World Grain - January 2014 - 38

FEATURE: global grain 2013

David Hightower of The Hightower Report spoke
at the conference.

U.S. were to eliminate its incentives for
ethanol consumption.
"The market will purchase that supply," he said. "If you want to remove 10%
of the demand chain, that will lead to a
doubling or tripling of gasoline prices."
China, with all its money, could
potentially be a huge buyer of grains
and oilseeds.
"Would you rather hold copious
amounts of U.S. Treasuries in the
event of some sort a meltdown or
would you rather have something tangible?" he said.
Hightower said the psychology
among analysts and market participants in grains was the most bearish
he had ever seen, but he questioned
some of the assumptions that underlie
that psychology.
"We are going to assume the best
production and the least amount of demand," he said. "We have already got
a record speculative short position. The
psychology, at least in my circles, is
that we are going to see larger production than we have from the USDA (crop
estimates) and we are going to have a
multi-year surplus," he said.
But Hightower added that he is skeptical that this will occur.
"When prices go down, demand goes
38

up," he said. "A lot of purchases being
made are not being made for use and
they are being made for strategic stocks.
These demand factors are very capable
of chewing through that supply. I can
see the Chinese saying: 'Why do we
have $1 trillion of Treasury bonds? We
could buy corn.'"
U.S. farmers are expecting demand
from China and building storage to
cope with, for example, soybeans-tofeed demand linked to China's aquaculture industry.
"Even though we are extremely bearish in the U.S., our farmers don't listen
to us," he said. "They believe prices will
be higher than they currently are.
"I think we are coming out of a bad
time, not into a bad time. We were going
to bust up the euro zone a year ago."
China has changed, he said, in that it
wants to build a domestic demand-driven market.
"This is the consumer era," he said.
"The world is big and the commodities
market is small. If you do not employ
options strategies to manage volatility,
it's going to be a very difficult world
for you."
Black Sea influence
Thorsten Tiedemann, executive general manager, Global Trade of Toepfer
International, looked at the importance
of the Black Sea in world grain production during the conference.
"When the Black Sea has low production, grain prices go up," he said, comparing the trend in Chicago Board of
Trade prices with the trend in the combined production of Russia, Ukraine
and Kazakhstan. He also noted that their
combined share of world trade had increased as importers became less reliant
on the U.S.
However, what they produce is changing. "What really is changing is the acreage which is shifting to crops other than
wheat," he said. "Corn production is up
seven times in that area (since 2000),
while soy is up 10 times, and sunseed is
up three times," he said.
He compared the profit per hectare

to be made from each crop.
"Wheat and corn is pretty much
the same; sunseed is much better," he
said. "Corn is as interesting as wheat.
It spreads out the workload on farms.
What has spoiled the corn party a little
this year is the drying costs."
Farmers in the region were investing
in more drying capacity, but faster maturing varieties could, in the future, help
make drying less necessary. It is also
likely that improvements in variety will
help the region to catch up with world
average yields.
He explained that while increases in
yield for barley and wheat were basically stagnant, the increase in corn yield
is still moving upward.
"We have not even reached the production volume wheat had in the 1980s
at the end of the Soviet Union," he said.
"They had a much larger cattle herd."
He looked at the history of Russia's
wheat trade going back to Czarist times.
"When exports of wheat from Russia
were high, exports out of the U.S.
went down," he said. "This has never
changed. Wheat is going to stay in the
Africa and Middle East area."
"For corn, Africa, the E.U. and the
Middle East would not be sufficient as
an outlet," he said, adding that more
is going to Southeast Asia. "There, it
runs as a direct competition to the U.S.
and Brazil."
Tiedemann said the weather in
October and November had been favorable for the development of planted
wheat, he said.
"Exports will get much stronger," he
said. "(Wheat) consumption in these
areas will only go up moderately. It's
going to be next year or the year after
when we hit the old record production
of the Soviet Union. The E.U. is going
to pull in corn from the Black Sea very
strongly this year."
Chris Lyddon is World Grain's European editor. He
may be contacted at: chris.lyddon@ntlworld.com.
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January 2014 / World Grain / www.World-Grain.com

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World Grain - January 2014

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