Canada Markets

I've always held a fascination for global macroeconomics and the phenomenal world growth currently taking place which is driving demand for commodities to levels once unheard of. While we hear the same message over and over from numerous sources, it is one I never get tired of hearing!

A couple of pieces on world growth came to my attention Thursday. First was an excellent reminder of just how fast the world is changing and having an impact on Canadian agriculture, as seen in the Export Development Canada (EDC) weekly commentary. This video is titled "In a Hungry World, It's Good to Be in the Food Business." This work can be viewed (and read) at http://www.edc.ca/….

First of all, the growth in the size of the middle class population in emerging nations is discussed as a primary driver of commodity demand. Brazil is adding 5 million per year to their growing middle class, India is currently increasing their middle class by 20 million, which is suggested to soon reach 30 million, while China is said to be increasing its middle class by an amount equal to the Canadian population every year, which is roughly 34 million. It's been said that as these populations climb the ladder of prosperity, one of the first things they seek is a better diet, which in many cases involves more meat.

One point I find interesting is that while the focus was on the growing middle class and the impact of rising incomes, these same regions of the world are also facing growing populations, which at the same time lead to more mouths to feed and also contributes to growing demand.

While the U.S. remains Canada's largest customer for agriculture exports, on a percentage basis these exports represented 50% of Canada's ag exports in 2012, which is down from 61% in 2000. Growth in this sales activity is considered low at 3% annually.

Of the top 20 countries that Canada ships to, only seven are considered developed nations, which also tend to be in the bottom half of the top 20. One example of incredible growth in sales is China, whose business has grown by 18% annually, from 3% of Canada's sales in year 2000 to 11% in 2012. Another example is Russia, whose 32% annual growth has seen their trade skyrocket from the 51st ranked country in 2000 to the sixth highest in 2012. Both India and the UAE have grown at a double-digit pace to be in the top 10.

When considering sales by category, grain is the largest, but also faces the slowest growth at 7.5% annually since 2002, when considering exports to non-OECD countries. Beverage manufacturing is the smallest group, with an annual increase of 8.2%, next is processed food at 13% and the fastest growing sector is livestock sales to the emerging markets at 16%.

As stated by VP and Chief Economist of EDC Canada, Peter Hall, "If Canada is a global breadbasket now, that role is only likely to increase in coming decades. Given global developments, it's a good time to be in food."

Another interesting article released Thursday comes from the CHINADAILY USA and is titled "Corn Overtakes Rice as the Leading Foodstuff." This article builds on the same notion that shifts in demand due to increased wealth is also changing production patterns within their own domestic agriculture industry, as indicated by data from a report generated by the Chinese Academy for Social Sciences.

While rice production grew 1.6% to reach 204 million metric tonnes in 2012, corn production grew 8% to achieve a 208 mmt crop, exceeding rice production for the first time ever! Those are big numbers! In addition, the country imported 5.2 mmt of corn, an increase of 197.1% over 2011. Wheat production was said to grow at 2.7%. In all, the country's trade deficit in ag commodities was $48.94 billion, up 44%! China imported 70 mmt of grains in 2012.

While China's grain consumption is said to be 60% of that of the 1990s, a taste for more meat has seen meat consumption up 44.7% since 1990, poultry up 209% and milk consumption up 296%. One of the challenges the country also faces is the increase in utilization of grain for industrial purposes, such as corn for ethanol. This creates implications for political leaders who debate food security and the size of the crop required to generate food needs versus "excess needs" for industrial use.

While the 2013 crop is forecast to grow in size to reach between 594 and 600 mmt, prices are forecast to rise 7% at the producer level due to increases in production costs.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(AG)

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