Outside Influences on the Grains & Oilseeds Industry: September 2019

Stefan Vogel, global strategist for Grains & Oilseeds, takes his quarterly look at what RaboResearch F&A's insights into other sectors mean for the G&O industry.

African Swine Fever Update: Impact on Feed

Chinese pork production in 2019 is expected to decline 25%, with a further 10% drop in 2020. The forecast is for the hog herd to be down by 50% by the end of 2019, before stabilizing somewhat in 2020. Other meat and seafood production and consumption will rise. Pork imports into China are already on the rise, with Spain, Germany, and Canada the key suppliers so far this year. However, we see the potential of non-EU countries gaining higher shares in 2020, as EU production doesn’t seem to be responding strongly enough to meet expected Chinese demand.

Impact on G&O: We are maintaining our projections for China’s feed use and soybean imports from last month. In 2019, the year-on-year drop of China’s hog feed is projected at 35%, with a 5% rebound in 2020. Poultry feed will rise significantly in 2019 and 2020, while aquafeed will only rise by about 5%, with other feed also only growing marginally. Still, total feed in 2019 is seen down -16% YOY, rising again in 2020 (but probably with a stronger increase in 2H 2020 than in 1H    2020). We forecast China’s 2019 soymeal usage to decline by 6%, partially offset by the higher inclusion ratio of soymeal in feed. The need for imported soybeans for crushing (not necessarily the actual import volume) is 82m metric tons in calendar year 2019, with a demand for
87m metric tons in 2020.

Infinity and BYND: Lessons for Meat Alternatives

The quest for the perfect meat substitute will not end with Beyond, Impossible, or even Omnipork. Substitutes rarely perform as well as the real thing. In the burger and nugget space, they may play well, but they are a long way from replicating real steak, roast, or lamb chops. Alternative meat is growing quickly, but in the US and North America, its market share is currently probably less than 0.5% of the meat market – animal protein is here to stay.

Impact on G&O: 46% of grain (excl. rice), as well as most grain by-products (e.g. from milling) and almost 60% of oilseeds (via meals) are going into feed. Much like food companies, G&O companies need to keep close to the consumer. They need to be aware that the food industry in general seems to seek complex solutions over much simpler ones – such as eating and wasting less of what the industry is often trying to replace.

Big Beer Is Still Beautiful… and That’s Good for Malt

Since mainstream beer brands are in decline and M&A deals are partially creating a drag on results, it’s tempting to conclude that large-scale M&A in this space is losing its luster. But while the context is certainly changing, we believe that scale and a broad geographic footprint are becoming more – not less – important in the global brewing scene – while the attempt to maintain the status quo in brewing carries growing risk. Listen to insights into ABI’s ZX Ventures investment strategy, and how the team is driving innovation at the world’s largest beer company.

Impact on G&O: Big beer is a major consumer of malt, and the malt industry needs to prepare for the changes in mainstream beer. These include: 1) the rising risk of beer price wars in which cost leadership is becoming important – and malt is a major cost; 2) the need for new products including craft and foreign beer – impacting the demand for malt qualities; 3) the need to balance beer business exposure to mature/emerging markets – and with it, the geographic footprint of malt demand will move.

How to Successfully Work With Supertech Giants

Online retailing has taken off in China and elsewhere. Alibaba has become an entire ecosystem, providing platforms for multiple services. For food companies, becoming active on these platforms is a must, but being successful means much more than just being listed there.

Impact on G&O: G&O companies are working, or will work, through those platforms. For example, LDC recently signed a partnership with the Chinese e-commerce giant Meituan to promote its packaged cooking oil brand.

Strong Growth in Asian Snacking and Convenience Food

Snacking in Southeast Asia and India is on the rise, with per capita spending on snacks forecast to grow 1.7 times by 2023. Convenience is key in food, and more and more consumers are consuming prepared meals, eating in restaurants, getting take-away, or having food delivered to their home.

Impact on G&O: Fast-rising snacks and convenience foods provide opportunities for food ingredient solutions (including, but not limited to, G&O products) – and some of the major G&O companies (e.g. ADM’s ingredients business) are pursuing strategies in order to benefit.

Customized Breeding: Traits Adjusted to Needs

Imagine farmers ordering seed online like they would order a new MacBook: a customized color for potatoes, a tailor-made fatty-acid ratio for soybeans, bespoke pest/disease resistance, etc. Breeding has been a long and costly task for seed companies, but this is about to change. New breeding technologies – including gene editing, phenotyping, and deep learning – can shorten the breeding cycle and reduce costs.

Impact on G&O: Benefits for farmers thanks to breeding are often in terms of economics, but breeding attributes that benefit consumers often require special supply chains for harvested G&O products in order to ensure segregation. 

Poultry Market Improved – Pork Feels Diseases

Global poultry market conditions gradually improved in 1H 2019, due to more balanced supply in key trading markets such as Brazil, Thailand, the US, and the EU. This trend is expected to remain over the coming months, despite global trade volumes being disappointing. For pork, disease management and weather are hindering production in Europe and Brazil.

Impact on G&O: G&O demand for feed will be impacted accordingly.

Australian Meat Production and Feed Demand Rise

Australian grain-fed beef exports will increase by 65%, to over 500,000 metric tons by 2030. Other meats, such as grain-fed lamb, are also showing potential.

Impact on G&O: We forecast a rising need for feed grains, especially in eastern Australia, with demand growth rates above those of grain yield growth, lowering the share in grain exports of Australia’s east coast. Rabobank will release a detailed report on this topic in mid-September.

  • Stefan Vogel

    Global Strategist - Grains & Oilseeds; Head of Agri Commodity Markets
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