a record over the next year due to surging demand from China.

Ceres Global Ag Corp has said it will build a $350 million canola-crushing facility near the US-Canadian border in Northgate, Saskatchewan.

A leaked internal company presentation shows that 60 per cent of Nestlé’s traditional packaged consumer food and beverage products do not meet internationally recognized health standards. Although many of their products will never be healthy, the company is on a mission to make other products healthier.

Mondelez has agreed to buy European snack maker Chipita SA for about $2 billion. Chipita has a portfolio of croissant and baked snack brands that will broaden Mondelez’s presence in the snack market.

European officials have rejected changes to food regulation that would have banned the use of dairy terminology and imagery to describe plant-based cheese and milk alternatives.

Despite being four to seven times the price of ordinary eggs, organic and bird-friendly speciality eggs account for about a third of the US egg market and are predicted to hit 70 per cent within five years. Eggs from birds grown on farms using regenerative agriculture are expected to be the next ‘big thing’.

According to a recent survey, about a third of US adults say they are making a conscious effort to consume less meat. Hispanic shoppers, in particular, are trying to curb their meat intake due to its relatively high cost.

New research from Michigan State University has found that while caffeine may help you stay awake after a night of sleep deprivation, it won’t necessarily help you get through the day’s tasks.

On the good news front, Twitter lit up last week with the reemergence of a 2016 mega-analysis that found that coffee reduces the risk for alcohol drinkers of developing liver cirrhosis. And the more coffee you drink, the better. One cup a day resulted in a 22 per cent lower risk of cirrhosis. With two cups, the risk dropped by 43 per cent, while it declined 57 per cent for three cups and 65 per cent with four cups.

Leading confectionery companies, including Mars, Mondelēz, Ferrero, Nestlé and Unilever, have called on the EU to reverse a decision to delay legislation governing cocoa supply chains in West Africa.

Nigeria may lose as much as $700 million in cocoa bean export earnings because of a shortage of jute bags. The Covid situation in India coupled with floods in Bangladesh has curtailed global jute production. Ivory Coast produces its own jute bags, while Ghana and Cameroon appear to have stocked up in advance.

US Farmers are looking at new oilseed crops to feed the anticipated surge in demand from renewable diesel. They may have found a candidate in ‘stinkweed’ that has been genetically modified to remove the stink. Carinata and camelina – known as false flax – are other candidates.

A federal judge in California has once again turned down a request by Bayer to settle potential future cancer claims against Roundup weed killer. The company is reported to be considering removing Roundup from the US residential market.

In shipping news, the cost of moving a 40-foot container from Shanghai to Rotterdam rose to $10,174 last week, up 3.1 per cent from a week earlier and up 485 per cent from a year ago, according to the Drewry World Container Index. Drewry’s composite index of eight major routes rose to $6,257, up 293 per cent from a year ago.

At the end of this month, Turkey will begin digging the 45-kilometre Canal Istanbul to link the Black Sea with the Sea of Marmara. The project will cost $15 billion and ease shipping traffic and the risk of accidents in the Bosporus.

In an opinion piece close to my heart, RealAgriculture writes, ‘it is not surprising that many of the best fed, most food-secure people in the history of the human species are convinced that the food system is broken. Most have never set foot on a farm or, at least, not on the sort of farm that provides the vast majority of food. Consumers have developed a romantic view of food production that chases the lore of a past that never existed in most of our farms’ lifetimes.

Finally, in what I initially thought was fake news (and I still have my doubts), Cargill is backing a plan to reduce methane emissions by making cows wear masks. Are cow nappies next?

© Commodity Conversations ® 2021

Weekly News Summary

In what some commentators suggest might be the beginning of the end of the recent commodity boom, the Chinese government is tightening credit in the domestic market. It has also announced a ‘zero tolerance for monopoly behaviour’ in the spot and futures markets and the ‘hoarding’ of commodities’. The moves are likely to impact the oil and metals markets more than agriculture, but they could make it harder for the country’s smaller agricultural commodity importers.

Even so, China has already bought 8.2 million tonnes of corn for 2021/22, nearly one-third of their expected new-crop corn purchases.

Thousands of people attended the funeral last week of Yuan Longping, the Chinese ‘Father of Rice’.  Yuan, who did for rice what the Nobel prize winner Norman Borlaug did for wheat, developed the world’s first commercially viable hybrid rice varieties in 1973, saving millions of people from starvation.

Indonesia’s plans for food self-sufficiency by increasing rice acreage have raised worries over increased GHG (methane) emissions.

California’s drought was in the news again last week, with almond farmers looking to uproot older trees to save water for younger, higher-yielding trees. Water shortages were also a topic in France where citizens accuse Volvic, the mineral water bottler, of drying up rivers and lowering the water table.

Britain’s heir to the throne has stepped into the debate over renewable agriculture, emphasizing small farmers’ role in rural communities and ensuring a sustainable supply chain. The EU agrees. It has announced plans to reform its current subsidy schemes to halt the decline in the number of small farms. The EU agriculture commissioner said: “The European food sector in the past was based on small farms, and it should be in the future as well.” *

Moving in the opposite direction (as usual), the UK is on the verge of signing a trade deal with Australia that critics claim will push the UK’s small livestock farmers into bankruptcy.

The first shot has been fired in the next ‘food versus fuel’ war with an article entitled ‘Global Food Prices Soaring as Demand for Biofuels Continues to Climb’. We expect to see many similar articles in the months ahead. (However, the award for the most alarming headline of the week goes to Bloomberg with ‘Cannibal Mice Plague Threatens Sydney Homes and Australian Farms’.)

Argentina’s port workers went on strike last week over work conditions and pay, temporarily interrupting grain and oilseed shipments. Water levels in the Parana River continue to drop, reducing the draft and limiting the tonnage loaded on each vessel in Rosario.

Lamu, Kenya’s new Indian Ocean container port, began operations last week. Once finished, the port will have 32 berths.

An Egyptian court has refused an appeal by the owner of the Ever-Given container ship to let it leave the country. The Suez Canal Authority claims more than $900 million in damages, while the vessel’s owners have offered to pay $150 million.

In bad news for fish eaters, a recent study has found that fish are less carbon-friendly than previously thought. The study found that bottom trawling emits about the same amount of carbon dioxide globally as the aviation industry. Salmon farming is environmentally friendlier.

Bloomberg reports that Cargill made almost $4.3 billion in net income during the first nine months of its fiscal year, surpassing its best-ever total annual profit.

A planned €150 million cheese factory in Ireland has hit the headlines as Dutch dairy manufacturers try to bypass limits on the size of their herds by outsourcing production to other countries.

Bowery Farming, an indoor-agriculture company, has raised $300 million in a funding round that sets its value at $2.3 billion. It brings the total raised by the company to $472 million.

US President Biden is taking a careful approach to the livestock industry’s GHG emissions. In an interview with the BBC, John Kerry, the President’s environment tsar, said that the US government would not tell Americans to eat less meat. He said, ‘there’s a lot of research being done now that will change the way meat is produced, cattle are herded and fed’.

Australia’s meat consumption is the lowest it has been in the past 25 years, primarily driven by a reduction in pork consumption.

Chinese wholesale pork prices have plunged more than 40 per cent this year on slow demand, increased imports and panic selling by domestic farmers after fresh outbreaks of African swine fever.

For ADM’s take on the future of plant-based protein, take a look at this Bloomberg interview with the company’s CEO.

It seems that everyone wants to revolutionize agriculture. Greta Thunberg has taken up the cause. The Rockefeller Foundation has launched what they call the ‘Food Systems Game Changers Lab’, inviting ideas, initiatives and innovations for change in the way food systems operate. The Foundation will present the best ideas at the UN Food Systems Summit in September.

Some would argue that agriculture and food distribution systems have been in a state of permanent revolution for the past half-century, if not longer. Artificial Intelligence is another stage in that revolution.

* Jason Clay from the WWF once told me: “We have a lot of well-meaning people who’ve never set foot on a farm but have strong opinions about maintaining small farmers, and by extension, whether they realize it or not, poverty.”

© Commodity Conversations ® 2021

Assets are essential – Raul Padilla

Raul Padilla is President, Global Operations, Bunge. He was previously CEO of Bunge South America, having served as Managing Director, Bunge Global Agribusiness and CEO, Bunge Product Lines since 2010. Bunge is the largest oilseed crusher in the world, with about 10 per cent of global capacity.

Good morning, Raul. Could you tell me how you got into commodities?

First of all, I have to tell you that this is a particular time for me. After 44 years in the business, I am taking my retirement at the end of this year.

I started my career in 1977 when I joined a trainee program with an André company in Argentina.  After an initial training period, I began as an assistant oilseed trader, working on trade execution, finance and shipping. I then became a soymeal trader on the domestic market. Later, I was in charge of the soybean oil exports to Latin America, after which I spent two years at André’s head office in Lausanne, Switzerland.

Did you stay with André?

I left André within a couple of years of returning to Argentina and moved to a locally owned oilseed crusher, Guipeba, as commercial director. In 1995 Ceval, a large Brazilian company bought Guipeba and, in 1997, Bunge bought Ceval.  It was almost a reverse-takeover. I became CEO of Bunge’s Argentine operations in 1998.

When did you join Bunge’s executive committee?

In 2001, when we did the IPO. At that time, we were a confederation of companies and countries that lacked structure. It made it difficult for everyone to work together. It became evident that we needed a marketing arm to bring together all our physical origination/production and destination operations.

We looked at various options, including merging with one of our competitors. We talked at length with Dreyfus, but we eventually decided that we would be better on our own. I helped A. Gwathmey, Bunge’s Ag. Product Line CEO at that time, put together a consolidated and central marketing arm. We opened trading offices in Geneva and elsewhere.

In 2010, I moved to White Plains to become responsible for Bunge’s agri-business segment, where I integrated the different divisions and companies within the company. I did that for four years, but I grew weary of the corporate side of the business. I like to run an operation and be part of the day-to-day action. So, in 2014, when the CEO of Bunge’s Brazilian operations (Pedro Parente) decided to leave the company, I asked to replace him.

Brazil is – and always has been – an essential piece of Bunge. It has been almost half of the company. In 2014 we had three divisions in Brazil: sugar, agribusiness, and food and ingredients.

Tell me a little about Bunge’s decision to go into sugarcane.

I was not in favour of Bunge going into sugar. I didn’t like it, not because I knew the sugar business, but because it made us farmers – and farming was not our business. Sugar is eighty per cent agriculture. Bunge is not an agricultural producer; it is a merchant and processor.

Anyway, that’s history, but I ended up being responsible for Bunge’s sugar and bioenergy operations until we merged it with BP in 2019. I continue to sit on the board.  We have a great partner in BP, and the team is doing an excellent job with the combined business.

Were the other businesses working well?

Our results were not what they should have been, and we decided we needed to make another adjustment. In 2017, we split operations into three regions: South America, North America, and Europe and Asia. I took the responsibility to integrate the South American functions. However, we were still not performing as well as the shareholders and we wanted.

So, at the end of 2018, we shook the tree again. Greg Heckman took over as CEO, and the company made changes in the board. Everyone knew that we had to do things differently. We had to change the way we were operating throughout the whole company. I like to describe it as ‘pushing the reset button’.

Does that mean you are now doing less trading and more merchandising?

We manage the mismatch between farmers selling and consumers buying. Addressing that mismatch forces us to have a market view. Sometimes the supply chain will give us a structural margin that we can lock in without thinking about it, but it doesn’t happen every day. There is risk in each of our supply chains. As part of our company reset, we have changed the way we managed risk.

Are physical assets important to trading?

They are essential. You need physical assets to receive, store and process agricultural commodities. You can’t be in the business without physical assets. Processing is critical in soybeans as you can either sell beans or process them into oil and meal. And as you move down the supply chain, you can market the oil in retail bottles or, for example, for biodiesel. We have 35 per cent of the packaged oil market in Brazil – a vast number of bottles!

If you are a grain exporter, you can buy and sell corn, but most importantly, you have the option to do nothing – to neither buy nor sell. You don’t have that luxury in an oilseed supply chain. Capacity utilisation is essential to efficiency. We at Bunge process 45 million tonnes of oilseeds each year. You cannot say, ‘OK, I do not see things clearly; I will step out of the market for a while.’ That doesn’t happen when you manage a crush operation.

People sometimes accuse trading companies of controlling markets.

The only thing that trading companies can control is their cost structure and risk appetite; that’s all.

Moving on to biofuels, is renewable diesel an opportunity – the next big thing?

It is at the centre of the strategic discussions in the industry.

Biofuels fell out of popularity when food prices rose in the 2000s, and there is a danger that history will repeat itself. I fear that food inflation and the food versus fuel debate is going to resurface. We won’t be able to avoid it, although the focus on climate change and sustainability will change the dialogue from last time.

In addition to the food versus fuel debate, the amount of CAPEX required to make a significant bet in the renewable diesel sector is substantial. It’s a big cheque, and you have to be pretty sure of what you are doing and the projected returns.

So yes, renewable diesel is a big thing – a significant factor that we have to consider. We will not rush in; we don’t have all the answers, but we are doing the work as things develop.

Are you worried about peak meat?

We are following this constantly, and the company has invested in alternative meat companies. We did so partly to help us better understand the changes in consumer demand and as an investment in an expanding sector. We debate meat demand constantly – at every commercial discussion.

How has trading changed since you have been in the business?

Today, everyone has access to the same information, real-time on their phone. It is how you interpret the data that is important now, rather than the data itself. We used to have better information, but now we all have to analyse the same information faster and better.

Now everything is immediate; we have instant communication with customers and suppliers. We also have quick access to our colleagues. Over the past year, due to the pandemic, we have all been working from home, connected by technology. We have run a global processing and trading business from home. It is an extraordinary achievement that demonstrates how the world has changed. It is incredible how things have changed so fast.

Would you advise a young person to join the industry?

Absolutely.  Our business is never dull. It changes from hour to hour and even from minute to minute. You can have one scenario in the morning and a completely different one in the afternoon. You have to rethink everything.

You will never be bored, but you will have to be on your toes 24/7.

Thank you, Raul, for your time and input!

© Commodity Conversations ® 2021

This is a short extract from an interview that I will include in my upcoming book ‘Commodity Crops – And The Merchants Who Trade Them.’