Grain worth gold

Feed­ing an­i­mals in­creases de­mand and pushes up prices

Finweek English Edition - - Business strategy - JO­HANN VAN ZYL

IT’S NOT ONLY the grow­ing trend to process food, in­clud­ing maize, into ethanol that’s lead­ing to higher prices and con­cerns about the world’s as­sured food pro­duc­tion in the fu­ture. Af­gri Trad­ing di­rec­tor Erhard Brieden­hann warns that the in­creased use of grain in an­i­mal feed is ag­gra­vat­ing the prob­lem. He says there’s in­creas­ing con­sumer re­sis­tance to the use of waste prod­ucts in an­i­mal feed, be­cause of con­cerns about the oc­cur­rence of BSE (mad cow dis­ease) and other prob­lems.

In its De­cem­ber is­sue, the an­i­mal feed mag­a­zine Afma Ma­trix con­firms the grow­ing bat­tle for the use of grain in hu­man or an­i­mal di­ets. Mean­while, the global pop­u­la­tion is ex­pected to in­crease by 25% over the next 20 years, which, among other things, will in­crease the de­mand for grain and food for an­i­mals.

The sharp in­crease in grain con­sump­tion in China, es­pe­cially to feed an­i­mals (see graph), puts fur­ther pres­sure on grain sup­plies. It’s es­ti­mated that China will in­crease its maize pro­duc­tion by only 1% to 135m t this year, while its con­sump­tion will in­crease much more sharply.

Brieden­hann says that a good maize price also leads to price in­creases for other kinds of grain. “It en­cour­ages the pro­duc­ers of other grain to plant maize. Short­ages of other types of grain then oc­cur, due to the re­duced sup­ply, which also pushes those prices up. In­ter­na­tion­ally, the sup­ply of grain is tend­ing to­wards dis­turb- in­gly low lev­els. If en­ergy prices re­main high over the long term it will have a ma­jor ef­fect on agri­cul­ture and its com­mod­ity prices.”

The US De­part­ment of Agri­cul­ture (USDA) pre­dicts that world de­mand for maize could rise from around 690m t to 716m t this year, and that the rollover maize sup­plies could be ap­prox­i­mately halved by the end of the cur­rent sea­son.

Philip The­unis­sen, an econ­o­mist at Com­pu­tus Man­age­ment Bureau in Beth­le­hem in the Free State, agrees that the low sup­ply lev­els of maize could push the price up for at least two to three sea­sons. “And I don’t ex­pect sharp falls to re­cur in the fu­ture.”

The­unis­sen also says that less and less land is avail­able for agri­cul­ture, es­pe­cially in Europe, and that will def­i­nitely af­fect the sup­ply. “For­tu­nately, tech­nol­ogy – in­clud­ing GM break­throughs that will in­crease pro­duc­tion – can make up for that to some ex­tent.”

This year’s maize price will de­pend largely on the rain­fall pat­terns over the next two months, The­unis­sen warns. “The price could in­crease sharply if the har­vest is poor, and at this stage it doesn’t look good in cer­tain ar­eas. Over the long term the price de­pends a lot on the oil price.”

SA’s first ethanol plant only comes on line next year and an ad­di­tional seven will be built or are in the pipe­line to 2012. That will re­duce the fu­ture sup­ply for hu­man con­sump­tion and push up the price.

FIG­URE 1: WORLD MAIZE US­AGE

Source: Afma Ma­trix

FIG­URE 2: CHI­NESE FEED DE­MAND

Source: Afma Ma­trix

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