Market dynamics are changing how the world views grain trade
The CHS terminal in Superior, Wis., sends nearly 40 vessels (each carrying the equivalent of 800 semi loads) of spring wheat, durum wheat, canola and flax to global markets through the St. Lawrence Seaway.
Note to readers: The information in this story reflects conditions prior to recent events in eastern Europe. All of us at CHS hope a peaceful resolution will be reached soon.
There’s no doubt these are complicated times. From extreme weather patterns to inflation and from supply chain backups to international conflict, agriculture trade has been playing a steady game of dodgeball since 2018.
With increased competition from regions like the Black Sea and South America, the United States is not as critical to supplying the world with grain and oilseeds as it was 10 or 20 years ago.
The marketplace is getting more competitive as farmers elsewhere around the globe have lower land and labor costs and are seeing improving transportation infrastructures. They are also encouraged by growing international acceptance of genetically modified seed technology.
How can U.S. farmers continue to secure grain market access for not only today, but for generations to come?
“In today’s commodity trade environment, connections to the cooperative system and organizations that secure market access and new opportunities for U.S. farmers are more crucial than ever,” says Brian Schouvieller, senior vice president, global trading and risk management, CHS Global Grain & Processing.
“Farmers need partners who are figuring out how to sell the crop the same day they are planting. At CHS, farmers’ best interests drive every decision we make every day.”
Asian market opportunity outside of China
The 2018 U.S.-China tariff situation was a stark reminder of the value of balanced domestic and international markets and the importance of not concentrating business in one country. Over the past 12 months, the CHS Global Grain & Processing team has focused on increasing relationships and expanding export volume with a number of key countries.
“Increasing our international grain marketing footprint gives us more options to secure the best market value and price for farmers,” says Bryce Banfield, vice president, marketing, CHS Global Grain & Processing. “Having employees on the ground around the world allows us to form relationships not only with large grain and food customers, but with middle-sized and small customers that eventually turn into large buyers.”
“When identifying new and emerging markets, we first need to look at economic activity, changing food preferences and purchasing habits and birth rates,” says Ken Eriksen, who heads up client advisory and development in commodities, transportation and infrastructure for IHS Markit. “There are still a lot of unknowns that will be coming out of the pandemic, but it’s fascinating to watch the amount of opportunity and investments that could take place in areas like Southeast Asia and Africa.”
Across Asia, Eriksen says, consumer diets and preferences are shifting to be more protein-based and per capita incomes are rising, so consumers there can afford higher-quality meat products. Simultaneously, animal husbandry practices are improving and there’s a shift away from backyard feed operations to sophisticated vertical integration of hog and poultry production.
“China will always be a major player when it comes to soybean and soybean meal demand,” adds Eriksen, “but now we’re seeing those same patterns in Malaysia, Thailand and Vietnam. And unlike China, those Southeast Asian countries still have a steady population growth.
“We’re also seeing fewer wet [open-air food] markets and more controlled environments like supermarkets and commissaries across Southeast Asia, so we’re very curious to watch how consumption, buying behaviors and demand will continue to evolve.”
African markets show promise
Emerging markets often don’t have sufficient economies of scale and infrastructure to be major grain purchasers, but Eriksen says that’s not a reason to overlook Africa and the Middle East.
“In the last 20 years, the population and birth rate in all countries in Africa and the Middle East has risen and will continue to grow. In Africa, the population eats 2 to 3 kilograms [4.4 to 6.6 pounds] of meat per person per year,” says Eriksen. “Compare that to the U.S. and Europe, where the average is 35 kilos and 25 kilos per person, respectively, and there’s tremendous room for growth per year.
“In the last five years, we’ve seen a significant increase in the level of imports of animal feed compounds and corn across Africa. When you compare those numbers to China and factor in population densities and birth rates expected in the next five to 10 years, we’re predicting Africa will be importing the same amount of grain as China,” he adds.
Rom Veru, a CHS Global Grain & Processing marketer based in Geneva, Switzerland, focuses on the strength of the CHS supply chain and the capabilities of cooperatives and farmer-owners to identify opportunities for market growth in Europe, the Middle East and Africa.
“Our supply chains are very strong in the U.S. Northern Plains, especially in soybeans, hard red winter wheat and spring wheat,” says Veru. “Nigeria consumes a lot of hard wheat and we know more customers there want to work with companies like CHS that have origination access and high-quality grain coming direct from the farm.”
CHS began expanding its customer base with trading partners in Nigeria in late 2019 and has already landed sales equaling up to 65% of the milling needs of one of the largest wheat millers in the country. The added volume has encouraged the buyer to double mill capacity from 360,000 tons to 720,000 tons in 2023.
“We sell a cargo ship of hard red winter wheat to this customer every month. Consistent wheat quality and logistics, plus flexibility in trade execution, have been key in developing this relationship,” says Veru. “Customer service is very important to us and is what helps us secure the best price for CHS farmer-owners.”
Egypt is another key growth country for grain marketed by CHS, increasing purchase volumes in the last 12 months. CHS sold soybeans to Egypt for the first time in 2021, diversifying some shipments away from China to continue to expand the CHS soybean customer base.
“Egypt is a sizeable market for beans, importing 4 million to 5 million metric tons annually,” Veru explains. “One of our newest customers in Egypt has a feed mill capacity of 2,000 metric tons per day and a soybean crushing plant with capacity of 3,000 metric tons per day. Through our U.S. footprint and assets in Brazil, Argentina and the Black Sea, we’re able to provide that steady supply of corn and soybeans all year.”
Minimizing risk with new trade partners
Nigeria and Egypt are just two CHS marketing success stories. Increased export volumes to Spain, Portugal, Southeast Asia and Latin America, including opening a new CHS grain marketing office in Mexico City, are other wins for CHS and farmer-owners. But do new partners in more countries mean more risk?
“As we expand into other parts of the world, we are constantly thinking about counterparty risk,” says Brian Schouvieller, senior vice president, global trading and risk management, CHS Global Grain & Processing.
“International markets are extremely important to U.S. farmers and CHS spends a lot of time, energy and capital ensuring we can participate in those markets safely.”
When new customers are identified, they are vetted by CHS legal, commercial and compliance teams to rate not only their finances, credit history and country concentration risks, but whether they will be end users and consistent buyers, the potential stress those sales could put on the CHS supply chain and how much value the new market will create for farmer-owners.
“From traders, originators and international marketing teams to supply chain experts, finance, credit and compliance teams, there is strong collaboration across CHS to secure competitive market opportunities for our owners.”
Pacific Northwest grain export powerhouse
TEMCO, a grain export joint venture between CHS and Cargill, includes three export terminals in the Pacific Northwest: Kalama and Tacoma, Wash., and Portland, Ore. Over the past year, CHS has improved supply chain efficiencies to source more grain faster from farmers and cooperatives. Through the TEMCO joint venture, CHS is now the largest exporter of grain from the Pacific Northwest to Asia markets.
- 2020-2021: Export volume grew from 40 million bushels per month to 55 million bushels per month through Pacific Northwest ports
- TEMCO handled nearly 540 million bushels of grain in fiscal 2021, up from 331 million bushels in fiscal 2020
- CHS grain market share in the Pacific Northwest is 35%, the nearest competitor holds 25% market share
- TEMCO distributes grain to 11 countries, including China, Japan and South Korea
Check out the full Winter 2022 issue of C magazine with this article and more.