Insight Focus
- The world’s population could grow to 10b people by 2050.
- Many of these people will consume more protein in the future.
- This will drive soy demand in the future.
“The other thing you need to remember is that we are still going to be 10 billion people in the planet by 2050, which is one of the issues that serves our – or drives our purpose, which is trying to increase the carrying capacity of the planet…” Juan Luciano, CEO Archer Daniels Midland, 01-26-23 earnings call.
Wow! Increase the carrying capacity of the planet! Now that is quite the rallying cry for global agricultural industries (and likely should be used by human resources teams for recruiting college kids).
ADM’s CEO Juan Luciano captured the role of the industries that many of the readers of this post have devoted their lives to: serve the world’s need for food security primarily but secondarily with a focus on nutrition, health, and well-being. In other words, drive abundant and superior agricultural production. In an exchange about China with Salvator Tiano of Bank of America during the earning’s call, Mr. Luciano further made these very compelling points:
“When you look at the long-term and the demographics of China that you described, probably about 50% of the Chinese population is middle class or what you will consider middle class, and they are in this process of increasing their protein consumption. But still historically, if you look at what the U.S., we consume about 270 pounds per year of proteins. China is at the 170 pounds per year level. So, they are still far from our level of consumption. And again, if you look at our lifestyles are converging slowly. So, you will expect their protein per capita consumption to grow significantly during this period.”
Spend time pondering his thesis and the implications for the carrying capacity of world protein production.
One could argue that a CEO must paint the best picture for the future of his business (rule #3 for remaining a CEO: always speak positively about your industry and your business), but Mr. Luciano painted a mind image that is so easy to grasp it is profound: Chinese and US lifestyles converging, slowly. And while he painted the mind image to answer a question about China he likely could say the same “converging slowly” for many countries which necessarily means the world supply of protein is inadequate.
And then there was this gem, in response to a question from Manav Gupta of UBS addressing, in my words, the ongoing angst about the “mountain of soybean meal” that will result from the aggressive build out of US soybean processing capacity, in part to meet the feedstock needs of the US renewable diesel industry. For those in the “mountain” camp, I would recommend reading this in close detail (and repeatedly).
“When you think about the capacity that renewable green diesel is installing, it’s going to have a huge pull in soybean oil. And we have found that there is – we have found relatively easy to place the mealin the export markets. And if you look at the market overall, the meal market is a market of like 175 million metric tons and growing. So, if you calculate by 2026, we need to have 20 million tons more soybean meal, just to catch up with the demand. And if you look at everything that we are building through the RGD and the capacity expansions, we are estimating about 15 million tons of supply on soybean meal. So, it’s still we have – we are still covered in only 75% of the expected soybean meal demand out there. So, we are looking at this as you can understand very carefully. So, I would say we look at this, but the demand on both sides on the soybean meal and soybean oil clearly can support all this capacity. So, we continued to see an environment in which crush margins will be strong and highly supportive for many, many years.”
