Emerging Economies Driving Global Demand for Grains

t's a great time to be involved in U.S. grain farming with even the negatives serving more to highlight the overwhelming positive outlook than generating any real concern, the CEO of America's largest cooperative told the DTN-The Progressive Farmer Ag Summit Monday.
Carl Casale, CEO of CHS, Inc., spoke at DTN-The Progressive Farmer Ag Summit on Monday. (DTN-The Progressive Farmer photo by Jim Patrico)
"I am very optimistic! And I get paid to be negative," CHS Inc. CEO Carl Casale said.
The main concerns on the global grain horizon are the continued economic doldrums in Europe and the potential for conflict in the Middle East.
But stagnant demand from the old continent is now a residual concern for U.S. farmers as global demand is being driven by emerging economies, led by China, while North America's increasing fuel independence means U.S. farms and industry no longer hang on whether or not oil tankers can pass through the Straits of Hormuz, the former Monsanto executive told attendees.
He said there is no indication that demand for protein is flagging in emerging markets, and growth will likely remain strong over the next two decades with over three billion Chinese, Indians and others expected to ascend to the global middle class in the period.
Indeed, Casale believes this driver is so strong that it could be causing a reversal in a century-long trend for falling real agricultural prices, which will in turn support grain prices.
And it is the U.S. that will likely supply food for a lot of these hungry mouths, he says. For while Brazil and other farm competitors are growing more efficient, if anything the U.S. is stretching its competitive advantage due to the current massive wave of investment.
"I drive out of the Twin Cities and I need sunglasses because of the amount of new tin," said the Minneapolis-based Casale, referring to heavy investments in farm silos.
A further motive for optimism emanates from the growth in low-cost natural gas capacity at home, which will allow the U.S. to ramp up nitrogen production and reduce dependence on imported nutrients.
Meanwhile, he doesn't believe there is a bubble in land prices as many speculate, pointing out that price inflation reflects in good part the invisible hand of the market squeezing production margins back to historical levels.
"If you are buying land with a lot of debt, there is some cause for concern. But if you are buying land to farm, you don't have much to worry about," Casale advised producers.
CHS is the country's third-largest ag exporter after Cargill and ADM. It is a major investor in export terminals on the Pacific and Gulf coasts and has expanded grain sourcing to Russia, Ukraine, Romania and South America. It does this because it has to ensure that it can supply clients 365 days per year like its competitors do, Casale said.
"You don't want to be the last one clients call," he said.
Anyway, the global structure ultimately benefits farmers, who receive dividends when CHS is viewed as a serious alternative to the multinational trading firms, he added.
Alastair Stewart can be reached at alastair.stewart@telventdtn.com

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