Listen: Field to fork: Unpacking feed and meat demand in Asia and the Middle East (part 2)

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William Bland:

Hello and welcome to the Platts Commodities Focus podcast from S&P Global Commodity Insights. We talked last week about the Americas, where so much beef and poultry originates, but today we're going to zoom out a bit and look at the entire food chain on a more macro level, then focus on the key demand region of Asia, including the Middle East.

I'm Will Bland, Managing Editor for Europe, the Middle East and Africa, based in London. And I'm joined today by the Managing Editors in Asia, Asim Anand, who is based in Gurgaon and Liz Thang, who's based in Singapore. The strain to produce food is most acute in Asia, where there's a shortage of arable land for the population. Currently, there are about 8 billion humans, but about 22 billion animals. For example, most of the world's corn is used to feed animals, not people. A part of the challenge that we haven't discussed so far is how to feed livestock. Livestock feeds mostly on grains, so crop supply, land availability, and weather patterns are all issues that impact meat prices and vice versa. So Asim, can you please set the stage for us as to what kind of crops it takes to raise livestock and where are they consumed?

Asim Anand:

So when we talk about grains, wheat, corn, barley, rice, and then we have pulses as well, as far as oilseeds are concerned, we have soybeans, rapeseeds, sunflower seeds, these are the crops that the farmers across the globe produce annually. And when we talk about the field-to-fork narrative, we need to take a closer look at the connection between grains and protein consumption. For example, talking about Asia, including the Middle East, it represents 60% of world population. So obviously, it's the world's consumption center for both the food grains and proteins. Livestock population globally is around 22 billion, and most of that livestock population, it exists in Asia. If you go into specifics, 90% are chicken. We have 1.5 billion of cattle, 1 billion pigs.

William Bland:

That is a lot of pigs.

Asim Anand:

Those are mostly in China.

William Bland:

I presume they're pigs.

Asim Anand:

Yes, you are absolutely right. Half of the world's pig population is in China and nearly 19.5 billion chicken in the world, and most chickens are in China, Indonesia, US, Brazil, Japan. As far as cattle are concerned, they're primarily in India and Brazil. So yeah, this data becomes very crucial because we're talking about the demand center, which is Asia, and these livestocks need to be fed daily, which in turn means that the food grains need to be diverted from human consumption to animal and bird feed, and there lies a challenge of sustainability as far as the whole crop circle and feed-to-fork narrative is concerned.

William Bland:

Thanks, Asim. So given what you say about the importance of the supply of feed grains for animal survival, what, Liz, do you observe in world crops today that is impacting the production?

Liz Thang:

Hi, Will. In terms of feed grains, so the crop markets, weather is actually a key driver of prices. There are a few fundamentals, obviously not just weather, but weather is a big driver, and you know the expression rain makes green. So there is a thing called too much rain or rain at the wrong time, especially during wheat harvest, that's really important, or too much snow or too much heat that can always cause crop quality to either improve or decline. So weather markets are very key to crops. Besides China and India who have a large production of their own grains and oil seeds, most Asian countries, they have to import feed grains to feed their livestock. So any weather issues and major exporting countries, they will have a material impact on these countries' cost of meat production. So just to give an example, soybeans. So soybeans are crushed for their meal and oil, and China is the world's largest buyer of soybeans. They account for 60% of the world trade.

So in Platts, we track CFR China soybean cash spot markets, and the recent freak floods like the one that we witnessed in the Brazilian state of Rio Grande do Sul, crops were damaged, and that state is responsible for about 15% of the total soybean production in Brazil. So that has a huge impact on prices. The flood situation there actually affected soybean prices, therefore affecting the prices in China. And this will impact the prices of the feed that goes into the hog markets.

Similarly in wheat, global prices, they surged to recent highs recently, also due to weather scares. This time, it's the weather in Russia, because Russia is the world's biggest wheat exporter. Their wheat crop has been downgraded a couple of times this year, first due to drought, then to frost damage. In Asia, we track FOB Australia wheat prices. We saw that the prices in Australia also climbed in reaction to the ones in the Black Sea. Australia is not only a major wheat exporter, it's also a big cattle producer and beef exporter. Half of the cattle in Australia is grain fed and by grain, I mean it's mostly wheat. The beef prices in Australia would see some support, and in Platts we have started to track FCA Australia beef prices since June 1st. So we can see when the prices in Australia, the meat prices in Australia are impacted by wheat prices globally.

William Bland:

That's interesting. What's the main destination for that beef from Australia?

Liz Thang:

The beef in Australia goes everywhere really, but the beef assessment that we are publishing is for the 90CL beef, which mostly goes to the US.

William Bland:

Mostly, I guess that brings us onto India, where beef is not such a big market in the same way. But could you tell us, Asim about the impacts of wheat stocks and the government's position sensitivity to them?

Asim Anand:

So I'll start with beef. As far as beef is concerned, India is the largest exporter of buffalo meat, which is a kind of beef and it's basically supplied to Middle East, Southeast Asia, and some countries in Africa as well. So continuing on the topic, as I mentioned earlier that India has one of the largest cattle herds in the world, and of course, it has a sizable poultry and aquaculture population as well. So there's a constant fight between the feed for animals and the food security challenge that the government has because just to feed 1.4 billion population on a daily basis, this requires some interventions if there is this constant pressure because animals need to be fed as well. So yeah, there are constant challenges. When we go specifically into Indian trends as far as animal feed are concerned, some of the most common feeds in India basically are astra grasses, cereal grains, hay and silage crops, and other byproducts of food crops such as brewers grains, pineapple bran, and sugar beet pulp.

These products are carefully formulated with the help of nutrition additives because they're not really nutritious in themselves. So basically, well, vitamins and minerals are added to these general animal feeds. It helps maintain the overall health of animals and improve the quality of various end products such as meat, eggs, and milk. And by the way, India is the largest producer of milk in the world. So feeding the cattle herd on a daily basis is substantial.

Animal feed is very, very important, yeah. And there comes the fight between the need to feed humans versus the need to feed animals. As far as the impact of grains prices are concerned, it was noted that the raw materials used in the production of animal feed, like soybean means sorghum corn. They are being diverted for the consumption of humans, leading to a shortage in the feed industry as far as the latest reports from the government is concerned. Furthermore, the expensive nature and price and supply volatility of these raw materials is encouraging industry players to switch to low-cost alternatives. These low-cost alternatives are basically nothing but DDGS. So yeah, there's this constant struggle between the need to feed the humans and the need to feed the animals and the birds in India.

William Bland:

Thanks, Asim. So you mentioned the need to find the cheapest feed from pumpkin, the pulp pineapple husk to more conventional or more widely traded feeds such as DDGS. Liz, what are the fundamentals in livestock markets conditions that affect the grain trade in prices? What have you seen in recent years that are good examples of this inverted relationship between livestock and feed grain prices?

Liz Thang:

So for the animal kingdom, again there are many factors that drive prices, similarly in the crop markets, right? Different fundamentals, but in many, many different factors that drive it. And I can think of a couple. One of them is animal disease and the other is government policy. So animal disease is a big one. Let's talk about 2019. Back then, almost half of the Chinese pork herd had to be culled. Remember the African swine fever? During that time, the pigs affected by ASF spread really quickly in China and a cool 200 million pigs had to be culled, 200 million pigs. I mean they eat a lot of feed. So without these pigs, the demand for feed collapsed. So that had a huge impact on the price of feed grains. And as I mentioned earlier, China is one of the biggest buyers of soybeans and the purchase of soybeans is to go into the feed market.

So when there are no pigs there, then obviously the prices of the soybeans will drop. And then more recently in 2020, Japan had a bad case of bird flu and they got rid of something like, I don't know, 17 million chickens. And this is quite crucial because 65%, 67% of chicken feed is corn. So Japan also imports a lot of corn. It's one of the biggest importers of corn from the US and Brazil, and that has a huge impact on markets. So when they were suffering from Asian flu, the demand for corn in Japan actually dropped in Asia. That's another price that we track. We track the CFR, north Asia corn prices, and we witnessed that prices of corn did droop during that period. Today, even flu is also affecting cattle in the us so that's affecting their domestic beef supply and therefore prices. And what this has done is open a door for Australia to export more beef to the US. So that's going to support in some way the Australian wheat prices because it's connected.

So you can see the domino effects of the meat industry and the grain industry. But besides animal disease, government policy is another biggie. There's a lot of impact of government policies. One example of this is the recent elections in Indonesia. The new president Prabowo, he plans to provide free lunches and free milk to school children. You may not think this is significant, but we are talking about 83 million kids, so that's a lot of food and a lot of milk. So there's no wonder that the Australian dairy industry is getting quite excited about this since Indonesia is already Australia's third-largest dairy market.

William Bland:

We're used to the impact of governments in agriculture, talking about it in terms of biofuels and biofuels mandates. But something as clear in the wheat market as Egypt, Algeria holding tenders, Indonesia importing milk as you describe, it really reminds you that ultimately, the primary concern of a government is to make sure that its people are safe and are fed. Asim, what would you add from your perspective in India on this topic of that relationship between as a market, India has significant trade barriers to ensure that the domestic supply and domestic farmers are well served. Is that fair representation?

Asim Anand:

Yes, Will. In India, the politics primarily revolves around feeding the people and food inflation. It plays a big role in the government's policies on a day-to-day basis. When we talk about India and Asia in general, the whole continent, it has perhaps the largest cluster of developing nations, and there is a rising trend of disposable income soaring with every year across the continent. It's been observed over the years, according to the World Bank data, that disposable income and meat consumption, they go hand in hand. When the per capita income of a country increases, it supports the consumption of meat for that country as well.

In that sense, there is a huge potential for Asia as a continent, not just India, but for the whole of the Asian region. It's a huge potential because with the rising disposable income, the meat consumption is set to grow simultaneously, which means it will generate tremendous demand for the animal feed in the region. That will in turn put a lot of pressure on the farmers to produce grains, not just for the humans, but for the animals as well. What we see for China right now, for the last 20, 30 years, China has had a growing disposable income and this population grew simultaneously along with the rising per capita income. So you can see the trend here. Although China is one of the biggest producers of grains in the world, the country has to import a lot of grains just to feed its human population and the livestocks,

William Bland:

I mean, much agricultural crop and grain analysis consists in just talking about what China is doing and how much they may or may not be buying and how big their stores may or may not be. And if we're talking about pork as Liz did earlier, it's that from inflation metrics to soybean demand, people are just guessing often what people outside China are trying to understand the situation in China with less than perfect information, if we should put it like that.

Liz Thang:

When you guys were talking about the fundamentals that impact livestock, I wanted to just add a little tidbit. I heard in China a couple of years ago, you couldn't find a burger patty in the supermarkets because this is just not something that people buy. But recent times, the preference for beef has increased in China, so its beef imports into China have risen. There is more availability of such products. So these days, it's quite easily in the big Tier 1, Tier 2 cities, you can find beef patties in the supermarkets. So they're changing tastes preferences, and with more people eating beef, they're also staying away from pork because they think beef is actually healthier than pork and they think beef is easier to cook than pork.

William Bland:

I think it's the fat content, isn't it?

Liz Thang:

Yeah, so when there are changes in taste, there will be a change in demand and therefore, trade flows.

William Bland:

One market that we haven't really mentioned, and we do have a price assessment for now, is the Middle East market, which clearly suffers from an inability like the Far East to produce enough meat and grain to meet its own domestic demand. The location for the world's biggest food event is Dubai, and it's apparent really there how little can be grown in a desert, and yet it's home to some of the most popular, successful restaurants around. I mean, that may be a small part, the consumption of meat and grains, but it's a very conspicuous one. Alongside food security, it may seem quite frivolous, but if you look at Egypt, it's not so far away with one of the fastest-growing populations in the world and the sensitivity of their government to the price of wheat. It all makes for a lot of anxious nervous moments for governments, I think looking at the trajectory of the price of both grain and protein, which brings us to an end of our podcast. If you want an insight into these prices, head on to Commodity Insights Live and you will see our daily price assessments for beef and poultry. Thank you very much.