Digital Re-print - March | April 2009
Feature title: Global feed markets - March | April 2009
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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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.
The markets face huge uncertainties at this point of the year, both in terms of new crop supply – much of it not even planted till Apr/May – and in terms of likely demand. However, for the reasons stated above this situation may be less at risk of exploitation by ’outside’ speculators and, hopefully, less prone to price volatility too, once the crop and usage numbers start to harden
Demand fears keep prices in check
LOOM about the state of the US /global economy emerged as the dominant force affecting raw material prices in first quarter 2009.
Analysts fear stagnating or inverse economic growth will have a textbook impact on demand for meats – ergo animal feeds – and other foodstuffs traditionally sensitive to the consumer confidence/ spending power. The collapse in crude oil prices, perhaps the clearest marker for the weakness of the world economy, is having a two-fold effect on the grain and feed raw material markets. On the one hand it continues to undermine confidence in the grain ethanol industry – implying more feedgrain, especially maize, for traditional users, more land to plant other crops, more downward pressure on maize and other feedgrain prices. No less important, crude oil was the cheerleader for last year’s mad excess of speculative investment in all commodity markets, much of it ignoring fundamentals of supply and demand. Now prices of crude are on the floor, perhaps the real, physical producers, consumers and traders of
grain and feed commodities will see less of this ‘outside interference’ in their markets. Grain markets are also turning their attention to the medium/longer term factors – especially the outlook for crops in the coming season which, as we go to press is only four months away for wheat in Europe. World wheat production will almost certainly fall significantly as producers around the world respond to weaker prices and higher costs. Even before drought problems threatened crops in North and South America, China and parts of eastern Europe, world average yields had been expected to have a tough time approaching last year’s unusually high levels. Even so, demand for wheat in feeds could ease from this season’s high levels while large stocks will be carried forward to supplement the coming crop. As always, weather will be the key – both to yields and in determining the adequacy of wheat quality for millers. World maize output is already turning out lower than expected for the second half of the 2008/09 season as a savage drought takes big bites out of South American crops – although this has been partly offset by the big increase in the 2008 crops in the European Union and the former Soviet countries. World 2009/10 maize crops may also decline if the US cuts area sharply amid cost increases and disappointing grain prices. European 2009 output – both the EU & FSU countries – is also uncertain, probably
unlikely to reach the past year’s highs. On the other hand, there may be some compensating increases from South America in latter 2009/10 if South America gets better weather for its next crops. Either way, with demand for maize a very grey area for 2009/10, the world may not need such a big crop and prices need not necessarily experience a lot of upward pressure. Soya supply has also succumbed to South American droughts but a huge range of estimates is currently circulating on the markets – largely depending on weather in the month or so beyond our press deadline for this issue. At this stage, losses of 5-10m tonnes, possibly more, for the region as a whole are possible. What happens in South America will have considerable impact on how much soya is sown in the top producing country, the USA, where lower maize plantings and cheaper soya production costs versus maize (its main competitor) are likely to favour a significantly larger oilseed area. Like maize, soya is seeing some ‘demand destruction’ as a result of economic recession – some in the US itself, some in Asia but, significantly, not yet in the biggest soya market of all, the People’s Republic of China. So far, soya prices have resisted the urge to rise sharply with South America’s crop problems, mindful that this crop too might not need to expand much, if at all, to meet flatter demand in 2009/10. Summing up, the markets face huge uncertainties at this point of the year, both in terms of new crop supply – much of it not even planted till Apr/May – and in terms of likely demand. However, for the reasons stated above this situation may be less at
risk of exploitation by ’outside’ speculators and, hopefully, less prone to price volatility too, once the crop and usage numbers start to harden.
SOYA supplies hit by droughts
South American soyabean crop forecasts have fallen sharply from last October, when crops began planting. Then the likely scenario was for around 60m tonnes from Brazil and a redord 50m for Argentina as well as another 7m for the new regional supplier, Paraguay. Over the last two months, though, droughts and heatwaves have seen estimates tumble, for Brazil to around 57m and Argentina anywhere between 40m and 45m tonnes (some recently put the crop in the mid-30m’s but that now seems too low!). Paraguay’s crop is meanwhile seen around 3.5/4m. With rain alleviating the droughts recently, supply could yet confound the pessimists. However, it seems wise at this stage to assume a regional loss of perhaps 10m tonnes from the early forecasts – say about 8m to 9m tonnes less production than last year. Offsetting this is a large stock carried forward in Argentina, accumulated during months of supply disruption caused by farmer strikes against the country’s 35% soya export tax. Some sources put this around 5m tonnes. However, the tax issue remains live and – whatever the final crop outcome - could yet erupt again in the form of fresh
farmers’ strikes and another blockade on Argentine exports. This is important for European and other soya importers as this country is the largest exporter by far of soyabean meal (about 24m tonnes last season of world total trade of 55m). It probably also explains, along with worries about South American final crop numbers, why the Chinese have been such heavy buyers of US soyabeans in 2009 to date. Turning to US 2009 crop prospects, markets were surprised in late February to hear from the US Agriculture Department’s Annual Outlook Forum that US farmers were likely to plant only 1.3m more acres this year than last. Earlier estimates put the gain at 3m or more. Some traders dismiss the Outlook figures as a guess by economists and prefer to wait for a more reliable, surveybased figure. That will come out at the end of March when the prospective plantings report is issued (based on early March farmer planting intentions which could also change considerably before planting finishes in May). If farmers plant that many acres and harvest the normal ratio, a repeat of last year’s yields would provide an 82m tonne soya crop versus last year’s 80.5m. With US ending stocks for 2008/09 about the same as last year’s that’s not much of an increase in supply to offset the South American soya crop losses, If, on the other hand, US farmers got higher yields at the 2007 or 2006 levels, the crop could easily gain 6m to 8m tonnes, making supplies far more ample for 2009/10 season starting in September. Recent estimates by the US Department of Agriculture suggest world soya meal consumption will drop by about 3m tonnes or almost 2% in 2008/09 to about 154.5m tonnes, requiring less soyabeans to be
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crushed. Demand for soya is still growing in China – forecast up from 35.2m to 32.8m - but is expected to drop in the EU by 2.3m and in the USA by 2.2m. Whether Chinese demand for soya will continue to grow or whether the US and EU declines will have stabilised by 2009/10 depends largely on the impact of the global economic squeeze. US demand for US planted area, a further descent in meal costs also looks less likely now. next year or switch more land to soyabeans. The arguments against cutting back are that grain production worldwide may decline in the coming year, leading to higher prices in 2010 – as portrayed on the futures markets. Fertiliser, which maize uses far more of than soya, is also getting cheaper, largely due to weaker crude oil, from which many inputs are made. Although soya was offering much better returns, these have shrunk recently as soyabean prices have fallen more sharply than those of maize price – so corn acreage may not fall as much as the 3m acres some analysts recently forecast (USDA currently sees it about the same as last year’s). Among the other big maize suppliers, Argentine and Brazilian crops have been cut sharply in the last few weeks by a long drought. Although this now seems to be over, rains came too late to be of much benefit in Artgentina, where the crop is now seen at around 12.5/13.5m tonnes compared with last year’s 20.9m – the worst result for many years and expected to cut exports from 15.6m to just 7m tonnes. Brazil’s crop has also been trimmed, from about 52/53m to less than 50m tonnes but with very large stocks carried in from the past season, it can still expand exports by about 2m tonnes to 10m – which would be a record high and put it in second place in the world maize supply league. Former Soviet countries expanded their maize crops by about 7.5m tonnes this season but their own demand has only risen by about 2m tonnes and much of the balance is 152m) – about 7m more than China consumes itself. However, after last year’s record rise in world grain prices, the Chinese government has decided to put the surplus into stocks rather than export – which may also help boost its production by raising internal prices. In total, world maize output is down about 5m tonnes this season but still ahead of demand by about 9m tonnes, enabling stocks to increase (mainly in China and the USA). Europe’s own maize demand is expected to finish about 3m tonnes lower this season due to the huge domestic feed wheat crop competing for maize markets. More is being exported this year and some will go to stocks but whether farmers will want to sow as much this year is uncertain. Overall maize prices have been steadier in first quarter 2009 than in last quarter 2008 when they briefly hit 27-month lows. However, they could move lower if the US sows more than expected or if world demand weakens further with recession. Barley prices had also steadied up in the Jan/Feb period, following maize, but have recently eased back again. World supply is up 20m tonnes this season, of which 9m tonnes is in the EU, the rest largely in Russia and Ukraine which have been easer exporters at keen prices for much of the season but will still hold significantly larger stocks to start 2009/10. The IGC expects world barley area to expand marginally in 2009/10, to 57m ha, mainly in Canada, Ukraine, Turkey and N Africa with reductions in Australia, the EU & USA. Within the EU, more winter barley sowings have been estimated for Germany, Denmark and Poland but less in Italy and the UK but 3% less spring sown area is seen with cuts mostly in Denmark and Sweden. area, falls of 5.5% in former Soviet countries and 6% in Canada, offset only partially by gains in North Africa and the Near east and, later in the coming season, in Argentina, where drought reduced sowings sharply last year. The IGC currently sees EU wheat area down by 1.1%, close to the European Commission’s recent 1.3% forecast. However, some member states indicate bigger drops for the main soft wheat crop – Spain down 11.7%, France 2.1%, Italy 10% , England 14% . German area is seen little changed. Weather has so far been fairly favourable in Europe and reasonably good in the former Soviet countries although yields in both regions are still expected to decline from last year’s unusually good levels. US traders were meanwhile growing concerned over worsening drought in the Southern Plains where two key hard red winter wheat states, Texas and Kansas, have crops in considerably worse shape than last year and still deteriorating as we went to press. With the USDA forecasting a 5.1m acre decline in total 2009/10 sowings, the US wheat crop could easily fall by 10m tonnes or more. There was also concern that China, the world’s top wheat producer could lose up to 10% of its winter wheat crop to a long drought but recent rains and emergency irrigation measures appear to have staved off a steep fall. A lot of wheat has accumulated in India, where crops have outweighed demand for two or three years, leading to massive government stocks of 33m tonnes - the largest since the record 41.3m of 2002. The Indian government is actively considering e x por t ing some of this surplus to take pressure off its domestic prices although world prices may need to increase to allow sales without subsidies. India’s surplus underlines the still competitive nature of the international wheat export market, led by unexpectedly large surpluses still being marketed at cut prices by Russia and Ukraine – both of whom were expected to run out of adequate quality old crop breadwheat by now. Along with this season’s larger Canadian and EU supplies, this has more than compensated for the loss
Maize prices could rise longer term
Maize supplies look more than adequate as the market moves into the second half of the 2008/09 season. The final US crop estimate has been revised up to over 307m tonnes, only 24m less than the 2007 record and more than adequate to meet this season’s slightly lower US domestic demand and much smaller exports. As a result, next season’s starting stocks will be about 4m tonnes higher than last year’s already ample 41m tonnes. The figure for US maize use in ethanol production continues to shrink and is now seen at 91m to tonnes, the 14m gain on last year offset by a similar fall in US feed use. Questions continue to be raised over future expansion potential for ethanol as big players continue to go bankrupt amid collapsing ethanol prices. These have not fallen as steeply as crude oil but new plants that have borrowed heavily cannot maintain adequate cash flow to justify their investments and there is a definite feeling of retrenchment, if not yet outright rationalisation in the US industry. President Obama is promising increases in the renewable fuel mandate, the amount of ethanol and bio-diesel etc that must be mixed with fossil fuels but some of this could come from other sources and this demand cannot be fed by unprofitable industries. A probably outcome is an increasing dependence on imported ethanol made from sugar cane in Brazil which could tide the US over until ‘second generation’ biofuels made from other feedstocks – plant and timber waste, algae etc move off out of the laboratories and into the mainstream – probably some years from now. Amid weakening demand, US farmers are in a quandary whether to maintain maize acreage
meal has fallen with lower poultry flocks, cattle and pig numbers, partly due to declines in US meat exports, but also due to lower domestic consumption of livestock products. The fall in this season’s world consumption of soya meal also reflects better supplies of alternative oilseed meals. World rapeseed meal consumption is expected to increase from 27.5m to 30.4m tonnes and sunflower meal from 10.1m to 12.2m tonnes. The swing to sun and rapemeal has been particularly marked in the EU, where bigger crops of both have been supplemented by bigger supplies of sunseed from the former Soviet countries. Early forecasts suggest the EU may have sown a similar area to last year in some key member states but may expect some reduction from last year’s higher than normal yields. Sunflower production is an open book, sown in the spring and subject to price relationships against spring-sown grains. Former Soviet countries – which produced record crops last year - expect to keep spring cereal and oilseed sowings in total at last year’s levels. With grain prices disappointing, sunflowers could be favoured and, given normal yields, supplies from could again be ample from this source – though former top supplier Argentina’s crop has been cut sharply by drought. World consumption of palm kernel meal and groundnut meal is also edging up this season with improved supplies and lower prices. Reasonable supplies of oilseeds in total and little if any upward pressure on protein meal supplies should help anchor prices. However, until a clearer picture emerges of Latin American crops and
of Argentine exports to a drought-reduced crop. The export pricing situation has been complicated slightly in the last few months by port and transport problems snarling up Australian shipments. However, there has been no lack of alternative suppliers and whatever Australian doesn’t shift now will still be there to market later in the season, or carried forward to boost overall supplies for 2009/10 – much of it, of course, higher quality breadwheat. Futures markets suggest wheat prices by the end of the year will be about 14% more expensive than now as world production declines.. The IGC is currently expecting a possible 38.5m tonne drop in the total crop while the Canadian Wheat Board
Wheat prices down despite forecast smaller crop
After their late 2008 revival, world wheat values have eased steadily in the past two months, led mainly by the weaker Chicago futures market which has weighed on European prices too. On the face of things, there are some bullish factors emerging in this market, including a lot of trade talk this month that world sown area will drop by more than the 1% or less indicated by the IGC in its last report – some analysts predicting as much as 2-3%. The IGC estimate includes a 6% drop in US
belatedly moving into export markets at cut prices. Along with all the cheap feedwheat still swilling around in the market, this is keeping US exporters on their toes and helping to restrain prices in the absence of exports by the former number two supplier, China. China’s own crop has actually turned out much bigger than expected this season at a new record 165.5m tonnes (versus last year’s
suggests the decline could be between 30m and 50m tonnes. The IGC also indicates that stocks carried forward from the past season’s record crop into 2009/10 will rise by 42m tonnes while the USDA expects a 30m tonne rise. Depending on the weather and the size of the next crop, this could be adequate to cover consumption, even at the past year’s higher level.
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