Replies to post #1745 on The Rising Influence of Rising Affluence

[DewDiligence]

China Is Reshaping World Grain Market

[See #msg-53059927 for a related story.]

http://online.wsj.com/article/SB10001424052748704720804576009790503679556.html

›DECEMBER 10, 2010
By SCOTT KILMAN

China could emerge in the next few years as the world's biggest importer of corn, which would reshape global grain markets, according to a new report by agribusiness lending giant Rabobank Group.

The report by analysts at Rabobank, which is a lender and investment banker to many of the world's biggest food concerns, predicts China's demand for imported corn will soar to about 25 million metric tons annually, or roughly one billion bushels, by 2015, from this year's 1.3 million metric tons, or about 51 million bushels.

Rabobank's forecasted figure represents a whopping 27% increase in the global trading of corn from current levels, a surge that could strain the world's corn supplies if production doesn't increase significantly.

The Rabobank projection is potentially controversial, because it is much larger than official forecasts. The U.S. Department of Agriculture, in its long-range projection released in February, foresaw China importing about 75 million bushels of corn in 2015. The difference largely reflects China's reluctance to reveal much about its agricultural sector.

The Rabobank report doesn't predict how such Chinese purchases would lift the price of corn, which has climbed about 60% over the past year amid a demand boom that is draining U.S. reserves to their lowest levels since the mid-1990s.

Still, such an export surge would mostly benefit farmers in the U.S., which currently controls half of the world trade in corn, while potentially raising costs for U.S. companies that use corn to fatten livestock and to make food ingredients.

"We believe that these assumptions are conservative, and that the implication of the analysis for world grain markets is potentially dramatic," said the report, the chief author of which is David C. Nelson, the former Credit Suisse agribusiness equities analyst who last summer became a global strategist at Rabobank, with headquarters in Utrecht, Netherlands.

Some analysts independent of Rabobank have speculated that corn futures prices could rise to $7 a bushel if China were to go on a buying spree over the next few months.

Grain traders have long salivated at the prospect of China turning to foreign corn in a big way. But Western analysts haven't had much luck predicting when this would happen. A wave of Chinese buying in the mid-1990s ignited speculation of a trade boon for U.S. farmers. But it was a blip, and China was able to resume exporting corn throughout Asia, although that business has evaporated in recent years.

China's intentions are hard for foreigners to decipher. The Communist Party is tight-lipped about the nation's ability to feed itself. In a nation convulsed by famine in just the last century, grain self-sufficiency is seen as crucial to national security.

While China is the world's largest importer of soybeans and cotton, Beijing wants Chinese farmers to supply at least 95% of the grains—such as wheat and corn—that the country consumes through 2020.

China has a long history of stockpiling large amounts of crops. China doesn't disclose the size of its corn reserves, but the U.S. Agriculture Department estimates that about one-third of the world's corn and wheat reserves—the crops left over by the time a new harvest begins—are now held in China. Put another way, China harvested about half of the corn the U.S. harvested this year, but will stockpile three times as much, according to USDA forecasts.

Rabobank is predicting a much bigger Chinese appetite for foreign corn than other forecasters, in part because its analysts think Washington is overestimating the size of China's corn reserves, which the USDA puts this year at 2.1 billion bushels, and at 2.4 billion bushels for 2011.

Rabobank said it has heard private reports that Chinese corn inventories are below 400 million bushels. Such a relatively tight supply could help to explain why the domestic price of Chinese corn is much higher than the international price, and why China has moved to limit purchases by processors that convert corn into industrial products, Rabobank said.

In another sign that China's grain self-sufficiency policy is in trouble, some Chinese officials are beginning to warn that the size of its harvests might grow more slowly in the future.

Citing water scarcity in some farming areas, and a tight supply of arable land, Chen Xiwen, who heads the State Council's office on rural policy, wrote in an essay recently published on the website of the Chinese Academy of Social Sciences' Rural Development Institute: "It's inevitable that the rate of self-sufficiency will decline."

The USDA is slated to update its picture of the Chinese corn situation on Friday as part of its monthly analysis of world agricultural markets.

China's appetite for corn is accelerating because its rapidly expanding middle class has a taste for products that come from grain-fed animals, including pork, milk, eggs and chicken.

Already home to the world's biggest hog population, China is encouraging farmers to adopt Western methods, such as moving livestock from the backyard into factory-style confinement operations, and feeding their animals crops such as soybeans and grain instead of slop. China will probably buy about a third of all the soybeans harvested in the U.S. this year, much of which will be feed to livestock, according to various forecasts.

According to Rabobank's calculations, China's domestic grain farming sector is so big that, by 2015, it could import 25 million metric tons of corn and still honor its policy of growing 95% of the grain it consumes.

In July, the chairman of Chinese consulting firm Shanghai JC Intelligence Co. gave a speech to the U.S. Grains Council, a Washington-based trade group, projecting that China might need to annually import 15 million tons, or 591 million bushels, by 2015.‹

[DewDiligence]

Valero Invests $50M in Cellulosic-Ethanol Plant

[What’s notable about this way of producing ethanol is that it does not consume food crops and hence does not incur the political drawback of raising food prices.]

http://online.wsj.com/article/SB10001424052748704803604576078202329991370.html

›JANUARY 13, 2011
By RUSSELL GOLD

Oil refiner Valero Energy Corp. plans to invest in one of the first commercial-scale plants to convert wood into ethanol, an unusual vote of confidence by a major oil company in the emerging technology used to produce so-called cellulosic biofuels.

The investment may also be a sign that nascent cellulosic-ethanol technology is turning a corner after years of struggling to commercialize new technology, secure financing and drive down operating costs.

There are already substantial, mature industries that turn corn into ethanol in the U.S. and sugarcane into ethanol in Brazil. But the U.S. has set aside funding to encourage the develop of fuel from wood and other plants that aren't used for food.

"You can make cellulosic ethanol today, the point is can you make it profitably?" asked George Stutzmann, Valero's vice president of alternative energy.

In this case, he said, the answer is yes, in part because of federal subsidies for cellulosic ethanol. Valero and its partner in the project, Mascoma Corp., are seeking federal loan guarantees for the new plant, which is to be built in Kinross, Mich., near the Canadian border.

Mascoma, a closely held company based in Lebanon, N.H., has been running a pilot plant in upstate New York for two years.

Problems may yet arise as the technology makes the leap to commercial-size operations. Even then, the projected output—40 million gallons a year—is a tiny fraction of the 138 billion gallons of gasoline consumed annually in the U.S.

But Valero is optimistic. "It is not going to happen tomorrow, but within 10 years, you could have a cellulosic industry," Mr. Stutzmann said.

Valero has agreed to purchase and distribute the ethanol produced at the Michigan plant, which could be operational by 2013. The refiner agreed to invest up to $50 million and expects a 50% stake in the project.

Mascoma and other investors will pay for the rest of the $350 million plant, assuming they get a critical loan guarantee from the Department of Energy for about $210 million of construction costs.

Paul Dickerson, who headed the Energy Department's Office of Energy Efficiency and Renewable Energy under President George W. Bush and is now a corporate lawyer, says the deal may be "the first key indicator" that the fuel could be produced at a price competitive with ethanol made from corn.

"The time has come," said Bill Brady, chief executive of Mascoma, to "show the world it can be done."

In 2006, Mr. Bush set out a goal to make cellulosic ethanol "practical and competitive within six years," as he said in his State of the Union address that year. But the industry has fallen well short of ambitious Congressional production targets.

In 2011, the government expects about 3.9 million gallons to be produced, far less than the 250 million gallon target.‹

[DewDiligence]

USDA Aproves SYT’s Amylase-Enhanced Corn for Ethanol

[The FDA approved this product in 2007, but commercialization has been held up by the lack of USDA approval. The new corn variety will have the brand name, Enogen, and will be used only for ethanol production. SYT is one of the world’s largest ag-biotech companies; it began operations in 2000 as a spinoff from NVS and AZN.]

http://www.reuters.com/article/2011/02/11/agriculture-usda-corn-idUSN1119509820110211

›Fri Feb 11, 2011 5:06pm EST
By Christopher Doering and Charles Abbott

WASHINGTON, Feb 11 (Reuters) - The U.S. Agriculture Department said on Friday it has deregulated a variety of corn genetically engineered to produce a common enzyme that speeds the breakdown of starch into sugar, a vital step in making ethanol.

USDA's Animal and Plant Health Inspection Service said Syngenta (SYT), the Swiss maker of the enzyme, called alpha-amylase, will create an advisory council and take other steps to alleviate concerns by foodmakers about the genetically engineered corn variety. Syngenta requested APHIS deregulate the corn variety in 2005.

"APHIS conducted a plant pest risk assessment and found this line of corn does not pose a plant pest risk, and should no longer be subject to regulation by APHIS," said Michael Gregoire, deputy administrator for APHIS' biotechnology regulatory services.

Several groups, including the North American Millers' Association, the Center for Food Safety and Union of Concerned Scientists, said USDA failed to adequately consider the impact the genetically modified corn crop would have on human health, the environment, or the livelihood of famers.

The controversial decision to fully deregulate the corn is the latest move in the last month by the USDA to ease restrictions on genetically modified crops. USDA said on Jan. 27 that farmers could plant genetically altered alfalfa without any restrictions, and a week later it partially deregulated biotech sugar beets.

This "is a precedent-setting application if there ever was one," said Margaret Mellon, the director of the Food and Environment Program at the Union of Concerned Scientists

"It says they are simply going to be approved without regard to what damage they might do to our enviornment, or to our economy," she added.

Ethanol makers could save money on energy costs by using corn containing amylase, an enzyme that helps break down starch in corn kernels.

But foodmakers and food safety groups say products such as corn chips or breakfast cereal could be damaged if made from corn containing even small amounts of amylase.

The amylase corn is aimed for sale to ethanol makers. Syngenta says it will take steps to prevent mixing of the specialty corn with regular field corn.

The Food and Drug Administration approved amylase corn as safe for human consumption in August 2007.

The National Corn Growers Association said it welcomed the decision by the USDA, and said the specialty corn would be the latest tool for growers and food processors to use to meet growing food, feed and fuel needs around the world.

"The potential importance of output traits to growers and industry will only increase as other output traits are developed," said Bart Schott, NCGA's president.

NCGA said corn amylase already is approved in Japan, Canada, Mexico, New Zealand, Australia, Taiwan, and the Philippines.‹

[DewDiligence]

“Once again, refiners are being ordered to use a substance that is not being produced in commercial quantities—cellulosic ethanol—and are being required to pay millions of dollars for failing to use this nonexistent substance. This makes no sense.”

—Charles Drevna, president of the National Petrochemicals and Refiners Association

http://online.wsj.com/article/SB10001424052970204296804577125082495631226.html