At a Glance
- World Food Day recognized on October 16
- U.S. farmers more productive, but face more risk than ever
When the human population of the world is discussed, it is most often in the context of resource scarcity. How will energy, water or technology reach a growing global population? But nowhere does the number — 7.3 billion by the latest count — get as much attention as when we’re talking about food.
By the United Nations estimate, world population will grow to around 9.7 billion by 2050, an increase of about 32 percent from today. To meet demand, food production will need to increase by around 70 percent by that time, according to the U.N. In addition to population growth, growing economies will produce more people who demand higher calorie diets. October 16 marked World Food Day, the annual event promoting awareness for the need to ensure food security worldwide.
How agricultural producers meet the rising demand is a multi-faceted challenge concerning science, technology, engineering, logistics and less predictable elements like weather patterns. But however production is increased, and however food moves through a supply chain, the entire process will require managing the many risks involved.
Food production is already rising. The latest World Agricultural Supply and Demand Estimates from the U.S. Department of Agriculture suggest global grain production will reach over 3 billion metric tons this year. That is a 13 percent increase from just five years ago.
The United States remains the largest producer of grain in the world, but the emergence of other major producers has itself created more price risk for U.S. farmers.
“There was a time when such a large percentage of crops in the world were produced in the United States. The farmer could kind of look to the fact the markets are going to change based on what happens in his backyard,” says Tom Coyle, Vice President of Nidera North America, a global commodity service provider. “It’s a different landscape. There’s production everywhere. It really does matter what’s going on in the Ukraine and in Russia and in Brazil.”
Coyle recently spoke with Tim Andriesen, Managing Director of Agricultural Commodities at CME Group, about the challenges facing farmers and firms like Nidera in meeting the food and nutrition needs of a growing global population. Their discussion resulted in the above video titled An Exchange of Ideas: From Farm to Market. In it, they focus on the role of commodity markets in allowing food to move through the global supply chain.
The video was recorded at the Chicago Terminal Export Elevator off the Calumet River on Chicago’s south side, where Nidera receives and ships grain by truck, rail, barge and vessel. The facility can hold up to 12.3 million bushels of grain. It is a place Andriesen calls “the apex” of how a producer’s grain gets from farm to market.
“We have trucks coming in from Wisconsin that are ending up on a grain vessel that’s going to end up in China. The farmer can sell his grain for six months, for nine months, or he can show up today without any price at all and unload a truck. When that truck arrives, he will get a price today. Farmer’s can sell when they want, consumers can buy when they need it. We buy grain. We now have a risk. We can do that because of the ability to hedge that position with the CME,” says Coyle.
Hedging positions allows a firm like Nidera to buy large sums of U.S.-produced grain to ship all over the world. They can be assured that a particular shipment of grain will not radically change in value while in transit, and the company’s bottom line will be protected. It’s a necessary cog in the long journey food makes from farm to consumer.
Addressing the important role of grain buyers and distributors like Nidera, Andriesen adds, “Once a farmer sells you grain at that price, your goal isn’t to trade that grain and make money because the price goes up and down. It’s to move that grain through the value chain.”
Watch the full discussion in the video above.