Replies to post #2237 on The Rising Influence of Rising Affluence

[DewDiligence]

Rising Food Prices Are Good for Ag-Biotech

http://www.bloomberg.com/news/print/2011-03-07/biotech-companies-see-food-prices-boosting-gm-crops-ft-says.html

›By Alan Purkiss - Mar 7, 2011

Rising food prices may result in greater acceptance of genetically modified seed in emerging markets, the Financial Times reported, citing leading seed companies.

Daniel Rahier, who heads biotechnology policy at DuPont Co., said there’s been a change of mood in countries such as Indonesia, where the government is encouraging companies to apply for approval of biotech seeds, and “it’s a similar story in Vietnam, Cambodia and Kenya,” the newspaper reported.

Stefan Marcinowski, in charge of plant science and crop protection at Germany’s BASF SE (BAS), told the FT rising food prices are “a wake-up call to use all available technologies.”

Hugh Grant, Monsanto Co. (MON)’s chief executive officer, said many agricultural areas of the world “have made significant policy shifts” in the past two years, the newspaper reported.‹

[DewDiligence]

China Resumes Imports of US Corn

[To be read in conjunction with the comments in #msg-59333127 and the chart in #msg-60366855.]

http://online.wsj.com/article/SB10001424052748704608504576208913644223364.html

›MARCH 19, 2011
By TOM POLANSEK

China re-entered the market for U.S. corn this week after a months-long hiatus, spurring a more than 11% surge in prices for the grain.

China, which buys most of its grain through state agencies, struck a deal Thursday and may be gearing up to make further purchases, according to a person familiar with the situation. The person, who works at an international trade service agency, didn't say how many metric tons of corn were bought.

Since buying heavily last summer, its first big purchases in 15 years, China has been out of the market. That is in part due to soaring corn prices, which this month hit their highest level since July 2008 on the Chicago Board of Trade. In addition, prices for imported corn haven't been competitive with China's domestic prices.

But China may no longer be able to put off its need for corn, which it uses mainly for livestock feed and fuel production, analysts say. China is the world's second-largest consumer of corn after the U.S., and demand is rising as the nation's hunger for pork and other meats grow. The nation's corn stocks are at a historically low level, suggesting China may have to import large volumes, Standard Chartered wrote in research note last month.

Some say that China may even be stockpiling to resell to Japan after the earthquake-battered nation repairs its damaged grains infrastructure.

An email sent to Cofco, China's state grain trader, seeking comments Friday wasn't immediately returned.

For the second straight day, U.S. corn futures touched exchange-imposed limits on one-day gains on the CBOT. Corn for May delivery closed up 5.7% to $6.8350 a bushel Friday and has spiked more than 11% over the past two sessions.

China's purchases now are particularly significant because stockpiles of corn in the U.S., the world's No. 1 corn grower and exporter, are projected to hit 15-year lows this year. Rising prices of corn, and other grains like wheat and soybeans, are contributing to food-price inflation in the U.S. Higher food prices have been a factor in the political turmoil in the Mideast and have sparked a scramble by governments who fear a repeat of the 2008 food crisis.

"News of potential U.S. corn sales to China continues to captivate this market," Benson Quinn Commodities wrote in a note to clients.

Talk that China had entered the world market spread Thursday, fueled in part by a report from the U.S. Department of Agriculture that private exporters struck deals to sell 116,000 metric tons of corn for delivery to unknown destinations during the 2010-2011 marketing year, which ends Aug. 31.

Large purchases by China, which has strived for self-sufficiency, would be an unexpected source of demand for the market and could drain supplies further. [I strongly disagree with the word “unexpected” in this context.] The USDA has projected China will import one million tons of corn for the current 2010-11 marketing year.

Traders see several reasons China may have jumped back in the market. It simply may be taking advantage of recent price declines to add more to its reserves. Corn prices in China have surged following an unprecedented buying spree by feed mills due to rising demand from the hog industry, which uses corn for animal feed, according to the China Corn Network, a consultancy tracking the cash market.

China could be accumulating corn in anticipation of demand from Japan, which is expected to increase purchases once it recovers from last week's devastating earthquake and tsunami. China could make a profit selling U.S. corn to Japan, the world's top importer of the grain.

"While grain imports in Japan have been mostly stalled for the past week, when imports resume, they could be larger than before," said Karl Setzer, an analyst for MaxYield Cooperative in Iowa.

Major grain import facilities in northern Japan suffered severe damage in last week's disasters, with roughly 30% of the country's feed production capacity affected, according to the U.S. Grains Council. Much of the shortfall is being offset by mills in other areas of the country and mills restarting after the disaster, yet getting feed supplies to animal production facilities is an ongoing problem, the trade group said.‹

[DewDiligence]

China’s Food Needs Are Rising

[No kidding. See the chart below and the material in #msg-59333127.]



http://online.wsj.com/article/SB10001424052748703784004576220291166000526.html

›MARCH 25, 2011
By CHUIN-WEI YAP

BEIJING—China may not be able to meet sharply rising food demand from its domestic resources, a senior Chinese agriculture official said, indicating room for further growth in imports.

Chen Xiwen, director of the State Council's executive office on rural policy, questioned the policy wisdom of setting increasingly higher targets for grain output as China struggles to wring more yield out of scarce arable resources.

His comments seemed to depart from statements by other parts of China's government that emphasized trying to meet the country's demand for key grains from domestic supplies. Just a day earlier, the State Council vowed to take all necessary measures to ensure an eighth consecutive record grain harvest this year, with officials saying that higher output is necessary to combat inflation—the government's top economic priority this year.

"Chasing ever-higher output levels may mean over-fertilization and unsafe agriculture," said Mr. Chen, who is also director of the ruling Communist Party's rural affairs office. "Of course, we have to raise output in this area but our techniques and resources can't keep up."

China's government has long emphasized the need to produce enough grain to meet almost all the demands of its huge population, to avoid becoming dependent on foreign suppliers. In recent decades, it has dropped the self-sufficiency goal for some crops, like soybeans, but continues to categorize corn, wheat and rice as key grains, of which it maintains formidable stockpiles. Mr. Chen said current stockpiles of key grains total 200 million metric tons, including both private and public stocks—about two-fifths of annual consumption and among the largest such reserves in the world.

But China's grain imports have risen in recent years across major categories, soaring in some categories last year to their highest levels in more than a decade. For corn, the most prominent example of the shift, China broke its 15-year status as a net exporter last year as imports exploded, in part because drought damped domestic output. Wheat and rice imports also grew.

Driving the shift in large part are dietary changes as China's population becomes wealthier. Those changes mean "our ability to meet consumption levels is clearly insufficient," Mr. Chen said. He said genetically modified foods, increased fertilization and organic farming are partial solutions, but pose inherent problems, such as pollution and potentially unsafe or overly expensive food.

Mr. Chen said China is currently maintaining self-sufficiency in grains, but he also highlighted the value of trade. He pointed to soybeans, imports of which overtook domestic output around 2004 to meet sharply rising Chinese demand.

"China used to be the world's largest soybean producer, now it's the world's largest soybean importer," Mr. Chen said. China last year posted a record 54.8 million tons of soybean imports.

Mr. Chen also swatted at perceptions in China of rising foreign control in some parts of the domestic agriculture sector. Some foreign grain processors last year came under public criticism, as rising food prices helped push inflation to three-year highs.

"The government is committed to welcoming foreign competition in the downstream agricultural processing sector... and it is not true that foreign companies control agriculture prices in China," he said.

Foreign agriculture companies have "contributed innovation," and developing China's agriculture sector doesn't mean having to squeeze out foreign competitors, he added.

Thursday's remarks weren't the first time Mr. Chen has taken a more nuanced tone on agriculture policy than officials from the Ministry of Agriculture and the State Administration of Grain. Late last year, Mr. Chen wrote an essay questioning whether the notion of self-sufficiency needed to be revisited in the light of current agricultural economics.

Still, he hasn't abandoned Beijing's adherence to the goal. "It's still an important concept," Mr. Chen said in January. "It is dangerous for a country with a population as large as China not to defend self-sufficiency in grains."‹

[DewDiligence]

Corn Is King—Plush Plantings Unlikely to Clip Prices

[Chinese corn imports (#msg-61383009, #msg-61133646, #msg-60647612) and US ethanol production (#msg-60366814) are all but ensuring that corn will soon exceed its record price of $7.65/bushel seen in the summer of 2008. It does not have far to go insofar as the May contract closed at $7.36/bushel on Friday.

The pricing outlook for corn is strongly bullish for DE, and the volume forecast is bullish for both DE and MON. (Unlike DE, MON does not directly benefit from higher crop prices in the short term, but higher crop prices often boost MON’s share price because many investors do not understand MON’s business model.)]

http://online.barrons.com/article/SB50001424052970203560404576228774046093778.html

›APRIL 2, 2011
By TOM POLANSEK

A federal forecast for farmers to sow the second-largest U.S. corn crop since World War II isn't likely to keep prices from growing.

Plantings of the nation's dominant crop are expected to increase 4.5% over last year's levels, to 92.2 million acres, as farmers take advantage of high prices. [92.2M acres will produce about 13.7B bushels under normal weather.] If the federal projection is correct, plantings will be bigger than all but one year since 1944.

Yet the annual estimate released last week by the Agriculture Department isn't easing concerns about low supplies when the current crop year ends Aug. 31. Traders are skeptical that farmers actually will match the agency's forecast and that weather conditions will be good enough to produce a large harvest to replenish U.S. grain inventories, known as ending stocks.

"Barring a perfect planting season with very, very strong yields this fall, it's nearly impossible to grow ending stocks without significantly destroying demand," says Jim Gerlach, president of A/C Trading in Fowler, Ind.

Global demand for corn hasn't pulled back, even with prices at more than 2½-year highs. The Agriculture Department in its quarterly stocks report last week said there was 15% less corn in storage as of March 1 than a year earlier. Traders were expecting a more modest cut, due to the effect of strong prices and the belief that the high quality of last year's corn crop would give users the same amount of product from less grain.

The new inventory data raise expectations that the government in a crop report due Friday will slash its forecast for end-of-season corn supplies, which could reach a record low. Estimated stocks as of Aug. 31 already are projected at a 15-year low.

The increase in plantings suggests the U.S. won't run out of corn next year, but probably will see supplies fall below one billion bushels by August 2012, says Tim Hannagan, analyst for PFG Best in Chicago. Supplies of less than one billion bushels "always put you one dry summer away from running out," he says.

Traders are skeptical corn plantings will expand as much as the government expects because of limited amounts of arable farmland. Nearly one-third of the increase the Agriculture Department is forecasting comes from North and South Dakota. Land there is susceptible to producing below-average yields or going unplanted because of wet weather, potentially eliminating a significant chunk of the projected increase in acreage.

The agriculture department also has a history of issuing overly optimistic planting forecasts. The number of actual corn acres sown fell short of agency projections in six of the past 10 years. In four of those years, federal forecasters overestimated planting intentions by more than one million acres.

Gerlach said it is nearly a given prices will exceed the all-time high of $7.65 a bushel for corn, reached during the Midwestern floods in the summer of 2008 and a broad-based boom in global commodity prices. He predicted the market will soar to "ridiculous" levels, near $9 a bushel, because demand needs to pull back to ensure the market remains adequately supplied. Goldman Sachs is bullish too, projecting corn at $8.60 in three months. Corn futures settled 6.2% higher at $7.36 a bushel Friday at the Chicago Board of Trade.

Others analysts were more cautious, saying another catalyst, such as poor weather or a large export sale, is needed to push prices to new highs. The market will test $7.40 to $7.50 a bushel while waiting for a new catalyst, remaining below the record, said Marty Foreman, a corn analyst for Doane Advisory Services in St. Louis.

He added: "It wouldn't take much [to reach new highs], if we were to see some issues with the new crop."

Then there's China. Suspicions that a recent large export sale is headed to the Asian nation caused prices to surge last month. China has been mostly absent from the corn market during the past 15 years, except for some heavy buying last summer. But many analysts and traders expect the country to increasingly lean on U.S. supplies to keep pace with domestic demand for animal feed and biofuels [no kidding].‹

[DewDiligence]

Monsanto, Sinochem Discuss Deeper Biotech Alliance

[The reason this is tricky: MON has been (rightfully, IMO) unwilling to unduly expose its IP to a JV, and China's rules prohibit biotech field trials by a foreign company. I'm still skeptical that China is willing to play fair, but a breakthrough to this impasse ought to be bullish for MON's share price. See #msg-61383009 and #msg-47775586 for related stories.]

http://online.wsj.com/article/SB10001424052702303678704576438151534829450.html

›JULY 11, 2011
By DENNIS K. BERMAN, GINA CHON and SCOTT KILMAN

Chemicals conglomerate Sinochem Corp. is in advanced discussions with Monsanto Co. to deepen their ties significantly, people familiar with the discussions said, an important sign of China's growing appetite for U.S. crops and biotechnology.

The two companies have been in talks for months, the people said. It was unclear what form an agreement might take, though arrangements could include a large joint venture, the sale of a minority stake or Sinochem assuming a larger role marketing Monsanto products in China.

Discussions have been difficult, the people said, because of economic and political sensitivities of moving the companies closer together. "You have to be very cautious and careful in these situations," one of the people familiar with the matter said. "It's all very sensitive."

A Sinochem spokesman said he wasn't aware of a deal involving Monsanto and declined further comment. Monsanto also declined to comment.

With a market value of $40 billion, Monsanto dominates crop biotechnology, a 15-year-old market the St. Louis company essentially created.

Monsanto has at least one of its patented genes in about 90% of all the soybeans grown in the U.S. and in about 80% of U.S. corn. Farmers pay a big premium for seeds containing such genes because they equip plants to, for example, tolerate exposure to Monsanto's popular Roundup herbicide or produce their own insecticides.

Beijing-based Sinochem has a similar role in China, where it is the nation's largest importer and distributor of fertilizer and a large seed producer. Begun as a state-owned enterprise in 1950, the government-owned company today has more than $50 billion in annual revenue with operations that include real estate and finance. But Sinochem's primary role is to help ensure food security in the world's most populous nation, which increasingly means expanding internationally to procure supply lines and technology to feed 1.34 billion.

Although China is the world's largest producer of wheat and rice, and the second-largest producer of corn, behind the U.S., the country isn't producing enough. That forces China to import more crops—a rare category in which the U.S. is a net exporter to China—to keep volatile food prices from stirring up discontent.

China's ability to grow more grain is limited. There isn't much arable land that isn't already under plow and the water table in some areas is falling amid heavy irrigation. The surest way for China greatly to increase its harvests is to raise field productivity—an area ripe for improvement. Chinese corn farmers produce an average of 85 bushels an acre compared with about 158 bushels for U.S. farmers [see table in #msg-60878732], according to the U.S. Agriculture Department.

A big differences between U.S. farmers and their Chinese counterparts is crop biotechnology. Outside of cotton and papaya, few of China's crops are genetically modified. In the U.S., where genetically modified seeds were introduced commercially in the mid-1990s, the vast majority of the corn, soybeans and cotton are bioengineered.

The Chinese government is doing extensive crop-biotechnology research, but the country remains far behind the U.S. in terms of commercialization partly because Beijing, leery of ceding control of its food supply to outsiders, has wanted to control the technology.

Monsanto has had a hybrid-corn-seed joint venture with Sinochem's China National Seed since 2001. But Monsanto, which agreed in 2008 to pump an additional $84 million into the venture, is a minority partner. A senior Monsanto executive complained last year that the Chinese government was continuing to ban foreign companies from investing in agricultural biotechnology in China.

Chinese companies have been eager to develop close ties to U.S. agricultural companies. China's Cofco Ltd. owns a 4.2% stake in U.S. pork processor Smithfield Foods Inc. DuPont Co.'s seed unit has corn-breeding joint ventures in China.

Sinochem has made no secret of its desire to strengthen its agricultural technology, saying in its 2010 annual report, "We are committed to developing ourselves into China's largest and the world's leading provider of agricultural inputs and services."

The Chinese government is concerned about food security because the expanding economy is creating more middle-class families who want to upgrade their diets by eating more meat and drinking more milk, which requires crops for feeding livestock. China imports nearly a quarter of the U.S. soybean crop, in part to fatten hogs and chickens craved by China's middle class.

Should Sinochem and Monsanto strike a new alliance, they will have to proceed carefully. Countries including Canada, the U.S. and Australia have grown more protective of their home industries, fearing the leakage of significant technology to foreign buyers, notably China. Chinese telecommunications company Huawei Technologies Co. dropped its offer for 3Leaf Systems Inc. this year after the U.S. Committee on Foreign Investment in the U.S. opposed the deal.

Protecting natural resources has been a particular concern for governments. A $5.5 billion deal for Canada's Ecana Corp. to sell a 50% stake in a natural-gas field to China's PetroChina Co. fell apart last month, partly because of politics, people familiar with the matter said.‹

[DewDiligence]

Chinese Hunger for Corn Stretches Farm Belt

[See #msg-65057403 (chart), #msg-61383009, #msg-60647612, #msg-59333127, #msg-60259395, #msg-65201353, and #msg-61657936 for related stories.]

http://online.wsj.com/article/SB10001424053111903554904576460300155681760.html

›AUGUST 17, 2011
By SCOTT KILMAN And BRIAN SPEGELE

China's struggle to meet the growing demands of its middle class is fueling a sudden surge in demand for corn, sending vast ripples across the U.S. farm belt and potentially upending the grain's trade flows around the world.

China's need for corn—which forms the basis of sweeteners, starch and alcohol as well as feed for livestock—was on stark display in July when the nation ordered 21 million bushels of U.S. corn in one hit, more than the U.S. government thought the country would buy in a year. The purchase surprised the market and came as an intense July heat wave was shrinking the potential size of the Midwest crop. China bought another 2.2 million bushels of U.S. corn early this month.

Corn prices, which have nearly doubled over the past year, climbed another 1% Tuesday. The corn futures contract for December delivery at the Chicago Board of Trade rose 7.5 cents to settle at $7.275 a bushel.

China's influence on corn demand underlines how its fast-growing economy is reshaping global commerce [duh]. The nation, with its growing population of 1.3 billion people, has been a major player in commodities markets in recent years.

China already buys about a quarter of all U.S. soybeans. But its sudden demand for corn caught many off guard. China, which hadn't been a net importer of corn for 15 years until last year, has a vast corn belt of its own and for many years strove to be self-sufficient. And because China is secretive about the levels of commodities it holds in its strategic reserves, the rest of the market can only guess what its supply needs are.

Many attribute the larger-than-expected demand to a growing middle class that is changing its tastes more quickly than anticipated. As the Chinese population becomes wealthier, for example, it is eating more pork. And the Chinese government is pushing its farmers to adopt Western methods of raising their pigs, including feeding them more corn. Citizens are also slurping up juices and other products that include corn-based sweeteners: Coca-Cola Co. said that its volume in China spiked 21% in the second quarter.

Ma Liangfeng, a 69-year-old retired engineer living in Shanghai, says the array of packaged products lining store shelves was "unthinkable" just 30 years ago. Back then, families had to reserve staple meats like pork for special occasions.

The changes have created big shifts throughout the food chain, including U.S. companies and farmers putting in place infrastructure that will enable massive shipments of grains and other products to Asia.

Many U.S. traders and economists believe the recent purchases signal U.S. sales will grow so rapidly that China could become the biggest foreign buyer of U.S. corn within five to 10 years, dethroning Japan, which bought about 610 million bushels of U.S. corn last year. "We think this is the inflection point," says Brian Schouvieller, a grain marketing executive at CHS Inc., the U.S.'s biggest farmer-owned cooperative. "We believe that, from now, China is going to be a steady buyer."

To be sure, Western executives have been wrong before about China's appetite for foreign corn. A sudden surge of Chinese buying in the mid-1990s sparked talk of a trade boon for U.S. farmers, but it was a blip. While China's middle class is far bigger now, and its gross domestic product grew a blistering 9.5% in the second quarter, economists predict turbulence. Much of China's breakneck growth is fueled by government-led investment, not entrepreneurs, and China's housing market appears to be overheating.

Still, the threat of instability might well work in the favor of U.S. farmers. China's ruling Communist Party worries in particular about food inflation, which could put social stability at risk. In an effort to preserve domestic supplies, the government has already stopped construction of factories that convert Chinese corn into ethanol fuel.

But rising pork prices, thanks in part to higher demand and the rising cost of feed, accounted for more than a quarter of the 6.5% jump in China's consumer price index in July from a year earlier.

In the eastern province of Zhejiang, pig farmer Qian Fanghua's operation has grown to about 2,000 animals today, from less than 200 pigs four years ago. Mr. Qian's hogs require about 4,000 kilograms of corn-based feed each day. His growing farm, and others dotted around the country, is one of the reasons domestic corn prices have climbed so high as to make U.S. corn seem affordable.

This year, China is expected to use about five billion bushels of corn to make feed, a growth of 20% from five years ago, according to the U.S. Department of Agriculture.

The USDA now forecasts that China will import 79 million bushels of corn from all sources for the 2011-2012 crop year. But some grain traders are much more optimistic. They said in interviews that they think China wants to buy 200 million bushels of corn from the U.S. alone.

U.S. companies are already investing with China's ever-expanding appetite in mind. Decatur, Ill., grain exporter Archer-Daniels-Midland Co. said in July that it would build a shuttle-loading grain elevator near St. Cloud, Minn., with the capability of loading trains that are 110 cars long. And Minneapolis-commodity processing giant Cargill Inc. is expanding its corn sweetener factory in Pinghu.

A port terminal in Longview, Wash., scheduled to open this fall is the nation's first in at least two decades for loading ocean-going ships with grain. Grain giant Bunge and two Asian partners invested $200 million to build it. "The Asia market is the fastest growing market in the world," says Larry Clarke, the venture's chief executive. "We're working to get our infrastructure ahead of it."

Biotechnology giant Monsanto Co. has had talks about deepening ties with Sinochem [#msg-65056103], the state-owned chemicals conglomerate with which it has had a corn seed-breeding venture in China since 2001.

Ron Litterer, a Greene, Iowa, farmer, says he's paying close attention to China's growth and while he hasn't yet decided to increase his corn planting, that could change. Mr. Litterer raises 1,000 acres of corn and 500 acres of soybeans. "It just makes sense to think they will have to depend more and more on [food] imports," says Mr. Litterer.

For now, the amount of Chinese business confirmed by Washington is relatively small alongside America's total foreign sales. The U.S. exports about 1.8 billion bushels of corn globally.

While nobody in the West knows for sure how much corn China will want to import and how soon, the possibilities fascinate grain traders. According to Michael Swanson, a Wells Fargo & Co. economist, doubling of per-capita meat consumption in China so that it matches the U.S. level would require the country to use an additional 24 billion bushels of corn, or about twice what the U.S. produces in a year.

"There's not enough grain in the world for them to do that," Mr. Swanson says. "But just moving in the direction is staggering to consider."‹

[DewDiligence]

Part of what should keep the [US] farm belt healthy for a while are its ties to rapidly growing Asian economies such as China, which is expected by the USDA to import $19 billion of U.S. farm goods in the year ending Sept. 30, 2012, up 27% from fiscal 2010. That would tie China with Canada as the biggest importers of U.S. farm goods.

http://online.wsj.com/article/SB10001424052970203752604576645322658824248.html