KANSAS CITY, MISSOURI, US — A year ago, when World Grain last interviewed Dan Basse, president and founder of AgResource Company, the world was a scary place. Tensions between the United States and China were growing, macroeconomic turmoil was spiraling, and the full horror of Russia’s invasion of Ukraine was becoming apparent. Positives were few and far between, but there was hope of a post-pandemic economic bounce-back.

It’s a year later and, if anything, the world now is a more conflicted and divided place, as evidenced by multiple coups in Africa, civil war in Sudan, yet more fighting between Armenia and Azerbaijan, and the horrific outbreak of conflict in the Middle East, which continues to threaten to spread across the region. Making matters worse, the macroeconomic picture is turgid. All of which is reflected across grain markets, said Basse.

“I think the word that comes to me from talking to farmers — whether it’s in the US or South America or Europe — is anxiousness,” said Basse in early November.

He sees a fractured geopolitical landscape and a fraying of the post-World War II stability brought to the world stage by the United States taking center stage.

“I think this is the first time we have had two wars ongoing since the end of World War II and the early 1940s, so this is a strange time,” Basse said. “A year ago, when you and I talked about markets changing, there were things happening politically, but also on macroeconomics because central banks were really starting to fight hard against inflation. Since then, markets have come down. Grain prices have come down. Farm profitability, whether it’s in Brazil or the United States, is at its lowest level in a couple of decades. This is where farmers get their anxiousness from, and I think it’s only likely to continue.

“I don’t think geopolitical aspects of the world and the ‘fracturization’ of normal trade will end. And on top of this, every government and every person seem to be adding to their debt and inflation.

“Last year, we thought prices would come down, and that’s kind of played out. Now we’re on this volatility kick as we head into the new year. Throw in climate change, and it looks to be a very volatile year.”

Illustrating the difficulties facing global trade in the current fractured environment, Basse was due to speak to World Grain on the sidelines of the 33rd annual IAOM Mideast & Africa Conference and Expo held in Cairo Egypt, Nov. 12-15. However, advice from the US government not to travel to Egypt due to conflict in nearby Gaza saw Basse grounded. The interview was instead conducted by video.

According to Basse’s worldview, while global inflationary measures are being dialed down, there has been no easing of economic competitiveness and distrust between China and the United States. This gradually will increase trade regionalization as China, the US’s largest agricultural customer, purchases a growing percentage of its grain and soybeans from South America and the Black Sea in the years ahead instead of the United States.

Yet, China cannot afford to lose the United States as its largest consumer goods importer, he said.

“The speed of the ag trade transition depends on coming hemispheric harvests,” he said. “The 2024 South American harvest is extremely important to keep pressure on world food prices.”

The El Niño weather system also is adding to grain market volatility and logistics difficulties, not least due to low water levels on both the Panama Canal and on the Amazon River.

“If you look back a few weeks, you could have added the Danube and Rhine rivers to the list of key waterways with low water levels,” Basse said. “This is the first time that we can find all four of those waterways with low water levels at the same time. There’s something going on with climate — whether it’s God or whether it is man-made, I’ll leave that to the politicians to ferret out and decide.

“All we can say is that I think as an agricultural economist, we can look back and say that weather is changed. We have to go back into the late 1800s for the last time it’s been this dry in the Amazon. It’s a tropical environment. It’s not somewhere in the world that normally finds itself in drought, but that’s where we are today. So, I think climate is going to play a much larger role in grain trading in the future.

“And when you’ve got stocks-to-use ratios of wheat and some of the other grains at record lows, what happens is that when you have a calamity weather wise, the market reacts with vigor and gusto. And so these are things that I think end users and everybody needs to be at least thinking about as you step into each hemispheric growing season.”

Basse believes China’s current buying habits in South America have surprised on the upside given that its economy “limped out” of COVID.

“It has bought record amounts of soybeans and right now is buying record amounts of corn,” he said. “I’m not quite sure what’s behind it. Some of us believe it’s the westernization of China’s hog herd. As everything goes under a black light to prevent African swine fever, maybe their diets have changed such that they need more soy meal and more corn. But China’s been on a buying binge out of South America for both corn and soybeans.

“We look at China maybe in the year ahead taking 28 million tonnes of corn versus USDA’s 23 million tonnes. On soybeans, we think China will take in the new crop year something like 105 million or 108 million tonnes.”

The big question for Basse, is why China is building up its reserves.

“Are they doing it because maybe they’ll invade Taiwan next year?” he added. “I have no idea, but their buying is sizable and not in keeping with their macroeconomic outlook today.”

But while China buys up South America produce, the outlook for US farmers is rather grim, or as Basse puts it: “Brazil is stealing the US’s thunder.”

Brazil’s lower prices and ample harvest, combined with rising US barge rates, have resulted in Brazil winning more soybean and corn market share to the extent that it is now the world’s largest corn exporter.

But dry weather in the United States and in Brazil could cause issues in 2024 for global supply.

“I tell people that a 5% yield loss in Brazil is now 8 million tonnes of beans,” he said. “It’s a lot and so when you get this big behemoth and then an abnormality like Mother Nature comes along, it has a doubling down effect in terms of what it means for crops and what it means for markets.”

He said Russian exports of wheat of more than 50 million tonnes had been the other big dominating factor in global grain markets in 2023, helping compensate for poorer output from drought-stricken Argentina and war-stricken Ukraine which, he said, is “why this year’s Brazilian crop is so important.”

He said the demand for renewable diesel in the United States, with huge refineries now being built to enable a shift in the United States to green fuels, would be a bonus for farmers but would also limit US exports of crops such as soybeans and canola and reduce the willingness of farmers to plant wheat.

“I still see a tremendously bullish story for vegetable oils, principally soy and canola oil, in North America, but then the problem becomes as these crush facilities are coming online starting in the middle of 2024 and continuing thereafter, we’re going to have all this excessive amount of soy meal and what that means for rations of livestock feeders will be very important down the road.”

He also said record Russian wheat exports due to good weather for two seasons could not be guaranteed to continue.

“Will it happen three years in a row?” he said. “And if it doesn’t, world stocks-to-use ratios of world wheat are at record lows among the major exporters, so if farmers don’t engage in additional plannings going forward, that’s going to be a very big deal,”

India’s potential shift into becoming an importer of wheat is another major risk for global supplies.

“We’re really starting to watch India,” Basse said “Next year will be the first year that India will struggle to feed itself with wheat. We’re now at this tipping point on India, both in rice and wheat, where they may not be able to keep up with feeding themselves and then become a net importer of size and substance. They’ve already banned rice exports so rice prices are on fire, so I think India is a very important country to watch over the next couple of years. So, worst-case scenario is India goes past that tipping point and Russia doesn’t strike three times lucky in a row and there’s no improvement out of Ukraine. Kazakhstan also had a good crop as well so there’s a lot resting on that Black Sea output and what happens in India if we’re looking forward at supply and demand.

“So, we’ve got some new demand coming forward with India, the Chinese are still very active in the import trade as the world’s largest buyer of food grains, so if you put it all together, we’re stuck into some volatility that is going to be hard to manage for many people.