Bunge analyst: exports outlook 'incredibly strong'

By Tom Bryan | October 21, 2014

A growing world population, urbanization and rising income will continue to drive investment in commodities, and the link between energy and agriculture will stay strong for years to come, according to Bunge financial analyst Curtis Jones, one of Tuesday morning’s speakers at the Export Exchange in Seattle.

Jones and other speakers addressed hundreds of international buyers and sellers of U.S. grains and grain-derived feed products like DDGS. Cohosted by the U.S. Grains Council and the Renewable Fuels Association, the biannual event has become a popular venue for U.S. companies that market distillers grains to meet with existing and prospective international customers, as well as the shipping and logistics companies that get the product to its destination.  

Jones said the overall outlook for ag exports is “incredibly strong.” Despite today’s low corn prices, near-term commodity market dynamics will continue to resemble the present era more than that of the pre-2002 period, Jones said. “Since 2002, commodities have been defined by scarcity of capacity,” he said, explaining how spikes in world demand—especially from high population growth countries like China and India—have driven the markets for oil, metals, ocean freight and agriculture.

Most importantly, Jones said, commodity cycles are produced by the “real rate” of inflation. “High interest rates created low investment in commodities. Low interest rates had the opposite effect,” he said, adding that rate hikes are unlikely because the global economy is too soft to merit them.  

The current commodity era has been defined not only by demand growth, but also supply disruptions including droughts in every region of the world over the past decade. Jones said the next few years should be more of the same. “Population and income will drive growth,” he said, “but Mother Nature will need to be cooperative.” Jones said high petroleum prices have counterweighted some of the demand pressure put on commodities in recent years, and he predicted that petroleum prices and corn prices will remain connected, despite record corn ending stocks. “I don’t think that linkage will break,” he said. “The surpluses will be absorbed over time.”

Later Tuesday morning, Kevin Roepke, the USGC’s regional lead for South and Southeast Asia, said new estimates peg the world’s future population at 12 billion people by the year 2100, rather than the previously estimated 9 billion people. Biotechnology is a big part of the answer, Roepke said, adding that rising U.S. corn yields “is a trend that will not stop.” Roepke warned, however, that there is currently a “tremendous shortfall” in the global agricultural investment needed to feed the world’s future population.

Roepke characterized the data on China’s recent corn crops as “murky,” explaining that analysts don’t know if the nation’s 2013-’14 crop was larger or smaller than its 2012-’13 crop. Regardless of the true number, he said, U.S. corn ending stocks are up 68% year-on-year, which is the principal reason corn prices are now low.

Roepke said grain transportation is currently constrained by unprecedented volumes of domestic crude oil being shipped on U.S. rail lines. However, he said, American railroads have built up their cash reserves and are investing heavily in infrastructure. BNSF alone is making a $5 billion investment that includes 5,000 new employees, 5,000 new tank cars and 500 new locomotives. “There’s a lot to positive about in that area,” Roepke said.

The Export Exchange will continue through Wednesday afternoon.