Digital Re-print - September | October 2009
Feature: Commodities Feature title: Global grain & feed markets
Grain & Feed Milling Technology is published six times a year by Perendale Publishers Ltd of the United Kingdom. All data is published in good faith, based on information received, and while every care is taken to prevent inaccuracies, the publishers accept no liability for any errors or omissions or for the consequences of action taken on the basis of information published. ©Copyright 2009 Perendale Publishers Ltd. All rights reserved. No part of this publication may be reproduced in any form or by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1466-3872
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GLOBAL
GRAIN & FEED MARKETS
Every issue GFMT’s market analyst John Buckley reviews world trading conditions which are impacting the full range of commodities used in food and feed production. His observations will influence your decision-making.
EU wheat area fell by about 3.9% for the 2009 crop to 25.87m ha with the biggest cutbacks in the UK, Spain and Italy, while the two largest producers France and Germany saw little change and an increase respectively.
COMMODITIES
Price upsets may affect next year’s cropping plans
heat production has t u r n e d o u t eve n larger than expected this year, especially in Europe and the USA – possibly in the former Soviet Union too. Production will not match last year’s all-time record high and the final count could yet be trimmed by dry weather problems emerging in Australia. But supply will still be well in excess of consumption needs, allowing a second year of stock buildup and providing a very comfortable buffer for whatever 2010 might bring in terms of sowing plans and weather.
The effect on wheat prices has been predictable – a constant slide which, as we go to press – is nudging 3-year lows – even for the top grade North American hard breadwheats. Consumers, in Europe and overseas, have reacted to this picture of plenty by delaying or downsizing purchases to see if even better bargains can be had while farmers here have been digging in their heels too, unwilling to sell at levels which for many, are now below costs of production. In a season when world wheat trade is expected to contract by about 14% (mainly in Europe, the Middle East and North Africa) and feed consumption is down by about 3.5% too, market bulls have little fodder to chew on. Not surprisingly, speculators have continued to shun wheat futures, discouraged further by indications that the US government will crack down on ‘outside’ investments that distort and exaggerate prices. While
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welcome to consumers now, this slump in wheat prices may not be such good news next year if it causes a cutback in sown acreage. However, readers may recollect that 2009 plantings were expected to be lower this tike last year. Despite cutbacks in Europe, North America and CIS countries, the world area sown to wheat actually increased slightly. A more complicated picture emerges for maize as the dominant feed grain. On the one hand, US crops appear to have emerged more or less unscathed by a second year of rain-delayed planting and late development. ‘Rain makes grain’ and ‘big crops get bigger’ have been the catchphrases for the Chicago markets for many weeks as the possibility emerges of an all-time record harvest. Yet conditions are not so good in other parts of the maize-producing world with former number two exporter Argentina facing a second year of drought-ravaged production, China and CIS countries growing less (and China still increasing its consumption). Europe’s own maize crop is also sharply down and stocks here, as in many countries outside of the USA, face a year of contraction. However, while cheap maize should be a spur to usage, the global economic recession continues to dampen growth in livestock herds
and feed demand, especially in the USA. Weak crude oil prices have also continued to slow the development of the corn-hungry US ethanol industry. So, while world maize stocks will probably contract in the year ahead (and are seen by some as tight in relation to today’s larger consumption needs) there is little upward pressure on prices which remain much the same as they were when we compiled our last review. Further forward, that could change as the price ratio between maize and soyabeans – its competitor for land across the Americas and Asia – gets further and further out of synch, due to the strength of the soya market – which could grab extra acres at the expense of the coarse grain or wheat. Soya has emerged as the most bullish of the major commodities, partly due to crop uncertainties in the US and Latin America and partly because of heavy demand by the world’s largest soya meal consumer, China. Although, like maize, soya is emerging well from a delayed start to the US 2009 cropping season, it is a later developing crop whose slow maturity this year raises risks of a yield hit from early frosts. Traders are also concerned that Latin American soya producers may not sow enough this autumn for harvest in first quarter 2010. Despite the relatively high soya prices on world markets, analysts are concerned that second largest supplier Brazil may be put off by relatively lower income in terms of its own firm currency. Hopefully, farmers there will be encouraged by the fact that their costs have gone down sharply from last year with a drop in imported fertilizer prices. Even
if the more optimistic forecasts for South American soya sowing prove correct, Argentina is still in the grip of a long drought while farmers there also remain in dispute with their government over export taxes – an issue that has repeatedly disrupted Argentine soyabean and meal exports in the past year (one of the reasons why China has been such a heavy buyer of US soyabeans all summer long, making for a razor-tight finish to the US season). The bottom line for soya is that supplies look just about adequate to meet anticipated demand with little room for any crop upsets. This is likely to keep a firmer base under prices of soya and other oilmeals, at least until the US crop is harvested and probably well into the South American growing season although it could help secure the needed extra acres.
WHEAT prices nudge 3 year lows
WORLD wheat prices hit eight-month lows in August as traders continued to respond to growing world crop estimates, uninspiring import demand and signs that the US government was clamping down on excessive speculation in the futures markets. The latter issue could eventually affect all the mainstream agricultural commodities traded in the US. As in the oil market, it was widely thought that a lot of the blame for last year’s record food and feed grain costs could be laid at the feet of ‘outside’ investors buying into, and exaggerating, bullish price trends. Down almost 30% from the early June highs,
the collapsing world wheat price has contrasted with forward futures positions pointing ‘North’ for much of the past year. European prices, which nowadays have to mirror world trends, also came under fresh downward pressure from the weak US/world trend and from accelerating EU harvest pace showing higher than expected yields in many member states. In July, the International Grains Council was forecasting a 134.2m tonne crop compared with last year’s record 151.2m. Later in the month, however, the US Department of Agriculture raised its forecast from 134.6m to 136.3m tonnes. Some private analysts say this is probably still too low with German, French and other crops possibly adding 2m to 4m tonnes to the final total. During a damp July, there was a lot of trade talk about high yields coming at the expense of quality, especially for higher grade bread wheats. However, in mid-August, some good bouts of sunshine and heat were raising quality prospects, especially for crops that were further behind and thus a more able to benefit from this late improvement in the weather in terms of proteins. Even before the warmer spell, there were numerous reports of some good quality breadwheat coming off the combines in parts of Germany and France. Kazakhstan – which often grows the larger share of CIS higher quality wheats for export – also has a larger crop this year and could be a useful supplementary supplier to EU millers seeking to beef up the quality of their flour grists. A clearer picture on EU wheat quality should be emerging by the time of our next issue when all of the harvest will be in and sampled. The foreign quality wheat suppliers present a mixed picture this year. Canada’s
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hard spring wheat crop (other than durum wheat) was sown on a smaller acreage this year and the latest official survey puts this at only 16.15m tonnes against last year’s 18.4m. Because the crop is running weeks later than usual, after a late start and a rather cool, smaller 2009 crops (in total down by 13m tonnes or 12%) these suppliers have continued to set a fairly aggressive pace in exports to the big influential importers like Egypt. EU soft wheat prices have largely followed the trend on Chicago futures and world export markets, despite the reluctance of farmers to part with new crop, or remaining old crop grain at these, for many producers, loss-making levels. However, there has been little interest in trading either from consumers who have been content to wait for the full flush of harvest in the hope of even cheaper new crop prices. EU wheat consumption in total is expected to ease by about 1m tonnes this season to 126.5m with a 2m tonne drop in feed needs offset by 1m tonnes additional in other outlets, including ethanol. Even assuming the EU puts in another robust season of exports to non-EU countries (currently seen at 20m versus last year’s 24.5m and just 12.3m in 2007/08) this will still leave quite comfortable ending stocks within the Union of about 15.4m tonnes. EU wheat area fell by about 3.9% for the 2009 crop to 25.87m ha with the biggest cutbacks in the UK, Spain and Italy, while the two largest producers France and Germany saw little change and an increase respectively. The current market may not be encouraging for farmers now preparing their autumn sowing but the question remains, as last year, what will they grow instead? The collapse of world cereal prices from last season’s all-time highs has also put a lot of pressure on fertilizer producers to cut costs (hiked when crop values were rising) with some success. However, the main problem in this area is the time lag between fertiliser suppliers buying their materials forward when the market was rising and clearing those stocks without making a loss themselves. So it may be a while before farmers reap the full benefits in terms of cheaper input costs. A quick snapshot of the other influential wheat suppliers shows a mixed picture. Argentina can now be virtually written off as a major world wheat supplier for the time being as a combination of sustained drought, poor returns versus other crops, and government interference in trade keeps sown area down at a 100-year low. Normally able to supply 15/18m tonnes to world buyers, including a high proportion of good breadwheat, Argentina may be lucky to export more than 1.5/2.0m tonnes in 2009/10. This leaves a big gap in the world market, especially for the top Argentine customer and second largest world importer of wheat, Brazil, which normally gets the bulk of its needs from its Latin American neighbour. Even if world trade remains low in 2009/10, as many analysts expect, this will bring windfall orders to the North American wheat exporters and possibly others further afield, possibly introducing a mildly bullish ingredient to the world market. However, with less demand from the Middle East (Iran) and North Africa there should still be more than enough wheat to go round, especially for the mainly soft wheat buyers in the latter regions. Australia will also be an important factor in the world wheat outlook in the months ahead. Having sown a big area for a second year running and got off to a flying start with good rains, some key parts of the country prices are currently around $4.70/bushel – about $172.60/tonne. If they pierce the December 2008 low of $4.55 ($167/t) the next stop is the 2½ year low of $4.19 ($154/t). In 2005, prices fell below $3 ($110/t). Importers’ choice of suppliers has already been restricted by China using up more of its own, usually expanding corn crop to the point where very little has been left over for neighbouring Asian countries. The demise of these two suppliers has been offset to a considerable extent in the past year or two by expanded production from Brazil and the former Soviet countries who have readily filled the export vacuum. That job was made much easier in the past season by a steep contraction in world maize import demand, largely due to the EU’s own recovery from two successive smaller crops, cutting its intake of foreign maize back from 14m to just 2.5m tonnes. The EU’s own maize crop is currently seen around 56/57m tonnes, about 5/6m below last year’s after a decline in both planted acreage and yields, especially in southern and eastern member states hit by heatwaves and droughts. Thanks to large carryover stocks from the bumper 2008 harvest – and an expected 2m tonne contraction in demand, the EU should get by without recourse to large imports in 2009/10. Although feed demand in some Asian countries appears to be reviving slightly – and a smaller domestic crop will boost Mexican import needs, demand pressures on world maize export availability are not seen strong at this stage. The EU will delve into its stocks to supplement its internal supplies while the US might use 1m or 2m stocks to support the further expansion in demand from its ethanol industry (though many US analysts think feed and ethanol demand in the States is over-rated and that stocks could even rise). Overall, however, world stocks of maize are not expected to dip much in 2009/10. The real question for maize lies months ahead. What effect will these relatively low prices have on farmers’ sowing intentions, especially in the top supplying country, next spring? Currently soyabeans (see below) are running at a historically huge premium to maize well into 2010. As maize costs more to grow, this could result in a bigger shift out of the coarse grain and into soyabeans. Even after a small increment last spring, US maize area sown for 2009 was almost 10% below the 2007 level whereas soya planting has over the two year period by almost 20%. If, as some traders believe, the world needs all the soya the US can grow this year (and maybe all that the Latin Americans can produce too) we could see this imbalance in prices persist into planting time with profound consequences for maize production and forward maize prices. A quick glance at the other coarse feedgrains shows barley production for 2009 declining as expected by about 11m tonnes or 7%. The biggest drop is seen in former Soviet countries (-8m tonnes) then the EU (-5m) and Canada (-3m). These losses are offset by much better crops this year in the Middle East and North Africa where droughts took a toll in 2008. World barley consumption is not expected to change much in 200910 – a bit more being used in Europe offset by a bit less in Canada and Russia – resulting a probable contraction of about 2m tonnes in world stocks but these will still be fairly adequate. Under this scenario there is little incentive for barley prices to break away much from the pull of maize as the leading feedgrain.
MAIZE
The US maize crop has done remarkably well this year, given its very unpromising start. Sown area didn’t fall as many expected as farmers grew more soyabeans, but actually rose slightly. Crops that were planted weeks later than normal after constant heavy rain have been slowly but surely benefiting from all the early moisture and developing under relatively cool conditions – ideal for pollination, if raising the risks of running into problems from early autumn frosts or rain delayed harvests. Estimates of yields have jumped sharply over the late summer months and currently stand at a very respectable 160 bushels an acre, putting the crop in a range of 320/330m tonnes, possibly even ahead of the all-time record 332.1m tonnes set in 2007. Barring some late season weather upset (which now looks extremely unlikely) the US will have plenty of corn for export and should easily fill the current official target of 53m tonnes without running its carryover surplus stocks down much from last season’s comfortable levels. This reassuring scenario from the world’s largest maize supplier has kept prices of the grain under downward pressure in recent weeks with the bellwether Chicago futures market currently almost half the highest price it reached in August 2008. European maize prices have dropped to the mid $150’s per tonne from the $190’s earlier in the summer and $250 this time last year. Some analysts think prices could move a lot lower still – especially if US crop estimates continue to increase although there are some cautionary factors to take into account too. One is drought in Argentina which, along with poor profitability and a swing to soya, could cut sown area by up to 20%, according to some local analysts, reducing the crop to considerably less than the 15/16m tonnes currently forecast by USDA & the IGC. This would be the second poor crop in a row (last year’s was only 13m) compared average output over 22m tonnes in the previous two years. It would also keep exports from Argentina, normally the second largest source of maize, at almost half the usual level.
damp summer, it will be some time yet before quality can be gauged. However, at this stage expectations are not high, looking for, at best an average, and possibly, a below-average year. Even so prices of the bellwether export grade CWRS wheat have declined by about 20% over the summer months and around $280 as we went to press were almost a third cheaper than at this time last year. US hard wheat prices have also fallen sharply in recent months with Dark Northern Spring 14% (ordinary) export grade offered rec ently at just $256/tonne fob US ports, 27% down from the Jun peaks and 36% less than at this time last year. It seems hard to believe that this grade was trading over $900 a tonne as recently as February last year. Currently, USDA expects US spring wheat output to be almost identical to last year’s 14m tonnes but with larger starting stocks, the total 2009/10 supply from this source is up by about 11% which will enable more exports. Some analysts think supply could be even larger as USDA may be under-rating the crop’s size. Prices of the soft wheats have also plumbed new lows in the past month, led by the US soft red winter price in Chicago and by ongoing competitive prices offered by the ‘Black Sea’ (former Soviet) exporters. Despite their
OILMEALS
Oilseed meal ingredient costs have continued to defy the steep drop in feed grain prices, driven by the past year’s disappointing Latin American harvests, the late start and delayed development of the US 2009 crop and heavy demand for US beans, especially from the top world importer, China. Argentine soya meal pellets for shipment into Rotterdam (cif terms) have been quoted recently around $425 per tonne for afloat and nearby cargoes while Brazilian 48% have
are now facing a drier period that could spoil hopes for another near record, if not record, crop. This will bear watching as Australia is such an important quality wheat producer and any serious problems with its crop could well have a firming effect on higher grade breadwheat prices. However, even with world consumption (according to USDA) increasing by 11.5m tonnes this season, world wheat stocks are still seen ending 2009/10 at a new peak of 184m tonnes – equal to 28% of annual needs or nearly 15 weeks supply. This offers little justification for higher prices and many observers would not rule out lower levels before this market turns. Chicago wheat
been offered for similar positions at $433. prices for both origins are far cheaper on the distant new crop positions, reflecting trade ideas that the supply outlook will improve next year as the Latin American countries sow more and get better yields – i.e. avoid the droughts that cut about 25m tonnes off this year’s potential 100m tonne production in Brazil and Argentina combined. Soya meal prices were even more
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expensive in the mid-summer of 2008, when all the feed raw materials were still in the grip of the record 2007/8 boom in world commodity markets. However, they were cheaper than this in the autumn of 2008. On current pointers it seems unlikely that soya meal prices (which dictate the general trend of costs across the oilmeal/protein sector) will get back to levels of two years ago (around $285/300), let along the sub$200 prices of late 2005. However, if the US crop – which was sown on a record area – does escape the usual threats to late sowing and development, mainly early autumn frosts, there is good reason to think that supplies will improve in the months ahead. Recent trade reports are more bearish than the USDA on US crop prospects, looking for a potential 88/90m tonne harvest, possibly more, compared with 80.5m last year and just 72.9m tonnes in 2007. To some extent, the world market is still living with the legacy of the poor 2007 performance which eventually resulted in soyabean carryover stocks there being whittled down from a comfortable 15.6m tonnes to 5.6m the following year and 3m or less this season. making soya meal importers anxious about committing fresh orders to Argentina, the world’s largest soyameal exporter and number 3 supplier of whole soyabeans. It may also colour the attitude of Argentine farmers who will shortly start sowing their 2010 soyabean crops under already inauspicious conditions as the drought that cut last year’s crop lingers on and threatens to lower yields again. On the plus side for Argentine soya supply, farmers are reported still to see soya as their best bet as other crops are more controlled by government and more expensive to grow. So, if the weather there looks up, Argentina could yet sow a record area and boost production from this year’s 32m to well in excess of 50m tonnes. Brazil is also expected to grow more soya for marketing first quarter 2010 onwards and, with the weather caveat, could (along with Paraguay and the smaller producers), contribute toward a possible 25-30m tonne recovery in total South American production. Along with the US crop, this could put the world soya supply in a far more comfortable position by the spring of 2010. Forecasts of expanding world soyabean production are also supported by lower fertilizer costs which may be particularly influential in Brazil. In the US, soya prices are far higher above those of maize than they have been for years. This also points to another surge in US soya area next May. As far as demand goes, China’s forecast 2m tonne rise in soya meal needs is by far the largest contributor to a relatively modest 3.5m tonne recovery forecast for world soya meal demand in 2009/10. Soyameal use in Europe is seen fairly flat at 32.5m tonnes for a second year running, well down on the 35m plus of the 2007/08 season. What other growth there is in world demand is spread in mostly small increments for a number of moderate/smaller sized countries. This suggests stocks of soyabeans carried from this season to next will inflate back to the 50m tonnes llevel from about 41m – a more comfortable supply cushion that should take some of the upward pressure off prices. Futures markets are already pre-empting this change with forward soyameal quoted about 25% cheaper for later 2010 deliveries. However, this all depends on the weather co-operating, not only for the South American crops during the planting and growing seasons but at the tail end of the US crop and during harvest. We should also note a couple of other, more bullish, factors on the production side – China and India – where crops are currently challenged by some weather problems, mainly lack of adequate rain. India may scrape through with a decent soya crop now Monsoon rains have improved but still faces problems with other oilseed crops. China’s key soya region could meanwhile face losses of up to 30% without much better rains and some wearemer weather soon. Between them, the two Asian countries supply about 25m tonnes or about a tenth of world soya production. Indian oilseed crop losses would mainly affect its 4m to 5m tonne soyameal export trade to other Asian nations, driving these importers to buy more US or South American soyabeans and meal instead. China, already the outlet for half the world’s soyabean exports and 20% of world soya crush could obviously have a significant impact on the world market outlook if its crop did fall well short of its targeted 15.5m tonnes. Other oilseed crop prospects have been mainly encouraging as the northern hemisphere harvests approach. EU rapeseed output is turning out far higher than expected and is now seen at a record 19.5m tonnes compared with last year’s all-time peak of 18.9m. This will help offset smaller crops in Canada and the former Soviet Union. Canada is a big influence on rapeseed value as the largest world exporter. It sowed a smaller area later than usual after weather delays and could produce 2m to 3m tonnes less than last year, depending on whether it escapes autumn frosts and/or whether contested acreage figures are too low or high – but it carries in larger stocks this year. The Ukraine has also grown about 1m tonnes less this year which means less supply competition in the European market. The other major supply factors, China and India are both expected to produce more this year but, given their recent weather problems, will need to be watched. World sunflower meal supply prospects are also quite good with the EU turning in a big crop for a second year running. Although Ukraine’s production is lower this year, the traditional supplier Argentina is recovering from last year’s lower output so world sunflower meal production should be similar to the past season’s 12.4m tonnes – about 2m more than produced in 2007/08.
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Some of the demand pressure on soyabeans was relieved by a steep drop in US crush in the season just finished. Demand in the US is being hit by the high cost of soya meal, recession cutting into US meat demand generally and lost pork exports to China and Russia after the swine flu outbreak earlier this year. Even if the US consumes 28m tonnes of soya meal, as USDA currently predicts, this would still be 2m tonnes less than in 2007/08 and 3m less than in 2006/07. However, that is being offset by higher than expected exports, largely due to import demand switching from Latin America with its crop problems and, in the case of Argentina, shipping disruptions caused by producers there fighting the government’s 35% soyabean export tax. That latter battle has erupted again as we go to press and is already
The solution behind the solution.
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