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A SIGNIFICANTLY bigger than expected global wheat crop continues to drive wheat prices down – the bellwether Chicago futures contract recently trading levels not seen since mid-2010. European wheat prices haven’t fallen quite as quickly or as far, largely because EU wheat is being drawn into world export markets in record volumes. However, prices here have at least shed about 8.5% basis the Paris milling futures market where nearby deliveries dropped back to their October 2013 lows and new crop November to its harvest lows. The weakest European sector this month was UK feed wheat, prices of which fell on the London futures market to their cheapest since late 2011. At this stage, EU futures tell us that milling wheat will be about 4.5% cheaper still by late 2014 whereas the US markets ‘forecast’ prices recovering by about 6% by then. Based on the supply, demand and stocks outlook, many observers think the EU scenario more accurate.
Digital Re-print - January | February 2014 Global Feed Markets: January- Febrauary 2014 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 2014 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 www.gfmt.co.uk 48 | COMMODITIES Grain &Feed millinG technoloGy GFMT’s market analyst John Buckley reviews world trading conditions which are impacting the full range of Massive crop still driving commodities used in food and feed production. His observations will influence wheat prices down your decision-making. A SIGNIFICANTLY bigger than expected global wheat crop continues to drive While soya drives the overall wheat prices down – the bellwether Chicago futures contract recently trading levels not seen since mid-2010. European wheat prices haven’t fallen quite as oilmeal price trend, there quickly or as far, largely because EU wheat is being drawn into world export markets in record volumes. However, prices here have at least shed about 8.5% basis the is plenty of good news Paris milling futures market where nearby deliveries dropped back to their October 2013 lows and new crop November to its harvest lows. The weakest European sector this among alternative oilseed month was UK feed wheat, prices of which fell on the London futures market to their cheapest since late 2011. At this stage, EU futures tell us that milling wheat will be about crops too. Estimates of the 4.5% cheaper still by late 2014 whereas the US markets ‘forecast’ prices recovering by about 6% by then. Based on the supply, demand and stocks outlook, many observers think 2013/14 global rapeseed the EU scenario more accurate. and sunflowerseed harvests European and US markets have also been closely watching events on the world export market for wheat – forecast to enjoy a record volume of trade this season. Global export have been raised again and prices haven’t fully reflected the plunge in Chicago futures yet, mainly because of a pull back in the cheap and hectic early-season pace of selling by the ‘Black Sea’ countries, are now each up by about Russia, Ukraine and Rumania. Prices offered by these three, especially Russia and Ukraine, have drifted higher from late 2013 onward as their exportable quality supplies have been 7m tonnes on the year – for run down – though there is cer tainly no lack of competition among other expor ters as we go to press, suggesting physical wheat prices may also have fur ther to fall yet. rapeseed that adds about One key factor that dominates sentiment is the sheer size of this season’s world wheat crop. Back in the summer, most analysts were expecting a harvest somewhere in the 11% and for sunflowerseed region of 680m tonnes. By the time of our last issue that had jumped to 706m and since then, another 6m has been added, making this easily the biggest global wheat crop ever. 20% to last year’s supply. The main factor in this latest increase has been another up-rating of the Canadian crop, by 4.3m to 37.5m tonnes. Increments have also been made to Australian and Chinese Supplies of palm kernels are also up by about 4%. 49 | January - February 2014 Grain &Feed millinG technoloGy crops (1m tonnes each)) and Russia (600,000) far outweighing the only blot on the landscape, the dismal performance by Argentina. Not so long ago, this country was a stalwar t member of what used to be called (before the former Soviet countries erupted onto the scene) the ‘Big Five’ expor ters, producing at least 15m tonnes, sometimes more. But this year, in response to government and Russia’s record 2013 crops. As we went to press, the EU had controlling expor t trade and lower returns, farmers cut acreage already granted 6.2m tonnes of licences to impor t corn in the sharply, reducing the crop to 10m tonnes or less – its smallest season to date, largely from these two, even more than at this on modern record. time last year. That contrasts with the USDA’s assessment that EU Argentina’s consequent absence from expor t trade hasn’t corn impor ts from all sources will drop 20% this season. So long been missed as much as it might in earlier years due to there as this abundance of cheap imported corn persists, EU feedwheat being no lack of alternative wheat expor ters eager to supply prices should be held in check. Ukraine has so far expor ted over the world market. India, for example, which used to produce 11m tonnes of corn in total and is predicted to sell about 18m by about 80m tonnes a year, mainly for home consumption, has the end of the season – so there is some way to go yet - while suddenly star ted turning out record crops of 90m tonnes and Russia is forecast to expor t about 2.5m. more and has built up a surfeit of stocks, far exceeding its storage capacity. To reduce this surplus, it has embarked on an expor t programme but this is going slowly so far due to world wheat prices dropping below levels at which it can trade profitably against its relatively high domestic procurement price. However, India’s next crop (harvested around April) may be even bigger than last year’s with some government ministers talking of as much as 100m tonnes. So the imperative to expor t more, even at a loss in terms of government subsidy, is increasing. India’s wheat is not top quality and some buyers like the world’s largest impor ter Egypt demand higher specs. But many others are less fussy and will take it if the price is right. Recently trading around $270 /tonne and repor tedly prepared to take that as VIV Europe 2014 low as $260, India could set the bar low for other expor ters World Expo for Animal Husbandry & Processing selling into markets more interested in bargains than quality. That includes many of the countries that attract most competition in May 20-22, 2014 | Utrecht, the Netherlands the Middle-east/Nor th Africa (MENA) region. It also applies to Asian corn impor ters. Recently, the US has been the cheapest offer on world wheat expor t market, selling soft milling to Egypt as low as $265/tonne fob terms (before freight). That compares with sales to Egypt by the EU (France) around $279 fob. Even with its more expensive transatlantic freight, US soft wheat now comes out at similar levels to the EU in these destination markets. (It’s interesting to note that this time last year, the Chicago markets predicted soft wheat REGISTER NOW futures would have risen by now to over $300/tonne versus the for FREE entrance at 3½-year low of $202 that actually traded in Chicago in January). Special themes www.viv.net Recent international import tenders have shown that the Black sea countries are not finished yet with their 2013/14 expor t campaigns. This year’s large Canadian and Australian wheat crops Come to Utrecht in 2014 also have to be fully marketed into expor t channels. Along with the drooping US price this requires European wheat exporters to and connect to all players keep prices competitive and, in turn, demands that EU domestic in today’s complete animal wheat prices stay down. protein production chain. Another key factor that will help that process – especially the cost of feed wheat – is the increasing competition within the EU market from cheap imported corn, the bulk coming from Ukraine VNU13-0107 adv ViV Europe 210x297 b.indd 1 21-10-13 09:49 50 | COMMODITIES Grain &Feed millinG technoloGy Cheap impor ted corn – plus this season’s 5m tonnes increase tonnes). This suppor ted recent trade and quasi-official Chinese in domestic barley production - would be making an even bigger estimates that the country’s import demand – this season’s forecast impact on EU feed prices if not for the pell-mell pace of EU wheat biggest growth area – would not reach the earlier expected 7-10m exports. So far this season, 17.5m tonnes of soft wheat have been tonnes (USDA has now reduced that to 5m). licensed to non-EU countries – over 50% more than at this time last It also sharpened the focus on China’s continual rejection of year. That compares with the USDA forecast which has EU total impor ted corn cargoes from the USA containing an unapproved wheat expor ts rising by only 15% this season, albeit to a record GM variety. China was the second largest growth factor (after 26m tonnes. That implies another 8.5m can be sold or – and if Mexico) in this season’s forecast higher US corn expor t trade, the cheap corn keeps coming in – even more than that. The EU having bought 4.9m of US total sales of 29.5m. Discounts have is forecast to use about 120m tonnes of wheat total this season been required to diver t these unwanted cargoes have been out of a 143m tonne crop and about 42% of that is forecast in diver ted to other Asian customers, weighing on US physical and the feed sector. futures prices. Even so, US maize expor ts are still expected to Finally to wheat crop prospects for 2014 which might be summed expand from 18.3m to 37m tonnes as Mexico doubles impor ts up as ‘more of the same.’ A deep freeze in the USA seems to and other buyers take more at this year’s cheaper prices. have caused minimal damage to winter wheat crops that were Elsewhere on the supply scene, the newly planted Argentine sown on a larger area last autumn than in 2012 and may yield crop has had some stress from hot dry weather, trimming some better after a moister winter. European and CIS crops have had forecasts by about 1m tonnes from earlier ideas of a similar crop to an unusually mild winter, putting Europe’s in much better shape last year’s bumper 26m. Brazil, on the other hand, has had mostly than last year and allowing CIS fields to catch up with late planting. perfect weather, making the USDA’s prediction of 70m tonnes Although there were some potential dryness issues in Europe, Russia and Ukraine, where planted area is lower this year, there has now been some good rain/snown and most crops there are reported in good shape with potential to yield better than last year. West Europe has also had some issues with too much rain while southeast Europe could do with more moisture. But the general situation encourages many analysts to expect a 2014 wheat crop at least as large, if not larger than last year’s. Among the remaining big exporters, Canada is a grey area as it sows the bulk of its crop in the spring. Farmers there are repor tedly disappointed with low prices resulting from the record 2013 crop and lower world markets so wheat area there is expected to contract - while yields might struggle to approach last year’s unusually high level (26% up on 2012!). Either way Canada will have much larger star ting stocks for 2014/15. Taking into account these possibilities, and the expected jump in Indian output, at this early stage, it looks possible that global wheat output will again be large – though maybe nearer 680/690m than 710m tonnes. Also, even after this season’s forecast 20/22m tonnes rise in world consumption, global starting stocks should be higher. Along with the competition from a huge, far cheaper maize supply (the discount to wheat in Chicago futures is about 25% this month), the forward fundamentals for wheat offer no obvious justification for price rises and even potential for further declines. That scenario was echoed by some of the forecasts from banks and hedge funds this month – most indicate bets on wheat prices rising simply aren’t wor th investing in this year - which makes good news for consumers. Plenty of maize too ... After their 40% drop in calendar 2013, maize prices have held remarkably steady recently, the Chicago futures market more or less back where it was as the previous issue of Milling went to press after trading a tight range both sides. It’s interesting to note that at this time last year, CBOT maize offered an $80/tonne discount to wheat on the exchange. Currently, it’s around $180 cheaper look too cautious. A lot depends on the second or ‘Safrinhas’ crop and the gap is indicated even wider later this year - despite the which was sown on unusually large area last year and had bumper far looser stock/use ratio for wheat (for the end 2013/14, that yields. That is expected to contract somewhat this year but that equation is 26% or 13½ weeks’ supply versus maize around 17% hasn’t stopped some analysts predicting a 74-76m tonne total crop or just under 9 weeks). (versus last year’s record 81m). Even if Brazil’s 2013/14 expor ts Since our last review, the USDA has issued its final US maize crop dropped, say 5m tonnes with a smaller harvest to the currently estimate for 2013 at just under 354m tonnes – about 1.6m under its forecast 21m, that would still be massive by comparison with all November forecast versus trade expectations of something 1m-3m years prior to last season’s record 26m (whe Brazil’s expor ts tonnes higher. This change is not of lasting statistical significance were usually only 8-12m). in the context of a crop still 80m tonnes bigger than last year’s in Along with the huge CIS maize crops mentioned above, this is a season when demand is expected to increase by a far smaller unprecedented competition for US exporters – and at discounted 34m tonnes. Although the consumption estimate is up almost prices too. As a result, recent estimates suggest the US will only 4m tonnes from November, it will still leave 2013/14 carryover supply a third of world maize import demand in 2013/14 compared stocks at a very ample 41.4m tonnes (versus last year’s 20.9m). with 57% five years ago. No less impor tant was the USDA’s 6m tonne increase to its In total, world maize output is now seen at 967m tonnes crop estimate for second largest maize producer China (now 216m compared with last year’s 863m and the previous record (2011/12) 51 | January - February 2014 Grain &Feed millinG technoloGy 886m tonnes. Consumption, on the other hand is seen rising by 77m tonnes, mostly taking place in the US, China, Brazil and Mexico. As in the US market, that means world stocks rising – by 28m tonnes to 160m, providing a more comforting cushion against possible 2014 crop problems. In the Nor then Hemisphere, maize has yet to be sown but there are some early pointers to farmers’ intentions. The USA was initially forecast by many analysts to reduce acreage in response to the steep price drop and a desire to plant more soyabeans because of their relatively better prices. However, recently, some sources hav drawn attention to the amount of land that went unsown because of bad weather last spring – over 8m acres. Along with by almost a third to a record 72m tonnes. On the top of that, the land released from conservation, some observers estimate well US is also expected this spring to sow its largest soya acreage ever over 9m acres of extra crop land will be available – enough to in a response to the relatively better return that farmers can get sharply expand soyabean areas without denting the maize share. from beans versus maize – the main rival for land in the Midwest Coupled with another year of trend yields, that could again leave hear t of the US Corn Belt. So, barring some weather upset to the US in hefty supply for 2014/15, even without those extra the Lat-Am harvests or US sowing/summer crop development, carryover stocks. the world is likely to be awash with soyabeans come the autumn. A similar equation could be presented in the CIS countries too as The full weight of these ’macro’ figures has yet to fully make land that went unplanted to winter wheat because of wet weather its mark in lower soya meal prices, due to several factors. One is sown this spring to maize. The way CIS maize exports are going is the speed at which last year’s US soya crop is disappearing, may give farmers confidence to VICTAMisland:Layout 1 30/8/13 14:22 Page 1 maintain or boost area even though prices are down. Futures markets suggest a modest premium on end- 2014 maize prices but it would not be a total surprise if the reverse situation occurred although, as usual one must remember that a world of weather possibilities lie ahead to alter prospects for planting, growing and harvest seasons in the Americas, Europe and the 8 – 10 April 2014 . Bangkok International Trade & Exhibition Centre (BITEC), Bangkok, Thailand CIS. … and a record oilmeal supply too Asia’s largest exhibition and conferences for animal feed, aquafeed Es timates of wor ld oil- bearing crops seem to keep incr ea sing too with each passing month, promising ample supplies and cheaper and petfood production for ward prices for oilmeals. The key factor remains this season’s expected massive Latin American soyabean crop which has just begun harvest. The popular range for Brazil’s output is now 90/91m tonnes versus last year’s 82m while Argentina’s is expected to increase from just over 49m to about 55m. Just two years ago, these two produced 66.5m VICTAM Asia 2014 is the largest trade show within South and South East Asia for displaying the latest equipment and technology used in the production of animal feeds, aquafeeds and dry petfoods. and 40.1m tonnes respectively. Along with smaller producers New for 2014 Supported by like Paraguay, that means the Now including the first The Thailand Convention region as a whole is producing ASEAN Feed Summit and Exhibition Bureau about 43/45m tonnes more Specialist conferences Co-located with beans than in 2011/12, equal to The exhibition will be supported FIAAP Asia 2014 and by its own specialist conferences: GRAPAS Asia 2014 about 35m tonnes more soya The FIAAP Conference 2014 www.fiaap.com / www.grapas.eu meal. Over that time, global Petfood Forum Asia 2014 Contact details demand for the end product Aquafeed Horizons Asia 2014 For visitor, exhibition stand space and is projected to increase by just The Thai Feed Conference 2014 conference information please visit: 9m tonnes, resulting in global Biomass Pelleting Asia 2014 www.victam.com soyabean surplus stocks rising 52 | COMMODITIES &Feed millinG technoloGy Grain especially in shipments to the world’s top soya impor ter China. This has happened for several reasons. One is that China wants to see the Latin American crops heading for the harvest home run and, as insurance against a weather upset, has probably double-booked a lot of its US soyabean impor t purchases. Another incentive to buy US is China’s fear that Brazil may see a repeat of the shipping disruption it suffered last year when record soya, sugar and maize crops fought for loading and vessel space, resulting in delayed expor ts. Brazil has pledged por t logistic improvements but with even bigger crops this year, customers need to be convinced. A third factor is the weakness of Argentina’s economy, resulting in a collapsing currency and rampant inflation, prompting its farmers to hoard a huge chunk of last year’s big crop – some estimate between 8m and 11m supplies to keep its crushers and meal consumers going and their tonnes. That par ticularly affects foreign buyers of soya meal input prices under control. But in the meantime, there remains of which Argentina is the largest expor ter. So the US gets the a theoretical gap to be filled and that is tending to keep soya expor t business in both beans and products, hoisting its crush prices higher than the longer term supply fundamentals suggest and threatening very low pipeline stocks well before its season they should be. That said, forward futures markets show the way ends in August. the wind is likely to blow. Even the 18% price drop they currently The US can meet this challenge if Brazil gets its shipping sorted por tray may well prove conservative if all these fresh supplies out and China cancels a lot of its US soyabean purchases – or arrive as planned. GRAPASisland:Layout 30/8/13 14:29 Page 1 the US itself could impor t1cheap and plentiful Latin American While soya drives the overall oilmeal price trend, there is p l e n t y of g o o d n e w s among alternative oilseed crops too. Estimates of the 2013 /14 global rapeseed and sunflowerseed harvests have been raised again and are now each up by about 7m tonnes on the year – for rapeseed that adds about 11% and for sunflowerseed 20 % to last year’s supply. Supplies of palm kernels 8 – 10 April 2014 . Bangkok International Trade & Exhibition Centre (BITEC), Bangkok, Thailand are also up by about 4% . Including the other oilmeal Asia’s premier rice & sou r ces – g r ou nd nu t s , cottonseed, copra etc, this flour milling and grain puts total world oilseed supply 31m tonnes higher processing exhibition this year than last and almost 60m over that of 2011/12. and conference KEY FACTORS AHEAD WHEAT •In the shor t ter m, key supply factors will include how US, European and CIS crops emerge from what has so far been a gentler winter than last year’s. Moisture has been plentiful (sometimes too much of a good thing) GRAPAS Asia 2014 is the only dedicated trade show and conference organised specifically for rice & in West Europe, better than flour milling, grain storage, preservation & processing, noodle, breakfast cereal and extruded snack in recent years in the US production within the dynamic and growing regions of South & South East Asia. and after recent rain and New for 2014 Supported by snow, satisfactor y in the Now including the first The Thailand Convention ‘Black Sea’ region. Traders ASEAN Rice Summit and Exhibition Bureau are expecting higher yields Specialist conference Co-located with and bigger overall crops The exhibition will be supported VICTAM Asia 2014 by its own specialist conference: www.victam.com across all three regions if the The GRAPAS Conference 2014 weather stays cooperative. Contact details For visitor, exhibition stand Canada may sow a lot less space and conference wheat for its mainly spring information please visit: planted crop and see yields www.grapas.eu decline from las t year’s stellar levels but still have 53 | January - February 2014 Grain &Feed millinG technoloGy an above average crop – and carryover stocks. is now expected to rise by 7.6% this season, despite earlier • Wheat costs have been driven down by this season’s huge government environmental agency proposals to curb bio-fuel world crop and by strong expor t competition – even though blending. Yet US stocks will still rebound to what some see as impor t demand is running at record levels too, especially from burdensome levels. the Middle East where political tensions may be encouraging • Will China remain a key maize importer, helping to soak up some some stocking up of food basics. of the world surplus? Recent analyses have reduced forecasts • There is some mild unease about the pace of European for 2013/14 impor ts on the basis that China’s own crop was expor t sales – running far in excess of the target pace. Yet under-rated (not for the first time). the upward pressure on wheat prices that might normally imply is contained by equally massive impor ts of cheap maize OILMEALS/PROTEINS from the CIS region, mainly Ukraine. The US is also selling • Latin American soya crops seem to be in sight of achieving their wheat expor ts faster than needed but will star t its own planned 2014 records. Along with a planned record US crop, har vest in four months’ time. Canada, Australia and India that should keep oilmeal costs down across the board in the have plenty of current crop wheat left to expor t. Argentina, year ahead. Russia, Ukraine and Kazakhstan are all still in the game too, • China will remain the main influence on demand. albeit offering smaller quantities now. So the implied ‘buyers’ • Big EU and CIS rapeseed & sunflowerseed and Canadian canola market’ continues. Along with sustained competition for feed crops are also helping to inflate 2013/14 oilmeal supplies. Current wheat from record maize supplies, that should help hold down crop pointers for these are mixed. Weather favours Europe and European wheat costs, assuming no crop weather problems CIS crops while Canada will sow and, probably yield less canola. going for ward. But stocks of both oilseeds have been rebuilt somewhat this • Food, bio-fuel and other outlets will also help add about 3.5% season to help cushion against any decline in new production (which may Page 1 FIAAPisland:Layout 1 30/8/13 14:26 not necessarily take place). or 24m tonnes to world total wheat consumption in 2013/14 but the large crop will still allowing some moderate stock growth - to more than adequate levels in terms of global consumption. COARSE GRAINS • Last year’s US maize crop rebound continues to hold down global feed gr ain prices along with record Latin American and CIS export supplies. Along with 8 – 10 April 2014 . Bangkok International Trade & Exhibition Centre (BITEC), Bangkok, Thailand bigger barley output it will leave the world with much larger carryover stocks for the new coarse grain season Asia’s foremost exhibition and star ting September 1. • US planting might contract conferences for the ingredients t his s pr ing a s f a r m e r s and additives used in the production of animal feeds, dis a ppointe d w i t h low pr ices tur n to more remuner ative crops like soyabeans. But with more aquafeeds and petfoods overall acres available this year, some analysts think there may be room enough to increase bean crops without cut ting back on maize. • Ukraine and Russia have unplanted winter wheat land that will go to spring planted crops – oilseeds and maize. They are expected FIAAP Asia 2014 is the only dedicated trade show and conference organised specifically for feed ingredients, to remain key players in additives and formulation within the dynamic and growing region of South and South East Asia. the global maize expor t market with huge influence New for 2014 Supported by on European feed values. Now including the first The Thailand Convention ASEAN Feed Summit and Exhibition Bureau • Ideas that US feed use of maize will rise in the year Specialist conferences Co-located with The exhibition will be supported VICTAM Asia 2014 ahead were reinforced by its own specialist conferences. www.victam.com by higher than expected They will include: consumption and lower The FIAAP Conference 2014 Contact details For visitor, exhibition stand than expected stocks for Petfood Forum Asia 2014 space and conference the first quarter of 2013/14. 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