The fundamental economics underlying world grain and animal protein markets have changed, and the sector is heading into new territory, said David Nelson, global strategist with Rabobanks’s Food and Agribusiness Research and Advisory Group, at the World Meat Congress held recently.

“We’re no longer in a world of structural grain surplus.  We’re in a world of structural scarcity when it comes to grains and all the implications that has for protein producers,” Nelson said.  GDP growth worldwide–a key driver in demand for meat–is slowing but still trending upward, primarily in Asia, he said.  Worldwide GDP is up 35 percent compared with six years ago.

In China and South America, protein production systems are moving from small farm or family backyard operations to  industrialized systems utilizing corn and soybean meal for protein production.  Biofuels divert about 40 percent of world vegetable oil growth away from the feed market and production from major grain-growing areas of the world outside of the United States, such as Russia and Ukraine have proven unreliable, Nelson said.

There is little grain left in storage to help even out volatility in the market, Nelson said.  “Even assuming a huge rebound in U.S. corn production this year…and a big recovery in South American soybean production, USDA estimates of world grain ending stocks moves up only 0.2 percent.  So even with good crops, we’re not getting ourselves out of this no-margin-for-error situation.  We are going to see greater volatility to minor changes in supply or demand.”