India: The Next Grain Market “Bullish Miracle”06/17/2016
While November soybeans stole the spotlight last week with a 77-cent gain and traders were kept busy deciphering a new monthly round of USDA estimates, there was a thread of news that pointed to subtle changes taking place in a lesser-noticed country — India.
In the realm of ag news, India has long been overshadowed by its Asian neighbor to the north, China. But the two have much in common and together account for more than a third of the world’s population. As DTN chronicled in a series of articles in April, China began its market-based reforms in the late-1970s, transforming a largely rural economy into the world’s second largest economy by 2010. China’s modern impact on U.S. grain prices cannot be overstated and much of this year’s soybean rally can be traced to China’s increased appetite for protein as more of their population has reached the middle class.
If you thought China was the only bullish miracle with that much potential for impacting grain prices, think again. As I wrote back on Oct. 13, 2015, there is a large global trend of declining poverty taking place.* So far, East Asia (mostly China) has shown the most obvious progress, but India is running a steady second and is showing potential to also become a large source of new grain demand.
In 1991, India took note of China’s success and embarked on their own market-friendly reforms. In some ways, it has been more difficult for India’s democratic government to carry out the changes, but there is no question that India’s economy is on the rise. Last Tuesday, the World Bank said it expects India’s GDP to show real growth of 7.6% in 2016, the highest rate among the world’s largest economies at a time when world growth is expected to average 2.4%.**
Last week’s news about India included a 25% export tax on sugar as an effort to protect domestic supplies and a small increase in USDA’s estimate of India’s wheat imports from 1.0 million metric tons to 2.0 mmt. The most interesting tidbit though came from USDA’s Economic Research Service (ERS) on Thursday.
ERS titled its chart of the day, “India is the world’s leading importer of soybean oil” and went on to explain that India’s purchases of soybean oil passed China three years ago and are expected to total 3.9 million tons in ten years, far more than the 1.4 million tons expected for China. As ERS explained, “India’s large population and rising incomes, combined with poor soybean yields and limited area for expanding production, increase its reliance on imports to meet domestic vegetable oil demand.”***
Traditionally, India has not been much of a grain customer, known for its vegetarian ways, but those traditions are apt to change as the economy opens further to international influence and the younger generation becomes more prosperous. A land of 1.25 billion people with rising incomes and limitations for expanding soybean production is a recipe for many more years of increased soybean demand — for both, meal and oil. Where will all those beans come from?
* “A Modern Miracle” from Oct. 14, 2015 at:https://www.dtnpf.com/…
** “Global Growth Forecast Again Revised Lower to 2.4%” June 7, 2016 at: http://www.worldbank.org/…
*** “India is the world’s leading importer of soybean oil”, June 9, 2016 at: http://www.ers.usda.gov/…
Source: Todd Hultman, AgFax