South America holds the key to resolving the world grain supply squeeze, Archer Daniels Midland boss Juan Luciano said, flagging the need for higher prices to incentivise its farmers to plant more.

“The world needs big, more acres” in the face of grain supply tightness that will last “through 2022, well into 2023 and perhaps beyond”, Mr Luciano, the ADM chairman and chief executive said.

However, with land use constrained in many agricultural producing countries, there were only limited areas capable of expansion.

Growth was “not going to happen from the Baltic area”, nor in the US “where agricultural area was “basically maxed out”, but it “may happen in South America”, Mr Luciano, who was born and brought up in Argentina, told investors.

“We need higher prices” to encourage South American expansion.

‘Have to provide more’

“From a global pandemic to the short crop in South America to the conflict in Ukraine, it has become clear that we cannot take an abundant and efficient supply of food for granted,” he said.

However, he underlined the role of growing demand, rather than weather setbacks, in spurring the squeeze on grain supplies, saying that “the issue is the world continues to grow” in both wealth and population terms.

“Sometimes, it’s not a matter of population growth but it’s a matter of income,” underlining in countries such as China “an incredible economic improvement of their standard of living that improved their diets.

“That doesn’t go down. That’s why we keep on talking about our trend of food security. We will have to provide more for the world.”

‘We need two very good seasons’

It will take at least two years to resolve the squeeze he said, expanding on comments made in ADM’s results statement that the group expected “continued tightness in global grain markets for the next few years”.

“At least, we need two very good seasons of crops in North America and South America to actually balance and become more comfortable in those supply-demand imbalances.”

Yet this was at a time when high fertilizer prices, and logistical hiccups exacerbated by China’s latest Covid lockdowns, were curtailing nutrient use.

In Brazil, “people are thinking between maybe 15% or 20% less application” for the next planting season, Mr Luciano said, although downplaying the potential impact on output.

“At that level, we don’t think that we’re going to see a significant change in the production forecast. It’s probably more depending on weather at this point in time and rain than fertilizer application.”

Food vs feed

He also noted the particular support for wheat prices warranted by the “unprovoked and unjustified invasion of Ukraine” by Russia, the top exporter of the grain, now the target of sanctions by many countries.

“Given the… unfortunate conflict in Ukraine, wheat prices need to go up high enough that they get out of the feeding rations so they can be preserved to feeding people,” Mr Luciano said.

“Wheat needs to be… preserved for human consumption.”

This in turn meant boosting the role of alternative feed ingredients, such as corn, and soymeal for which he said he was “very positive” about demand.