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November 27, 2019November 27, 2019

AgriCensus Report

OPINION: Soybean futures risk is to the upside, trade deal or not

At a time of rising geopolitical tension between the US and China and with a trade deal appearing less likely to be on the horizon, what upside opportunities are there for soybean prices?

The answer seems to lie in the sharp fall in ending stocks projected by the USDA for this marketing year.

From the 2018/19 to 2019/20 marketing year, the USDA ending stock forecasts have virtually halved from 913 million bushels (24.85 million mt) to 475 million bushels (12.92 million mt).

In the modern era of grain trading, we can find three times when this situation has more-or-less happened.

The first was from the 2012/13 marketing year to the following marketing year when the carryout went from 143 million bushels down to a modern-day record of 92 million bushels.

Futures prices averaged $14.76/bu in the 2012/13 season, but then actually fell to an average of $13.53 at the beginning of the 2013/14 period despite the pressure on stocks.

We can attribute this to two factors.

Firstly, the 2012/13 crop was hit by a drought crippling the harvest in 2012. Secondly, soybean production rebounded the following year to a record high with traders then realising that large bushel volumes were headed their way.

So, if this first example was the exception, what about the other two cases?

From the 2006/07 marketing year to 2007/08, ending stocks fell from 574 million bushels to 205 million bushels. And in this case, tighter supply did have an impact on prices, with average nearby futures rising from $7.30/bu to $12.58/bu.

For the third example, from the 1994/95 year to 1995/96 soybean ending stocks fell from 335 million bushels to 183 million bushels.

In this period, average soybean futures prices hit $7.39/bu in 1995/96, up from the $5.70/bu average seen in the preceding marketing year.

If you think that ending stocks still don’t reflect the situation we are in because of the huge 2019/20 beginning stocks then try this:

The stocks to use ratio this 2019/20 marketing year is projected to fall from 23% to 11.4%.

Similar falls were witnessed in all three historical examples given, with the ratio falling in 2013/14 to 2.6% from 4.3% in 2012/13.

From 2006/07 to 2007/08, the ratio fell from 18.7% to 6.7% and from 1994/95 to 1995/96 it fell from 14% to 7.8%.

With exception of the first example that we can discount because of the large uptick in production for 2013/14 year in addition to the very high average prices in 2012/13, the other two examples saw average futures prices rise year-on-year by an average 72% (2006/07 to 2007/08) and 30% (1994/95 to 1996/97).

I think that the risk is looking to be on the upside for the rest of this marketing year.

Charlie Sernatinger is a broker with ED&F Man in Chicago.

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November 25, 2019

Trading is a people business

A conversation with Ito van Lanschot

Ito van Lanschot is a business developer, strategist, investor, leader, risk and commodity expert. He is founder and managing director of TRADESPARENT BV, (formerly named Commodity Services & Solutions) which is today a leader in commodity data and solutions.

Previously Ito was CEO of BayWa Agri Supply and Trade, President and COO of Reliant Energy Europe and CEO of Nidera where he was directly responsible for the international trading and processing business and operations for the grain and oilseeds complex, freight, energy business and the development and implementation of its global risk group.

You left Nidera 4 years before COFCO acquired a 51 percent stake. While you were CEO, had you already started to look for an equity partner for Nidera?

Indeed, as the company had grown tremendously, and financing became an issue—how do we finance future expansion? Markets were volatile and prices were rising; high prices mean that you need more trade finance. Banks were willing to lend, but they increasingly looked at Nidera’s solvency ratio. Equity was important, and we needed more equity. We started to look around for equity partners to take a 10 to 15 percent in the company

Why did the families decide to sell the whole company rather than the initial 10 or 15 percent?

I left Nidera in 2010 so I was not involved in the transaction. I can only speak from what I have heard second-hand. While our initial intention had been to find an equity partner, the families also wanted a strategic partner to help grow the business. They found that strategic partner in COFCO.

COFCO was interested in acquiring the origination assets that Nidera had in Argentina and Brazil. Nidera was interested in COFCO as a strategic partner. The 51 / 49 percent deal that they eventually agreed was in line with that logic. The idea was that Nidera’s managers would continue to run Nidera with an assist from COFCO.

Nidera posted its first loss in five years in 2015 after a rogue trader incurred losses of around $200 million in the biofuels market. How did that happen, and why didn’t risk management controls catch it earlier?

I was the last CEO of Nidera who had a trading and risk management experience. A financial manager took over after me, and ultimately a gentleman from Unilever. As often seen in the various trading industries, it is difficult to manage traders, you can have the best governance structure and control systems, but you always have to keep your eyes open for anything that looks out of the ordinary. So, I believe it is easier for an experienced trader to understand and to know what is not right. It takes a trader to catch a trader.

Do you think there is still a role for small trading houses in today’s market?

You have to be highly specialized to operate in a trading market. With the strength of the farmer and the strength of the consumer, the trader has to have a very defined role and to add value. I find it hard to believe that the smaller traders can add value unless they have something really unique in their product offering. And the markets are so transparent that this is unlikely.

The large guys are struggling as well. Our whole industry is going through a period that is similar to the time after the Great Grain Robbery of the 1970s. It was difficult to make money in the 1980s and 1990s, and it is difficult to make money now.

What are the greatest risks or challenges that the trading houses face today?

The biggest risk a manager has is in taking decisions on reports based on incomplete or incorrect information. It is a real struggle for companies to collect the correct data in these fast moving and complex markets. Senior management needs to drive this effort and embrace technology themselves, and not leave it to their IT-staff alone.

In the past, trading companies had margins, so they could get away with taking the odd bad decision; everyone makes bad decisions from time to time. But today there are practically no margins in the business, and you are punished immediately for a bad decision.

Thank you, Ito, for your time and insights.

This is a brief extract of a conversation from my new book Out of the Shadows – The New Merchants of Grain available on Amazon

November 21, 2019

Commodity Conversations Weekly Press Summary

EU member states are unlikely to ratify the EU-Mercosur trade agreement following Brazil’s decision to open up sugarcane farming in the Amazon, according to an EU official talking to the Financial Times. Even cane industry sources complained that the policy would only benefit a fraction of growers and that the 44 million ha of degraded land was more than enough to expand planting.

The Brazilian President may also be looking at scrapping the 2008 soy moratorium, an agreement under which traders committed not to buy soy from Amazon cleared land. The agriculture minister said that the moratorium was ‘absurd,’ echoing earlier comments by the President that existing laws were sufficient to protect the Amazon. The oilseed crushers’ organisation Abiove, on the other hand, said it would stick to the moratorium.

There is a concern that the African Swine Fever and the ensuing surge in Chinese demand for Brazilian beef are also threatening the Amazon. Brazil’s meatpacking group JBS, for one, reported a 6% increase in its last quarterly profits thanks to the higher prices and stronger demand from Asia. And the meat trade between Brazil and China is expected to continue growing. Earlier this month, China approved 25 more meatpacking plants in Brazil for exports, bringing the total to 89. Some cities in the US, meanwhile, have suggested boycotting meat from companies linked to Amazon deforestation.

This comes as data from Brazil’s space agency released this week showed that Amazon deforestation in the twelve months to July was up 30% on year and at a decade high. Brazil’s environment minister recognised that this was an issue and said they were using satellite data and the army to enforce existing rules.

In northern India, the government has started fining farmers found burning crop residues, which is being blamed for the toxic air pollution. An estimated 23 million mt of crop residue from 80,000sq km of farmland is burnt in the north of the country every year. An analysis on the BBC explained that agricultural laws in the states of Punjab and Haryana force farmers to plant in June, instead of April, to take advantage of the monsoon rain and reduce the use of groundwater. The shorter window before the next crop, combined with the high costs of machines required to pick up the stubble, push farmers to burn their fields to prepare for the next crop. An analyst suggested that India will need to go through a second technological ‘green revolution’ involving machinery to fight the current pollution crisis.

A month after the French constitutional court maintained legislation that would ban palm oil as a biofuel feedstock by January 2020, the National Assembly passed an amendment that delayed the end of tax incentives on palm oil biofuels to 2026 to give producers more time to adapt. In the meantime, major producers in Malaysia and Indonesia set up the Council of Palm Oil Producing Countries (CPOPC) to defend the image of palm oil. Malaysia also pledged to meet the new EU food standards for palm oil by 2021, as food consumption still accounts for 70% of global palm oil demand.

China’s swine fever outbreak might be much worse than initially expected. The CFO of ADM said the group had seen some benefits on its crush margins but added that the full impact of the disease has not been felt yet. China might lose 20 million mt of pork to the outbreak, twice the initial estimate, which has led to a surge in exports of animal protein from countries around the world, such as Canada, the EU and Brazil.

Louis Dreyfus (LDC) announced more changes in management this week, with the departure of the COO, a new head of risk and compliance and changes to the board of directors. The group reported a 45% drop in profit during the first half of the year and the CEO said things were unlikely to improve before 2020.

The agriculture industry has not gone through a wave of consolidation and megamergers as some expected despite a thin-margin environment. A director at ADM said this was partly because consolidation can be a very complicated process while potential targets are limited. The trade war is also making it harder to make long-term plans and accurately assess the value of assets. Instead, the industry has been collaborating through joint ventures to minimise cost. For example, ADM, Cargill, Bunge, LDC, Glencore and Cofco are all working together to track shipping transactions using blockchain technology.

In Turkey, finally, the Internet-famous chef Nusret Gokce, more widely known as Salt Bae for his extravagant (and salty) meat dishes, is reportedly looking to sell a stake in the Istanbul-based Nusret Gokce steakhouse. This could value the company at over USD 1 billion.

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November 20, 2019

AgriCensus Report

South America loses edge as US flash sales reclaim corn exports

Higher basis prices in South America’s FOB corn markets are finally stimulating a switch in demand for some destination markets back to US corn supply, with two consecutive daily private sales announcements highlighting an improvement in demand.

US net sales are lagging well behind last year’s pace, but Monday and Tuesday brought announcements from the USDA of private sales of 132,000 mt and 191,000 mt of corn to unknown destinations.

“Given Argentina premiums are close to the 60s, the US should be taking back Latin and Central America demand if anyone is still open for December,” one market source said, with recent net sales and export inspection data showing a pick-up in demand from those destinations.

“My guess yesterday was Japan, the odd 191,000 mt size makes me think Mexico… The FTA quota from Colombia resets to 0% for US corn for January 1, so it will most certainly be the Gulf versus South America,” the source said.

The twin sales notices follow an announcement on November 8 from the USDA for 217,040 mt of corn – also for unknown destinations but thought to be heading to Mexico.

South American basis values began to climb in October, as a combination of the approaching end of harvest, appreciating currencies, and a lack of farmer selling drove basis values higher in Argentina and Brazil.

As a consequence, this tipped the balance towards Ukraine’s huge corn harvest.

Overnight, FOB Santos Brazil corn for December shipment was heard bid at 70 cents over December, with the same loading period offered at 65 cents just a week earlier.

Meanwhile, US Gulf December cargoes were heard offered at 66 cents over December, while Argentina’s basis premiums have jumped from single figure premiums to now stand at around 55 cents.

The switch was underscored by the wholesale ousting of South America from a recent burst of buying from South Korea, which stocked up on over 500,000 mt of corn in the space of a week in early November – the bulk of it from the Black Sea.

However, US domestic values have remained well supported as a slow harvest and strong domestic demand kept internal basis values high and starved supply to the Gulf and Pacific Northwest export hubs.

This has meant the country has continued to struggle to compete.

However, for countries with existing free trade agreements in place, the US is proving to be competitive, with much of the recent buying heading to Mexico, Japan or Colombia.

US weekly net sales data shows Mexico has bought 6.3 million mt of net sales in the 2019/20 marketing year to date, followed by Japan with 1.7 million mt and Colombia on 650,001 mt.

However, the figures are well behind last year’s pace, with Mexico on 7.3 million mt, Japan on 3.7 million mt and Colombia on 1.1 million mt at the same point of 2018/19.

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November 18, 2019November 14, 2019

Takeaways from GGG

It has been a few years since I last attended a Global Grains Conference (GGG), and I was surprised to see just how big it has grown. With over 1,000 registered attendees and 80 speakers the event must now be one of the biggest agricultural conferences in the world. So congratulations to the organizers for that achievement, but also for the seamless way they ran the event. Kudos!

What were my ‘takeaways’ from the event?

My first, and perhaps the most worrying, is that we have probably seen peak globalization; the pendulum is now swinging back to nationalism. We need international trade to feed the world and as Bunge’s CEO Greg Heckman pointed out in a recent interview, the grain companies have invested on the basis that free trade would continue. This now has to be questioned and factored into forward planning.

Unfortunately, it is difficult for grain companies to plan—and invest—with this current level of political uncertainty. We live in a world where everything can turn on a tweet.

My second takeaway was that of oversupply, and the role that technology continues to play in increasing yields. Although the media often worries how the world’s farmers will feed 9 billion people by 2050, farmers worry that oversupply might drive them out of business before they get to 2050!

But it is not just technology that is driving supply. The expansion in Russia and Ukraine, as well as the second safrina corn crop in Brazil, has also contributed to current oversupply. Production in those low-cost areas is likely to continue to grow.

While supply increases, demand stagnates. I come from the sugar market where demand ‘is the background against which changes in supply play out’. The price of sugar is a function of supply.

The price of grain, it seems, is a function of demand. The price over the past ‘super cycle’ has been driven by biofuels and China. As both now level off, grain analysts are searching for the next ‘demand driver’. They are failing to find one and are worried that African Swine Flu will actually exacerbate the situation. No one I spoke with at the conference expects much of price rally from current levels.

My third takeaway concerned the growing importance of sustainability. When I used to organize conferences we always put the topic of sustainability as the last panel, by which time most people were already heading for the airport. Sustainability has now moved up the agenda; it pretty much dominated GGG’s first sessions.

As usual, the discussions were interesting but inconclusive. They will remain inconclusive until someone finds a way to persuade consumers to pay extra for sustainable food. Until they do, it is the farmers who have to bear the costs of certification—and the traders who have to bear the cost of operating traceable supply chains.

On a lighter note, there was a brief discussion as to whether we are ‘traders’ or ‘supply chain managers’. The vote went in favour of ‘traders’. As Swithun Still, the current president of Gafta told the audience. “We are grain traders—and we proud of the role that we play.”

There was a brief discussion on consumer trends—and what the consumer wants. The answer to that is a complex one: it depends on which consumer you are talking about. And the complexity is increased because there is a huge gap between what a consumer says he wants and what he really wants. He may say he wants a sustainable healthy product, but what he really wants is one that tastes good and doesn’t cost much.

As for the current interest in plant-based meats, I was surprised that some panelists dismissed it as a short-term fad rather than a long-term trend. It reminded me of similar discussions at sugar gatherings ten years ago when the anti-sugar movement was lightly dismissed as a short-term fad.

It is obviously impossible to summarize GGG in a short blog. And it is important to note that others will have completely different takeaways. In other words, you had to be there, but if you weren’t there is always next year! (Global Grain also organise regional events that you might want to check out.)

My book Out of the Shadows The New Merchants of Grain is now available in paperback and electronic versions of Amazon

November 14, 2019

Commodity Conversations Weekly Press Summary

Trade houses are getting increasingly involved – and competitive – in helping their clients use their ingredients for new products or to reformulate existing ones. Cargill, for instance, opened a new Culinary Experience Hub at its R&D center in Belgium. An official from ADM’s Wild Flavours branch said the group was also working on helping companies formulate products and bringing them to market fast enough to capitalise on new trends. The new products tend to have an increasingly short life span, he said. In Thailand, ADM’s Human Nutrition is launching a plant-based high protein drink as an alternative to dairy.

Tate & Lyle, too, opened a new headquarters in Brazil’s Sao Paulo to help customers in South America with product formulations. The company wants to capitalise on upcoming legislation in Peru and Chile that will require clearer labels on packaging. The company reported adjusted operating profits of GBP 183 million (USD 234 million) for the Apr-Sep period, up 3% on year, thanks to a good performance from speciality ingredients and a 43% growth in natural sweetener sales.

One ingredient that Nestle is trying to cash in on is microalgae – it is vegan, healthy and has a low carbon footprint. The company has partnered with the Dutch ingredients group Corbion to incorporate microalgae-based ingredients into plant-based products whilst maintaining a palatable taste.

The craze for plant-based alternatives is far from over, with Burger King announcing the Rebel Whopper burger, its biggest product launch in Europe. The vegetarian burger will be the same price as its meat alternative, unlike in the US where it is usually more expensive. Its other plant-based burger, the Impossible Whopper, was one of the chain’s most successful launches.

Food supplements were among the most popular products sold during Alibaba’s Singles’ Day this week, which saw a record CNY 268 billion (USD 38 billion) in sales, six times more than Black Friday sales in the US. Local analysts pointed out, however, that the sales growth dropped to a 5-year low of 26% as Chinese consumers are reducing their spending amid a slowing economy.

Mondelez, meanwhile, is looking at capitalising on current health trends by increasing the share of so-called “portion-controlled packs” by 2025 to 20%, from 15% currently. These are packs with 200 calories or less. A survey it commissioned found that people, especially Millennials, were increasingly snacking throughout the day instead of eating bigger meals. At the same time, however, the company continues to see demand for more indulgent snacks.

The Business for Inclusive Growth (B4IG) had its first board meeting this week. The coalition includes giants such as Unilever and Mars and more recently Michelin. It has raised USD 1.4 billion for its initiatives that focus on fighting inequality, such as supporting small farmers to boost yields. The CEO of Danone, which is leading the initiative, said companies needed to change the way they do business. The head of Olam took it one step further and argued that businesses must stop blaming governments and the lack of regulation. He called on food companies to make their ecological footprint public as a starting point for real change to happen.

One company walking the talk is McDonald’s, analysts said. The group will be buying enough renewable energy in Texas to power some 2,500 stores and reduce emissions by 700,000mt of greenhouse gas. This is part of their target to reduce emissions by 36% by 2030. In India, meanwhile, Nestle said it had collected and disposed of enough plastic to make its KitKat and Maggi brands plastic-neutral by the end of the year.

Last but not least, Wilmar International saw a net profit of USD 447 million in the Jun-Sep quarter, up from USD 406 million last year and beating market expectations thanks to a 24% growth in its tropical oil business. It also benefited from discontinued operations in Brazil while the sugar division saw a pre-tax profit of USD 80 million, up 9% on year. Louis Dreyfus’ Brazilian sugarcane business Biosev didn’t do so well. The company reported a loss of BRL 304 million (USD 73 million) in the last quarter, nearly twice as high as in the same period last year, due in part to BRL 339 million (USD 81 million) spent on servicing its debt which was affected by the weaker Real.

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November 13, 2019

AgriCensus Report

ANALYSIS: EU faces fresh fears of tight rapeseed supply in 2020

The European Union is facing another period of tight rapeseed supply through the second half of its marketing year after drought left its crop at its lowest level in 13 years, while exports from Ukraine are showing signs of drying up.

Imports of the oilseed surged 77% on last year to 2.67 million mt between July and November, leaving a gap of 3.91 million mt still to be imported before June 2020 if the import forecast by the European Commission is to be met.

Nearly 80% of this year’s imports have been supplied by Ukraine, but exports for this season are now running dry as shipped volumes near the 2.85 million mt ceiling of Ukraine’s exportable surplus.

“There are only crumbs left to be shipped, while the main volumes are already contracted. The season has almost finished in Ukraine,” a Ukraine-based market analyst said.

“We are fully sold out on old crop seeds, there isn’t anything left to sell and discussions are now focusing on new crop, which will be harvested next June,” a Ukrainian broker said.

Ukraine started its export program in June and had already shipped 2.54 million mt by the start of November – mostly to the EU – leaving around 300,000 mt still to be shipped.

“We were heavily dependent on Ukrainian rapeseed but that looks to be ending now… Volumes are still coming in but it’s basically impossible to get any new business done,” a Dutch broker said.

“We will have a shortage of rapeseed in Europe, some expect there will be no seed left from May. It looks like we are heading for a squeeze,” he added, leaving European importers to look to Australia and Canada to fill the gap until Ukraine starts exporting again next June.

But those origins bring challenges, not least the issue of genetic modification.

Canadian supply

“With imports from Ukraine falling, I expect some coverage to come from Canadian canola, but it is a tricky situation selling the GM meal. The feed sector just doesn’t want it,” a German broker said.

Europe excludes the use of any genetically-modified products, making meal or oils derived from GM-based Canadian canola hard to place, while a fall in meal prices means the feed sector is mostly using soymeal.

Even biodiesel does not have the same cold properties as European material, producing less glycerine during esterification and requiring segregation in tanks, while its GM nature means that it is not rated as EU sustainable, further slashing its value to blenders.

“Some expect one million mt of Canadian canola to come into Europe, that means around 400,000 mt of rapeseed oil, but it will be tough to place that volume, I just don’t see how that will happen,” the Dutch broker said.

On top of that, meal prices in Europe have fallen, the Dutch broker added, with the feed sector mostly taking soymeal, which in turn could hamper rapeseed crush margins if more Canadian canola is crushed.

Australian supply

“The only solution is Australia, which has good greenhouse gas savings values [making it more attractive for the biodiesel sector], but they are of course not exporting much at all,” the Dutch broker said.

Australia has been hit by a third consecutive year of drought, slashing its output estimates to 2.3 million mt – around 1.6 million mt of which is expected to be exported, according to Australia’s agriculture ministry.

That export figure – which market analysts call optimistic – is up 3% from last year’s lows but it is still the second-lowest level in a decade.

Europe’s new crop

On top of the supply worries in the current marketing year in Europe, questions about next year’s crop have emerged as autumn plantings of the seed faced a third consecutive year of dry weather, which could limit emergence next year.

Despite high rapeseed prices on the Paris-based Euronext exchange, Europe’s farmers only marginally expanded their planted area from last season’s multi-year low as EU-wide pesticide bans have made it harder for farmers to ensure a good yield.

“It was too dry for plantings this autumn, and acreage isn’t up that much, so we’ll face another year of a tight supply and demand,” the Dutch broker said.

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November 11, 2019

We Feed A Hungry World

A Conversation with Greg Heckman – CEO Bunge

Greg Heckman grew up in Cerro Gordo, IL – a farming community of 1,200 people 13 miles from Decatur. He studied Agricultural Economics at the University of Illinois and took a job with ConAgra as a trainee trader. He spent 24 years with ConAgra, becoming CEO when he took the commodities businesses private in 2008, renaming it Gavilon. He remained as CEO of Gavilon until he retired in 2015.

Greg joined the Bunge board in 2018 and became CEO of Bunge in 2019.

When you first joined the grain business did you ever imagine that you would end up as CEO of an ABCD?

No, I never really looked that far ahead. The team and I took on the challenge that was in front of us, conquered it and then looked for the next hill to climb. The rest of it kind of takes care of itself.

I do love leading teams though, I really enjoy putting people in the best position to succeed, putting them in a role that is their highest best use for the organization while also being a place they can continue to develop. Seeing them be successful and do more by working together than they every imagined possible.

I also really enjoy seeing people’s success enable them to do the things they want for their families – like buying homes and educating their kids and spending quality time together with family.

What are your biggest challenges in being CEO of an ABCD?

The current global environment is my biggest challenge. The industry has been overbuilt and needs some consolidation. Technology is changing rapidly and Ag and Food have been slow adopters. In addition, consumer trends are evolving and changing rapidly.

The industry has been built on what we expected to be continued globalization and open, fair and free trade. However, we have been experiencing a move back to nationalism recently, which is causing major trade flow disruptions.

You recently launched a strategic review of your business. This has led to rumours that Bunge might exit grain and oilseed trading to concentrate on higher value-added businesses. How would you respond?

We are looking at everything in our business to ensure we are creating shareholder value.

That being said, there will continue to be volume growth in agricultural commodities to feed a hungry world, and the majority of that supply volume growth won’t be where the demand volume growth happens.

We also have a global processing infrastructure to feed and support. We are the #1 Global Soy Crusher, we have an excellent soft seed crushing franchise and a strong wheat milling franchise in S. America, and wheat and corn milling in N. America.

Our newest business is our acquisition of Loders Croklaan, which has given us an excellent platform to value-add our fats and oils output from our crushing.

Bunge appears to be navigating the trade wars reasonably well. Do they remain a threat to your business model?

Absolutely, these businesses were built believing free, open and fair trade would continue to drive globalization. This is what needs to happen to feed a hungry world in the most low cost and sustainable way. Allowing crops to be grown in the areas with the most comparative advantage, and move in the most low cost value chains to where they need to be processed and ultimately consumed.

Investors in publicly quoted companies look for steady growth, but G&O trading is cyclical. How do you resolve that contradiction?

We are much more than a trader and distributor of agricultural commodities. We do need to continue to build out our diversification, which will lower our volatility of earnings and dampen some of the cyclicality.

The other thing we must do is communicate our business better, make it more transparent and simple to understand, so that our investors can appreciate the seasonality and cyclicality, and what it means for our earnings and returns.

Thank you Greg for you time and insight!

This is an extract of a conversation in my book Out of the Shadows – The New Merchants of Grain, available now on Amazon.

November 7, 2019

Commodity Conversations Weekly Press Summary

The Brazilian President repealed a decree which prevented sugarcane cultivation in sensitive areas such as the Amazon or Pantanal. Researchers warned that this could harm the chances of exporting cane products like ethanol to the EU or Japan where the environmental footprint is closely monitored. The sugar industry had previously lobbied against the move but recently suggested that deforestation concerns would be handled by new policies, such as the Forest Code and RenovaBio.

Experts estimate that 80% of the forest fires in Brazil are started to make space for cattle ranches, despite the fact that the three largest meatpackers pledged to only buy cattle from deforestation-free areas. As a result, journalists are now reporting cases of “cattle laundering”, where farmers move cows around to remove links to illegally deforested land.

Despite the strong rise in deforestation, Brazil emitted only 0.3% more greenhouse gases in 2018 when compared to 2017 thanks to the growth in clean energy sources such as ethanol and wind power. Nonetheless, some areas are witnessing dense smog and pollution because of the fire. In New Delhi, crop burning is one of the major reasons why the smog problem became so bad planes could not land and schools were closed. Ethanol, and other advanced biofuels produced from crop waste, could be a good solution to address the pollution, although the lack of funding is seen as a major obstacle.

Conservation International said it would accelerate its program to plant cocoa plantations and other trees to restore some of the burnt Amazon areas. Commodity groups such as Olam and Mondelez pledged to pay a premium for the cocoa collected under the program. The cocoa grown in the Ivory Coast and Ghana, meanwhile, has recently become more expensive as the price for next season will include a Living Income Differential (LID) premium. Switzerland’s Barry Callebaut said it would pass on the premium to its customers, adding that most other players would probably do the same as the two countries account for 70% of the supply.

Indonesia attempted to stop deforestation by banning new palm oil plantations for three years last September. However, the Roundtable on Sustainable Palm Oil (RSPO) said it was impossible to measure the success of the ban because of a lack of transparency.

A study conducted by Maersk and Lloyds Register identified alcohols like ethanol and methanol as some of the most promising renewable fuels to help the maritime industry reduce their emissions, along with biomethane and ammonia. The COO of Maersk commented that most of the innovation will have to come from growing the production of these fuels to commercial scale. Maersk Tankers recently announced a partnership with Cargill and Mitsui to study ship decarbonisation.

Nestle announced that 70% of its car fleet in Mexico used hybrid engines to reduce their carbon footprint, and that they were struggling to reach 100% only because of a lack of hybrid trucks and vans. Nestle, along with Pepsi and Coca-Cola, has been moving towards using aluminium cans to address concerns about the mounting plastic pollution. But the Coca-Cola CEO argued that the most environmentally-friendly solution in the long-run was actually to collect and recycle more plastic bottles. The group will not look to a strategic shift away from plastic, he added.

Investors have been encouraging sustainable firms for years but a new breed of investors is now looking at going a step further by shorting companies with a lack of sustainable credentials, something Bloomberg dubbed “The Green Short”. Morphic Asset Management, for one, is short on Coca-Cola Amatil, an Australian bottler, because it is not doing enough for the environment and to tackle the obesity crisis.

An in-depth analysis by Politico suggested a reason why the food industry is having a hard time dealing with a rise in obesity and diabetes: the US government has been shrinking the amount of money it invests in nutrition research. As a result, the science on what is healthy food is inconsistent and even contradictory at times. Experts are calling for the creation of a National Institute of Nutrition to help the sector focus on healthier foods.

Finally this week, we recommend watching this montage of Australian farmers reacting to the recent heavy rain in New South Wales. While 100mm fell over the past weekend, some experts warn that more rain will be needed to fully recover from the drought.

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November 6, 2019

Global Grain Geneva

The Geneva Global Grain (GGG) Conference will be held from 12th to 14th November 2019 at the InterContinental Hotel, Geneva. GGG is the ‘must-attend’ event for anyone involved in the international grain trade.

Dan Basse, President of AgResources, will be giving the keynote presentation on Wednesday 13^th November, the first day of the main conference. I recently had the pleasure to interview Dan for my new book, ‘Out of the Shadows – The New Merchants of Grain’. We found we had something in common. We both grew up on pig farms, and we both founded our own analytical and research companies: his on grains and mine on sugar.

During our conversation he told me that he was worried about ASF—African Swine Disease—and the impact that it could have on global grain and oilseed demand. He explained that pharmaceutical companies have spent millions of dollars trying to find a cure or a vaccine for the disease, but so far have come up with nothing. “It’s an old disease,” he added, “first discovered in the early 1900s in South Africa. It’s virulent.” He added that we are at least five years from a vaccine or antidote.

Dan told me that he was also worried about the weedkiller glyphosate, explaining that there isn’t a good substitute except for manual or mechanical cultivation. He estimated that if glyphosate were banned or removed from the market, “we could lose 15 to 20 percent in yields. And of course, if we go back to tilling, we’d have more carbon in the atmosphere, and we’d have to have more passes over the fields. And we’d have to bring in more land to produce the same amount of food.”

Guy Hogge, Global Head of Sustainability at Louis Dreyfus Company, is on the keynote panel that follows Dan’s presentation. I interviewed him for my earlier book ‘Commodity Conversations’. At the time, I asked him then whether it was better to engage with, rather than ban, suppliers that fail to meet social and environmental norms.

He replied that “avoiding questionable supply chains completely may be an easy way to refrain from dealing with an issue, but it is not the best way to inspire and encourage change on the ground. If you want to address issues, you have to be involved in them, alongside other relevant stakeholders.”

Swithun Still, Director of Solaris Commodities S.A., and current President of Gafta, is also speaking at GGG. I interviewed him for ‘Commodity Conversations’ and he has also written—in a personal capacity—the preface to my new book.

In that preface he writes, “People can get by without buying many things in life, but not food. We’re dealing with the very fabric of life, with grains that make our bread, our pasta, our couscous, our biscuits. As the world population booms, our agricultural systems will be tested fully. As merchants of grain, we have a duty to help our farmers and customers make sure that, together, we feed the world without destroying it.”

“I’m a merchant of grain,” he added. “I’m proud of the work that we conduct in the grain trade.”

About 1,000 ‘Merchants of Grain’ from 65 countries will be attending Global Grain Geneva, of which 80 will be presenting or moderating over 30 sessions, including Dan Basse’s assessment of the 2019 harvest season and trade projections for 2020. The event is perfect both for networking and learning. I will be there, and I hope you will be there too.

If you haven’t yet registered, it is not too late. Click here not to miss out!