Posts

Posted on

Commodity Conversations Weekly Press Summary

As the US-China trade war continues to escalate, the US farm sector is increasingly worried that global trade patterns are dramatically evolving in a way that will not be reversible in the short term. Cost is only one factor behind the trade landscape, as relationships and reliability also play a major role, according to the Farmers for Free Trade group. The uncertainty around US policy is allowing competitors from Brazil, Ukraine, or Argentina, to dismantle some of long term partnership the US industry spent years building, they added.

In Europe, farmers are focusing on the bad weather, as the UK is set to witness a 5% increase in food prices because of damaged crops – this would translate to an increase of USD 8 per month for each household. The farm price of vegetables and dairy has already shot up, with meat and wheat expected to follow suit. Similarly, hailstorms in France have destroyed a significant amount of wine.

On the other hand, global food prices are likely to be stable over the next decade due to the tepid growth in demand, according to a report by the UN and OECD. Agribusinesses will take a hit, the report warns, as Chinese food consumption decreases because of an ageing population and a contracting economy. While regions like India and Africa will provide the volumes, the US and other developed markets will look for quality. Africa will help balance the consumption of processed foods and sugar as developed nations move towards healthier options.

Meanwhile, Cargill is trialling genetically-modified (GM) canola in Montana which it hopes will dramatically change the salmon and fish protein industry. Designed to yield more oil rich omega-3 fatty acid, this GM canola could replace the wild fish which is fed to salmon farms amid a falling ocean population. This is part of the group’s efforts to become the leader in aquaculture feed, according to a company official who said: “This is very much the new Cargill.”

In Brazil, Cargill announced a plan to build a USD 150 million plant to manufacture a food texturizer called HM pectin made from citrus fruit. The pectin, which is used in things like juices and jams, would add a high-margin product to the company’s portfolio at a time of low crop prices. Cargill is also reportedly looking at buying two struggling grains processing plants.

Bunge, the Santander Bank and The Nature Conservancy got together to design a program which gives loans to soybean farmers who commit not to clear forest or native vegetation in the Brazilian Cerrado. Most of the 9.6 million ha of land which came under soybean cultivation in the 2001-17 period in the Cerrado was previously native. Bunge also helped launch Agroideal.org last year which to help grow soybean in a sustainable way.

Olam is planning to increase its cocoa beans output in Ghana as well as to go further downstream into tertiary processing. Olam has become the country’s third biggest buyer of cocoa beans, having purchased 22% of the whole production in 2016/17.

Going from cocoa to coffee, Nestle and Starbucks have signed a USD 7.15 billion licensing deal which allows Nestle to sell Starbucks products all over the world. Both companies will work together and use their complementary advantages – coffee retailing on one side and single-serve home-based coffee machines on the other – to strengthen their position in the coffee market.

In Japan, meanwhile, Nestle is planning to turn its nutritional drinks and supplements segment into – literally – a billion dollar business after it witnessed the growing popularity of its subscription-based nutrition program. The program uses artificial intelligence to analyse people’s meals, DNA and blood sample to work out which supplements they need. Both moves are part of the company’s intention to move towards healthier products.

In Malaysia, the research centre Crops for the Future (CFF) has been promoting some of the 7,000 indigenous crops, such as spindly moringa trees, bambara groundnuts and the kedondong berry, as alternatives to wheat, maize, rice and soybean which provide two-thirds of the world’s food supply. The company is trying to change the approach towards food by diversifying diets while enabling farmers to measure crops in terms of nutrition rather than yield.

Wired’s cover story this week dives into how Maersk, who controls one-fifth of the world’s shipping capacity, was completely paralysed by a Russian-made virus originally made to destabilise Ukraine in June 2017. The virus ended up costing Maersk USD 300 million, and was only fixed thanks to a power cut in Ghana which shielded a single computer from the infection.

This summary was produced by ECRUU

Posted on

The Heart of the Silk Road

The Jayma Bazaar, in Osh Kyrgyzstan, is one of the oldest in Central Asia and has existed on the same site for over two thousand years. The market stretches for more than one kilometre along the western bank of the Ak-Bura River, and has an estimated seven kilometres of alleyways and passages.

Osh is the second largest city in Kyrgyzstan and is situated near the country’s southern border with Uzbeckistan. The city is believed by some to be the location of the famous “Stone Tower”, which Claudius Ptolemy wrote about in his work Geography and which marked the midpoint on the ancient Silk Road between Europe and Asia.

Unsurprisingly for a city at the heart of the Silk Road Osh is known for its ethnic diversity. Traders from all China, Central Asia and Europe have been coming to Osh’s market for centuries and their social interaction has created a melting pot of different races and cultures. (Unfortunately this did not prevent strong anti-Uzbeck feeling from spilling over into a riot in June 2010 that left hundreds dead and destroyed parts of the market.)

The Jayma Bazaar is open seven days a week but I was lucky enough to visit it on Sunday, its busiest day. Many stalls are made from old container boxes and are grouped by product: one alleyway for shoes, another for hats. There is a meat and livestock section, as well as a square given over to craft blacksmiths making knives, horseshoes and cooking utensils.

The majority of the manufactured goods on sale were of Chinese origin, well-known brands that on closer inspection proved to be spelled wrong. Walking in the bazaar really drove home to me the extent to which China continually needs to expand the markets for its manufacturing sector. I began to understand better the important role that the country’s One Belt One Road initiative will play in China’s future development.

However a large section of the market was given over to seasonal fruits and vegetables with hundreds of stalls competing to sell apples, peaches, grapes and melons. There was also a huge quantity of dried fruits and nuts—raisins, apricots, dates, pistachios, walnuts, almonds and peanuts. China’s One Belt One Road project should also help Kyrgyzstan find export markets for its mainly agricultural economy.

That’s the good thing about trade and markets. They work both ways, and help all parties to better their lives.

Next week: Along the Silk Road from Osh to Dushanbe.

Posted on

Commodity Conversations Weekly Press Summary

Bunge announced it has sold its sugar trading operations to Wilmar who confirmed it had acquired both the raw and refined sugar trading books. No financial details were given.  The acquisition will enable Wilmar, which was the chief buyer of Brazilian sugar exports this year, to continue its global expansion. Bunge, on the other hand, had earlier said it was also planning to sell its sugar production operations.

In Brazil, ADM announced it will buy Algar Agro’s oilseeds refining and bottling plants as well as its origination and storage silos. ADM said it was now “the most diversified oilseeds processor in the world.” Algar said it was getting out of the soybean crushing and trading businesses to focus on producing grains. ADM also concluded the takeover of probiotic supplements company Probiotics International. The new company – which will be known as ADM Protexin – will add to ADM’s health and wellness business. In Atlantic, meanwhile, ADM sold a grain elevator to Pipeline Foods, which focuses on non-GMO and organic supply chain solutions. The group explained that the elevator would give them direct access to farmers and therefore improve transparency and traceability in their supply chain.

Cargill said it was looking at expanding its salmon and shrimp feed business further downstream into farming. The aim would be to extend throughout the seafood value chain from feed to consumers directly. In the meanwhile, Cargill continues to expand its feed business. It has tied up with a farmer in Ecuador to test a new feed plant. Back in the US, Cargill Animal Nutrition has kickstarted a Facebook campaign to promote The Great American Milk Drive. The company will give three servings of milk to the Drive for every farmer who uses the HerdFirst Facebook frame and tells his story of caring for dairy animal along with the hashtag #putyourherdfirst. The Herdfirst initiative aims to encourage dairy farmers to balance the nutritional needs of young animals with their business requirements.

Russia is leasing out 1 million ha of farmland to foreign investors, about half of which are likely to be from China which is looking for land to grow soybeans after its spat with the US. With this, there is now about 3 million ha in the Far Eastern Federal District available for dairy farming, cultivating soybeans, wheat and potatoes among other crops.

Sustainability advocacy group As You Sow has started a global alliance of investors whose aim is to put pressure on major companies to reduce plastic waste. Investors representing USD 1 trillion of asset management have signed up. This comes at a time when Greenpeace found that while US supermarkets have made significant efforts to ensure the seafood they offer is sustainable there have been no improvements to reduce the consumption of single-use plastics.

As You Sow argued that pollution and sustainability issues were a brand – and therefore a business – risk. One telling example was the case of beverage group Monster Energy Drink. Earlier this year, a petition was signed by consumers threatening to switch to another brand if the group did not improve supply chain transparency. This happened after Monster was ranked among the worst performers for supply chain accountability.  

We talked a lot about agriculture and chemicals this week (see previous posts here). The latest is a US study which found significant levels of the weedkiller glyphosate in several brands of breakfast cereals, oats and snack bars which are marketed for children. Some 43 of the 45 oat-derived products tested positive and three quarters had levels considered unsafe for consumption by children.

This summary was produced by ECRUU

Posted on

Agriculture and Chemicals: Part Two

Last week I wrote about three recent rulings that went “against” mainstream agribusiness. The first, by a Californian jury, found that glyphosate, a widely used herbicide, was carcinogenic and should be labeled as such. The second, by the EU Commission, was that partial bans on neonicotinoids, an important pesticide, should be extended and enlarged to prevent harm to bees. The third, by the EU Court of Justice, was that gene editing was a form of genetic modification and should come under existing GMO legislation.

The three rulings, coming as they did in close succession, made some wonder what the world has against agriculture in general and farmers in particular.

However, the rulings show the increasing disconnect between consumers and producers. The strong growth in demand for organic food highlights that consumers, particularly urban dwellers, increasingly want their food to be produced and delivered without herbicides or pesticides, and without its genes being modified or edited in any way. Farmers on the other hand want to produce as much food as they can from as little land as possible, and as cheaply as possible. Herbicides, pesticides and breeding techniques (whether genetic or “natural”) help farmers enormously in this task.

In a piece for Foreign Affairs Bill Gates put the case for research into gene editing, writing

This sort of research is vital, because a cow or a few chickens, goats, or sheep can make a big difference in the lives of the world’s poorest people, three-quarters of whom get their food and income by farming small plots of land…

Improving the productivity of crops is fundamental to ending extreme poverty. Sixty percent of people in sub-Saharan Africa earn their living by working the land. But given the region’s generally low agricultural productivity—yields of basic cereals are five times higher in North America—Africa remains a net importer of food. This gap between supply and demand will only grow as the number of mouths to feed increases. Africa’s population is expected to more than double by 2050, reaching 2.5 billion, and its food production will need to match that growth to feed everyone on the continent.

The challenge will become even more difficult as climate change threatens the livelihoods of smallholder farmers in Africa and South Asia. Improving the productivity of crops is fundamental to ending extreme poverty.

He continues,

Gene editing to make crops more abundant and resilient could be a lifesaver on a massive scale.

 In other words, we will have to improve agricultural yields if we want to feed the world and drag people out of poverty. Climate change will make food production even more difficult in the future, while at the same time we need to reduce agriculture’s carbon footprint, both in terms of its own emissions and in terms of forest erosion.

So we have a contradiction here: rich world consumers want their food produced organically, but at the same time they want farmers to use less land. This is a tough “ask” when the world’s population is increasing and when people are eating more meat. Adding a third objective of using agriculture to pull the world out of poverty makes the task even tougher.

However Bill Gates makes an important point when he mentions that cereal yields are five times higher in the US than they are in Africa. The EU beet producers were also right to point out that the extended ban on neonicotinoids would adversely affect beet yields. Against that, the recent increase in EU sugar production has helped to drive world sugar prices down to levels where many developing countries can no longer compete. (Huge production increases in India and Thailand were the main drivers, but the EU increase did contribute.)

You could therefore argue that advances in chemical and gene technology have already increased yields to such an extent that the world is producing too much food. You could add that the fact that these technological advances have largely benefited the developed world (and India and Thailand are part of the developed world), driving down production costs to a level at which under-developed countries, particularly in sub-Saharan Africa, cannot compete. This, as Bill Gates realizes, keeps them in poverty.

So maybe technology has got ahead of itself, (baring weather disasters) resulting in us producing too much food, too cheaply.

Some commentators have drawn parallels between the Californian ruling on glyphosate and the recent study that linked mobile phones and cancer. It is indeed curious that the press were quick to discount the mobile phone story on the basis that cancer rates haven’t increased with mobile phone use, but the media ignores the same logic when applied to glyphosate.

The media also ignore that logic when applied to sugar consumption and obesity. (Per capita sugar consumption has been falling for the past half century while obesity has been rising.)

Could it be that we apply different standards to products that we eat as opposed to products that we use? Could it be that we don’t care how the lithium is produced for our car batteries, but we do care how the wheat is produced for our bread?

Finally, there is the question as to whether the world is over-reacting in pushing back against farm chemicals. Some argue that every thing is to some degree carcinogenic (think sunshine and even toast), and that life is not risk-free.

However it may be appropriate to look back at the history of the insecticide Dichlorodiphenyltrichloroethane, commonly known as DDT. It was first synthesized in 1874 and was widely used in the second half of World War II to control malaria and typhus among civilians and troops.

DDT was made available for public sale in the United States in 1945 and was promoted by government and industry as an agricultural and household pesticide. Opposition to DDT was focused by the 1962 publication of Rachel Carson’s book Silent Spring, which claimed that DDT and other pesticides had been shown to cause cancer, and that their agricultural use was a threat to wildlife, particularly birds. The book’s publication resulted in a large public outcry that eventually led, in 1972, to a ban on DDT’s agricultural use in the United States.

Mosquitoes (not sharks or hippos) are the world’s most dangerous creatures. Over one million people die from malaria each year, mostly children under five years of age, with 90 per cent of malaria cases occurring in Sub-Saharan Africa. Some have argued that that fewer children would be dying if DDT hadn’t been banned.

However, DDT is still used in some parts of the world to combat malaria, and its use has been increasing since it was endorsed in 2006 by the World Health Organization. In many African countries, as well as India and North Korea, the pesticide is sprayed inside homes and buildings to kill mosquitoes. In 2007, at least 3,950 tons of DDT were sprayed for mosquito control in Africa and Asia, according to a report by the United Nations Environment Programme.

A panel of scientists from the United States and South Africa said DDT should only be used as a last resort in combating malaria. The 15 environmental health experts, who reviewed almost 500 health studies, concluded that DDT “should be used with caution, only when needed, and when no other effective, safe and affordable alternatives are locally available.”

The history of DDT may suggest that there is room for compromise on chemicals. Rather than outright bans, perhaps the solution would be to work where possible to reduce the use of chemicals in agriculture. But then compromises never make headlines or pay legal fees.

Images from Pixabay under Creative Commons

Posted on

Commodity Conversations Weekly Press Summary

Wilmar International’s Apr-Jun (Q2) net profit soared five-fold to USD 229.93 million from USD 42.87 million in Q2 2017 on the back of the oilseeds and grains divisions which recorded higher volumes and crush margins. The company’s chairman said that the US-China trade war had improved crush margins in the short term but in the long-term the dispute will not be beneficial. Wilmar is mulling an initial public offering for A-share listing in its China operation – which contributed around 60% of the agribusiness’ pretax profits – in the first half of 2019.

 

The group also obtained a USD 100 million loan from DBS bank with the interest linked to its performance on environmental, social and governance benchmarks. Similarly, Wilmar had earlier switched its USD 150 million loan from ING to a sustainability-linked loan in November 2017, which was a first in the palm oil industry. It also took a loan of USD 200 million from OCBC Bank whose interest rate is linked to sustainability key performance indicators.

 

Olam‘s net profit declined by 36% on year to USD 68.14 million in Q2 due to a decline in earnings for coffee, edible oils and peanuts. The CEO said that current markets were particularly uncertain due to the economic and political situation but that its diversified portfolio should help reduce risks.

 

In its recently published annual report, Cargill said it was moving towards sustainable agricultural practices and would focus on origination and processing segments in the coming year. The group has spent on technology to improve the connection of its global operations and has set up a corporate sustainability hub to focus on better use of land and water resources, fighting climate change, making farmers prosperous and cutting food wastage.

 

In Canada, Cargill has produced 1 million pounds of beef under its Beef Sustainability Pilot in the last quarter, double the quantity from the previous quarter. More and more farmers are registering so that they can benefit from the credit payment which is financed by the retailers and food companies involved in the project. In Indonesia, meanwhile, it opened an aquaculture innovation center to bring best practice to freshwater fish farmers. The company now has 12 such centers around the world. Finally, in Brazil, there is talk that Cargill is holding preliminary discussions with potential buyers for its Cevasa sugar and ethanol plant located in Sao Paulo.

 

Chinese demand for soybean combined with low sugar prices and the closure of sugar mills is encouraging Brazilian farmers to switch from growing cane to soybean. Government data shows that soybean area in Brazil increased by 2 million ha while cane area dropped by 400,000ha over the last 2 years. Brazil exported 10.2 million mt of soybean to China in July, up 46% on year as the latter slapped an import duty on US origin. A Chinese diplomat even suggested soy processing joint ventures between companies of the two nations should be set up to boost Brazil’s processed soymeal exports to China. He argued that a processing unit in Brazil would cut transportation costs and offer a more financially viable option for China.

 

The relationship between both countries could even be delaying the Mercosur-EU free trade deal. Although the deal has been in talks for over two decades, an EU policy paper suggested that Mercosur’s focus on strengthening trade relations with China was affecting talks with the EU.

On the other hand, some 60 cane mills have closed in just 5 years in Center South Brazil because of low sugar and ethanol prices. Sugar and ethanol mills have been encouraging the planting of soybean as a rotation crop but are worried about farmers switching completely. Some mills are even looking at paying them a premium to ensure they continue growing cane.

This summary was produced by ECRUU

Posted on

New award for Commodity Conversations

Commodity Conversations made it to the Best New Commodities eBooks

I’m happy to announce that my book, “Commodity Conversations: An Introduction to Trading in Agricultural Commodities”, made it to BookAuthority’s Best New Commodities eBooks:

BookAuthority collects and ranks the best books in the world, and it is a great honor to get this kind of recognition. Thank you for all your support!
The book is available for purchase on Amazon.

 

Posted on

Agriculture and Chemicals: Part One

Last week, Monsanto—the agribusiness company that everyone loves to hate—was ordered to pay $US289 million to Mr. Dewayne Johnson, a former school groundskeeper, after a San Francisco jury ruled that the company’s popular Roundup weed killer contributed to the cancer that is killing him.

Glyphosate, the main ingredient in Roundup, was first approved for use in Monsanto’s weed killer in 1974, and has since been the subject of much emotive debate both in and out of the scientific community.

In September 2017, the  U.S. Environmental Protection Agency concluded a decades-long assessment of glyphosate risks and found that the chemical was not likely to be carcinogenic to humans. However, back in 2015, the International Agency for Research on Cancer, which is part of the World Health Organisation, classified it as a “probable human carcinogen”. Since then, California has added glyphosate to its list of chemicals known to cause cancer.

Mr Johnson’s lawsuit was the first to go to trial among hundreds filed in state and federal US courts that claim that Roundup causes non-Hodgkin’s lymphoma. Monsanto has said it will appeal the verdict.

However, the trial was an important test of the evidence against Monsanto, and will serve as a template for litigating thousands of other claims over the herbicide. Shares in Bayer AG (Monsanto’s parent company) fell sharply as investors weighed the potential costs of protracted legal battles. Bayer bought Monsanto for $66 billion in June this year.

Among the varied lawsuits against Monsanto is one from a bee keepers’ cooperative in France that claims that glyphosate is now widely found in honey. The US’s Food and Drug Administration also recently found traces of glyphosate in US honey, even apparently in “organic mountain honey”. The U.S. Organic Consumers Association and Beyond Pesticides filed a lawsuit against Sue Bee Honey of Sioux City, Iowa, because its honey tested positive for traces of glyphosate. The lawsuit said Sue Bee’s labelling, advertising its honey as “Pure” and “Natural,” is false and misleading. Another class action was started last year in Canada against a honey producer

Meanwhile, a federal judge in Brazil has ordered the suspension of products containing glyphosate until the government re-evaluates the chemical’s toxicology. France has already ruled that the herbicide will be phased out completely within five years.

Unsurprisingly, Monsanto has been accused of a corporate cover-up, with many on social media arguing that the company knew all along that their product causes cancer. Some scientists accused the company of “ghost writing” the scientific studies into the herbicide, and of trying “to destroy the United Nations’ cancer agency by any means possible” to save glyphosate.

Some on social media were quick to draw attention to an arguably similar ruling back in March where a Californian judge ruled that coffee companies will have to carry a cancer warning label because coffee contains acrylamide, a carcinogen. The acrylamide in coffee is formed early in the roasting process. All the foods we roast or fry also contain acrylamide, with 5 micrograms in a slice of toast or 7 micrograms in a bag of potato crisps, as examples. A cup of coffee has around 0.9 micrograms to 2.4 micrograms per 150 millilitre cup.

Others drew similarities between the Monsanto ruling and the recent EU’s almost complete ban on the use of neonicotinoid insecticides across the EU. Just as glyphosate is the world’s widest used herbicide, neonicotinoids are the most widely used insecticides. Back in 2013 the European Union opted for a partial ban on the use of the three chemicals in this class: Imidacloprid, clothianidin and thiamethoxam. The restrictions applied to crops including maize, wheat, barley, oats and oil seed rape. The newly agreed Commission regulation goes much further, meaning that almost all outdoor uses of the chemicals would be banned.

The action was driven by a recent report from the European Food Safety Authority (Efsa), which found that neonicotinoids posed a threat to many species of bees, no matter where or how they are used in the outdoor environment.

The decision is likely to particularly affect sugar beet production across the EU. The French sugar beet growers group CGB said, “This decision has a devastating impact on beet growing. With this ban, all French regions are likely to be affected by viral jaundice, with potential yield losses estimated at 12 pct at national level, and up to 50 pct in certain ocean climate zones.” Producers in the UK and Germany expressed similar opinions while others questioned whether neonicotinoids actually cause bee colony collapse disorder

These two latest rulings follow on from one by the European Court of Justice (on 25th July) that organisms obtained by mutagenesis plant breeding technique (gene-editing) are GMOs and should fall under the GMO Directive. The decision shocked the agriculture industry, which described it as a severe blow to innovation in EU agriculture and warned about economic and environmental consequences.

In a piece for Foreign Affairs published in April, Bill Gates outlined the case for using CRISPR and other gene-editing techniques on a global scale to meet growing demand for food and to improve disease prevention, particularly for malaria. “It would be a tragedy to pass up the opportunity,” he wrote.

In agriculture, Gates argues, gene-editing technologies could be used to make animals more productive while editing crops to withstand harsher growing conditions, or to include naturally occurring pesticides and herbicides, would improve crop yields.

These three rulings will make life more challenging for some farmers and may have major secondary implications. I will take up some of the issues in next week’s blog.

Images under Creative Commons from Pixabay

Posted on

Commodity Conversations Weekly Press Summary

Glencore logged a record USD 8.3 billion in net profit for the first half of 2018 despite its legal issues with the US Department of Justice, mostly thanks to strong commodity prices. The CEO noted, however, that protectionist US policies and doubts surrounding Chinese growth might add volatility in the second half of the year. Cargill also cited the uncertain global environment in its 2018 annual report, where it assesses its corporate responsibility performance, although the firm logged some of its best results in 2018.

While ADM and Cargill have profited significantly from the China-US trade war and Bunge was on the wrong end of the situation, the majority of S&P 500 companies say they have not really been affected by the change in trade tariffs and they don’t expect it will be the case.

On a similar note, Nestle said this week that it was not affected by the US re-imposing trade sanctions on Iran. The firm has two factories there and noted that it only imports a small number of products. Otherwise, Nestle has been testing a blockchain system developed by IBM, called Food Trust, to assess whether it can be used for global food traceability.

Five months after the new CEO of Nestle USA was appointed, he laid out his plan to help the food giant survive amid growing competition from smaller players and fast changing consumer trends in this Washington Post interview. The plan is to focus on the most popular brands, keep moving into high growth categories and develop in-house products to quickly respond to new trends.

Cotton producers in Tchad have expressed their gratitude to Olam for revitalising the local cotton industry. The trading group took over 60% of CotonTchad from the government earlier this year as it was struggling to keep the industry afloat. It is planning to invest USD 41 million over 5 years to revamp old mills and build two new ones. It hopes to produce 300,000mt within 3-4 years, up from 25,000mt in 2017/18.

Coca-Cola India and the Indo-Dutch Horticulture Technologies propose to jointly set up 110 orchards in India to grow apples and produce pulp. The move is in line with the company’s plan to grow fruits, to source locally and to diversify its portfolio with healthy drink options. It also plans to boost productivity – India’s apple acreage is the second highest in the world but the yield is low.

Pet food company Wild Earth has raised an additional USD 450,000 from a PayPal co-founder, taking its funding to nearly USD 5 million. The green, animal-friendly food maker plans to make a plant-based alternative to cat and dog food using koji, a type of fungus eaten by humans. Most of the food is currently produced from corn and wheat. It will launch koji-based dog food in 2019.

Kraft Heinz is targeting to make all its package recyclable, reusable or compostable by 2025. However, the CEO said that most of the company’s emissions are due to processes outside its direct operations.

Recent medical analysis found that, overall, consuming omega-3 pills made little – if any – difference to the risk of heart and coronary disease. Omega-3 is one of the most commonly consumed supplements, while the fish oil industry represents an estimated USD 30 billion business. The author of The Omega Principle argues that while fish oil pills are very well marketed, they are an inefficient use of valuable marine resources. He argues that, instead, we should consume it directly as a protein which would solve two things: reduce emissions caused by livestock and help us be healthier by reducing our meat consumption.

A study of Minnesota residents revealed that 67% of those surveyed cannot afford to feed their families and rely on food banks at least once a month. Around 53% of them said they depend on food shelves for more than half their monthly food needs. Data from 2015 showed that 15% of US citizens have been through food insecurity at some point. The situation seems to be getting worse – people went into Minnesota food banks an estimated 3.4 million times last year, which is a record high. The survey also showed a growing demand for healthy food at these food banks, going against the perception that demand is higher for junk food.

This summary was prepared by ECRUU

Posted on

Fake news in the wheat market

Wheat prices spiked last week, reaching a three-year high, and then fell back down after Ukraine issued confusing statements on possible export limits. The trouble started when Ukraine said on Facebook that it planned to limit shipments of milling wheat. The ministry later tried to clarify things by saying that it was not discussing “strict limits” and would instead discuss projected shipment volumes with traders. The wheat price fell back pretty much to where it came from. The move can be seen on the following graph from Bloomberg.

The episode set off a social media storm. Some traders complained that journalists had acted irresponsibly by reporting on the original Facebook post without first checking on its accuracy. Others argued that the Facebook post was in itself a market-relevant event (even ignoring what it contained) and that needed to be circulated as quickly as possible. 

In an (excellent) article published after the event, Agricensus explained that,

The big two providers that control 56% of the market – Bloomberg and Reuters – have spent vast sums of money on improving latency by milliseconds – hoping that it gives their clients an edge in trading.

That puts pressure to print stories and market moving headlines, leaving reporters with little time to corroborate, double-check or even question the most ambiguous statements made by ministers and even world leaders.

Some commentators on social media complained that the episode was just another example of fake news. Others argued that you shouldn’t be trading on Facebook posts in the first place—and that if you want good information you should pay for it. However this ignores the fact that the original post was picked up by the big newswire services. And as Agricensus points out,

Global spending on financial market data analysis and news exceeded $28 billion in 2017, according to consultants Burton Taylor International – up 3.6% on the previous year and the highest growth rate since after the financial crisis.

 People are already paying huge sums for “real” news.

However, the idea that if you want real rather than fake news then you have to pay for it is one of the themes of Yuval Harari’s new book 21 Lessons for the 21st Century. The book will be released at the end of August, but in a prepublication interview Mr Harari tells The Guardian,

The idea of free information is extremely dangerous when it comes to the news industry. If there’s so much free information out there, how do you get people’s attention? This becomes the real commodity. At present there is an incentive in order to get your attention – and then sell it to advertisers and politicians and so forth – to create more and more sensational stories, irrespective of truth or relevance. Some of the fake news comes from manipulation by Russian hackers but much of it is simply because of the wrong incentive structure. There is no penalty for creating a sensational story that is not true. We’re willing to pay for high quality food and clothes and cars, so why not high quality information?

The Guardian has also published an extract from the book in which Mr Harari writes, 

In fact, humans have always lived in the age of post-truth. Homo sapiens is a post-truth species, whose power depends on creating and believing fictions. Ever since the stone age, self-reinforcing myths have served to unite human collectives. Indeed, Homo sapiens conquered this planet thanks above all to the unique human ability to create and spread fictions. We are the only mammals that can cooperate with numerous strangers because only we can invent fictional stories, spread them around, and convince millions of others to believe in them. As long as everybody believes in the same fictions, we all obey the same laws, and can thereby cooperate effectively.

He continues,

Joseph Goebbels, the Nazi propaganda maestro and perhaps the most accomplished media-wizard of the modern age, allegedly explained his method succinctly by stating that “A lie told once remains a lie, but a lie told a thousand times becomes the truth”. In Mein Kampf, Hitler wrote that “The most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind constantly – it must confine itself to a few points and repeat them over and over.” Can any present-day fake-news peddler improve on that?

Returning to the wheat market I understand that Ukraine always tracks and informally manages their wheat exports. Professional wheat traders were therefore surprised by the way that the market reacted to the Facebook post rather than by the Facebook post itself.

The post stampeded the herd—a herd that was already extremely nervous because of the extreme hot weather in many of the world’s wheat growing regions. Something else could have stampeded the herd: a rumour, say, or a big order hitting the screens—or even nothing at all. The herd was ready to stampede; it didn’t necessarily need an outside stimulus.

This type of situation is common in markets. Indeed, there was a lesser example just the week before when two famous wheat traders, Donald Trump and Jean-Claude Juncker announced that the EU would increase their purchases of US soybeans. The US soybean price rallied on the news and then fell again when the market realised that Trump and Juncker were not soybean traders after all.

There is an old commodity market saying that price will often go back to check out the extreme highs or lows made in a panic move, like the one in wheat last week. (This is not a prediction that the wheat price will return to last week’s highs, but I will be interested to see if it does.)

Finally, I had lunch with an old trader friend last week who reminded me that although traders love volatility, they don’t like political volatility; weather they can deal with, politics they can’t. Traders may or may not think that wheat prices will rise further on supply factors, but they have no way to foresee what the politicians will do in response.

As Bunge found out to their cost recently, it is dangerous to predict what politicians will do next, especially our present crop of politicians. As a result, traders normally increase the size of their bets in a fundamental market and reduce them in a political one.

Wheat has always been a “political” commodity; the current drought makes it even more so.

Posted on

Commodity Conversations Weekly Press Summary

As the ongoing trade dispute between the US and China escalates, some major food merchants are taking advantage of the trade dislocations to boost their profit margins. After Cargill mentioned the change in dynamics in its latest earning, ADM reported a two-fold increase in its second quarter net profit and said it was benefiting from the trade disruptions. The tensions propelled China’s grain demand from South America, where supply is already low because of a drought, while forcing other buyers to source grains from the US.

Bunge was not so lucky. The group posted a USD 26 million loss in the quarter, including USD 24 million linked to hedges in the grains market. The CEO explained they had – wrongly it turns out – gone long on Chicago soybeans on the expectation that the trade war between China and the US would be of short duration. They are hoping to do better in the second half of the year, however, despite the uncertainty linked to the new Brazilian freight rates and lower exports from the US. Bunge’s sugar and bioenergy groups reported a USD 40 million loss in the quarter, and the group explained it was partly a result of preparations to exit that business. Bunge added that it decided to postpone a potential IPO.

In Russia, meanwhile, the KSK terminal at the Novorossiysk port, which is a joint venture between Cargill and Delo Ports, could export 6-7 million mt/year of grains by July 2019. The manager said that in the last five years, KSK has increased exports three-fold, from 1.5 million mt in 2015 to 4.9 million mt in 2017.

Coca-Cola has been trying to cash in on the fact that students tend to carry a bottle of water on campus by installing self-service water stations at US universities. The idea is that the water is free but you can get additional bubbles or flavours at a cost. A test trial showed that students opted for the add-ons 10-20% of the time. The company wants to install more machines across the country’s university campuses. The timing may be right, especially as Coca-Cola had to increase prices this year because of higher import duties.

Starbucks’ US sales increased by a mere 1% in the last quarter, which the company blamed on health-conscious customers. In China, the company has joined hands with Alibaba’s meal delivery unit Ele.me to start door deliveries as local rivals eat into its shares. The company registered a 2% drop in comparable store sales in Apr-Jun but still hopes to triple its revenue in China over the next five years.

In Europe, Nestle lost an 11-year long court battle after the EU’s highest court rejected its trademark claim on Kit Kat’s four-fingered shape. Nestle had obtained a European trademark in 2002, which was challenged by Cadbury five years later.

There was a lot of talk about genetically modified (GM) food last week after the European Court of Justice decided to categorise gene editing in the same bracket as GM. The announcement was criticised by the biotech and chemical industries. Some farmers also criticised the decision, saying it will deny consumers access to high-quality farm products which use fewer pesticides.

In India, a survey of packaged food, including imported products, found that 32% had GM ingredients but 65% of them did not disclose it on their labels. This is despite the fact that Indian laws ban importing of GM food without approval. In Brazil, on the other hand, sugar and ethanol producer Copersucar says cane productivity can rise to 21mt/ha in 2025, from 11mt/ha in 2015, by using GM cane and better seeds.

In the US, the USDA has received a slew of suggestions from industry representatives on the National Bioengineered Food Disclosure Standard which is likely to be implemented from January 1, 2020. The Grocery Manufacturers Association wants refined ingredients to be excluded from disclosure norms as 90% of corn, soybean and cane are genetically modified. This, it said, will prune the list of products by 78%.

Environmentalists are hoping that China will direct some of its focus on cutting emissions to its livestock sector and its growing meat consumption instead of only looking at the power and transport segments. Chinese demand for feed is being blamed, in part, for deforestation in South America while the meat industry is a significant contributor to pollution.

On the subject of climate change, Cuba is looking into whether it needs to change its sugar harvest and planting calendar. The government said climate change had affected the weather, seasons and that the harvest timings may need to be adjusted accordingly.

Finally, a survey found that people in the UK are increasingly concerned about wastage as well as sugar content in food, but less so about prices. Over half of those surveyed put food wastage as a top concern, compared to 42% three years ago.

This summary was prepared by ECRUU