World Grain - May 2016 - 46

FEATURE: TIME FOR GOVERNMENT INTERVENTION?

the only one place seeing an increase in
demand is in Southeast Asia.
"The problem we have in the grain
markets is not only one of oversupply,
but one of stagnant demand, demand
that just isn't growing fast enough. The
last 10 years were all about expanding
demand due to biofuels and the rising
caloric intake in Southeast Asia," he
said. "Biofuels is now mature. So I am
left with caloric intake rising but it is not
rising fast enough relative to supply."
He looked at the change in population
in Japan, Russia and Europe.
"It is hard to have strong economies
when you are losing population," he
said. "If you look at those three countries
you are losing about 100 million people
by 2040. The growth has got to come
in countries like India, China and then
it gets rather shaky here. I am not sure
about Pakistan, Bangladesh, Nigeria
and, of course, the U.S."
A lot of the U.S.'s growth is through
immigration, he said. "If new President
Donald Trump builds his famous wall
across Mexico, I'm not sure that will
happen.
"Aging is becoming even more
problematic because as we age we
consume less calories," he said. "On top
of all this, there is this stack of world
debt. It is this debt combined with age
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markets' and the stock markets'
indigestion."
ARGENTINA'S TAX CUTS
Argentina's change in tax regime,
taking away export taxes from most
grains, with those on soybeans being
phased out, has made a big difference
to that country's farmers and will make
a big difference to the world's grain
market, Basse said.
"Could you imagine working and all
of a sudden not having to pay a tax, what
that would it mean for your income?"
he said. "When you look at something
like sunseed, look at the world price and
getting rid of the tax. It means an extra
$319 per hectare for that Argentinean
farmer. That is a really big deal. Or in
46

Dan Basse, featured speaker at the conference, doesn't see grain prices rising anytime soon.

the case of wheat, it's $140, or corn,
it's $284. For soybeans it's only $50
because the tax goes down 5% a year
over the next seven years. This is a big
incentive for our friends in Argentina.
"We believe that Argentinean farmers
will react like any other farmer in the
world and produce more crop," he
said. "If you have been to Argentina
and seen the pampas, there is lots of
pasture that could be plowed up. This
is just the change in taxes. We are not
including the peso. That in itself would
add another $200 to that equation. So if
you're an Argentinean farmer you just
went to heaven."
Basse believes Argentineans can
easily export 9 million tonnes a month.
"The logistics are there. These guys
are going to be a powerhouse. We need
to pay attention," he said.
CHINA GDP SLOWING
The Chinese economy is starting to
slow down, he said.
"Maybe more importantly the
Chinese have built up all of this excess
debt. People are trying to get their
money out of China because of slowing
economies and their fear that the only
way the Chinese can stimulate any more

is through a weaker currency."
The Chinese have decided to let the
price of their corn follow the world
market, he said.
"Chinese grain stocks are record large.
The USDA has them somewhere in the
vicinity of 200 million tonnes," he said.
"We believe the USDA is understating
the corn stocks in China by a large
degree. The last time Chinese corn
stocks peaked in 1999 it took roughly
six years of China exporting corn for
them to balance things out.
"Can China export corn today? They
would have a WTO complaint against
them very quickly. Under WTO rules,
which they entered into in 2001, China
cannot subsidize the export of corn."
China was the world's largest
importer of grain in 2014-15, taking
31 million tonnes. According to Basse,
most traders expect that number to fall
to 10 million tonnes.
"Where is that extra 20 million tonnes
of grain going?" he said.
Chris Lyddon is World Grain's European
correspondent. He may be contacted at:
chris.lyddon@ntlworld.com.
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May 2016 / World Grain / www.World-Grain.com

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World Grain - May 2016

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