FEED
JUNE 2009
Grain Outlook
production and strong domestic demand especially from a buoyant dairy industry; and for those that traditionally finished lambs or beef cattle, seeing grain as a more attractive option given what was at the time somewhat depressed markets. However, in the ensuing eight months the domestic scene has turned upside down. Most notably there has been a significant drop in the dairy payout. This along with the availability of cheap imported alternatives such as palm kernel has significantly reduced the demand for wheat and barley from the dairy sector. The dairy dip has substantially reduced demand for maize silage and this has seen has seen substantial transfers of maize crops planned for silage being taken through to grain production.
Current situation
Introduction
As producers look forward to securing their grain supply for the next 18 months the combination of last season’s production and new season’s intentions will set the scene. It is well established that the general global situation, Australian production and obviously our local industry are the key drivers of availability and pricing. Therefore, this issue of Feed Grain Outlook focuses on those three areas. There is a specific focus on Australia as movements in the Australian grain crop are significant globally, the availability and pricing important for import grain, and have flow-on effects for the Australian pork production, availability and pricing for import into New Zealand. Included with this report are references to further information including websites providing regular reports. Grain production and pricing is volatile and it is important producers develop their own ongoing trend monitoring. Key Points • Currently a significant surplus of NZ grain but quality variable • Strong harvest in Australia and good stocks at reasonable prices • Strong global supply increases stocks • Forecast for lower yield in 2009/10 but continued strong demand expected to up international prices
New Zealand
Production and useage
NZ Feed Manufacturers Association showed some dramatic changes in imported feed usage in the 2008 calendar year. The changes were driven by strong global demand for grain and strong domestic dairy demand for supplementary feed bringing about an escalation in grain prices, this forced responses from feed manufacturers. 1.1 million tonnes of palm kernel came into the country vs 455,000 tonnes in the 2007 calendar year. The other major change in imported products was the use of sorghum with 139,000 tonnes imported for the 2008 year vs 27,000 tonnes the previous year. However, whereas wheat imports had been 132,500 in 2007 these fell away to near 7,000 tonnes in 2008; a clear indication that sorghum was being substituted for wheat and particularly by the poultry sector as the price differential was significant. In reflecting on predictions in September 2008, there is no doubt that there was strong planting across the board of wheat, barley and maize. This was driven by previous strong demand, a combination of low global
There are large amounts of wheat and barley in storage, and a large crop of maize waiting on harvest (and storage) in the North Island. Prices have dropped but it should be noted that the quality being offered is extremely variable given some difficult harvesting conditions. However, many pork producers contracted grain supply back in September/October, so are paying substantially more than current spot market prices, e.g. $420 for barley and $450 for wheat vs current spot prices of $310 barley and $330 for wheat (Canterbury). The feedback is that pricing is highly related to quality, so good grain weights and low mould counts are selling at a premium. At these spot prices, South Island grain is still at a premium to imported grain into the North Island (see Table 1 overleaf). The North Island has reasonable wheat and barley supplies with maize coming on stream. Feed manufacturers also committed themselves last year to significant tonnages at elevated prices, so are still charging significantly more for feed than spot market pricing would suggest. One of the major changes over the year has been the emergence of ABB as a dominant player in the New Zealand market, with now 8 facilities nationally due to recent acquisitions; the most significant being NRM. ABB is now under offer themselves.
Planting and pricing prospects
The variable experiences of grain growers with sales and pricing over the 2008/09 season is expected to have a significant impact on the 2009/10 planted area. Given the solidity of the beef market and the rebound of lamb pricing, finishing stock may be a more attractive option than cereal production. However, this option is based around the availability of stock, and predictions for lamb production are well back and beef numbers hang in the balance as calf rearing at current calf milk powder prices is a marginal occupation. However, it maybe that it is more the fly-by-nighters
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that are lost to grain production as the core grain growers who signed supply contracts with pork producers or feed manufacturers in the second half of 2009 are being well rewarded. Initial indications for feed wheat and barley for the 2009/10 season are $350 for wheat and $330 for barley landed in silo, South Island. Additionally, incremental payments are expected to fall with falling interest rates. Initial planting indications are that core grain growers are still growing but may be focusing more on milling wheats given the current pricing structure. There are good pea contracts about which are attracting some away from grain, and the current weather conditions have been constraining planting. There is expected to be carry-over grain stocks available into the spring/summer but quality is variable. In considering contractual arrangements for the coming year, pork producers should note that there is an increasing range of feed wheat and barley cultivars now available that offer potential for better animal performance. The recent announcement of the dairy payout and subsequent pessimistic commentary on dairy markets may dampen grain demand further. In considering grain supply arrangements producers will need to consider carefully their contract/spot balance and international supply and pricing trends.
NZ grain vs imported grain
A simple analysis can be carried out to assess landed price for Australian grains in New Zealand. Indicative prices are used for Brisbane, landed Auckland. Note that these vary week by week and while freight costs have been very cheap to date these are on the rise. The analysis though suggests that for North Island producers who are sourcing out of the South Island imported products are worth consideration. Individuals need to do their own figures though.
Table 1: Comparison of imported and domestic grain pricing
Crop Indicative price Track Brisbane 210 202 235 $NZ @ Freight & handling costs ($NZ) 82 82 82 Price delivered Auckland 347 337 379 390 415 United Wheat Growers del Auck 01 June
Sorghum Feed Barley Feed Wheat
265 255 297
Source: ProFARMER, AWB, United Wheat Growers
Australia
Production and usage
Table 2: Australia - Area, Yield and Grain Production 2008/09
Crop Area Planted (m/ha) Yield (t/ha) Production (mmt) % change 07/08
Australian grain production returned Year 06/07 07/08 08/09 06/07 07/08 08/09 06/07 07/08 08/09 to production levels of the past Wheat 11.8 12.7 13.5 0.92 1.09 1.59 10.82 13.84 21.5 +55.4% based around a higher planted area Barley 4.18 4.93 4.5 1.02 1.46 1.56 4.26 7.19 7.00 -2.7% particularly for wheat and yields generally above the last two years. Sorghum 0.61 1.03 0.80 2.09 2.99 3.00 1.28 3.07 2.4est -21.88 Table 2 summarises the situation for Source: FAS Crop Explorer May 05 2009 the 2008/09 crop. As can be seen there is a dramatic lift in wheat production over previous years. This was driven by a combination of higher area planted (+800,000ha) and a lift in average yield. The final yield, though significantly higher than in 07/08, was lower than mid-year 08 expectations as a poor spring in southern New South Wales, Victoria and South Australia pared back anticipated yields. It is estimated that Western Australia accounted for 40% of total winter crop production. Barley overall was similar to 07/08 with slightly less ha but a higher yield. In response to lower prices and reduced land availability sorghum planting reduced 22% and this is forecast to carry through to total production being 22% less than 07/08.
Current situation
The market situation can best be described as variable. A combination of a fluctuating $A, reduced animal demand internationally, variable planting conditions internationally, stocks, a need for Australian growers to generate cashflow for new planting, a strong international oilseed market, uncertain length and impact of the Influenza A(H1N1) outbreak, make for a complex playing field. Indications are, however, that Australia’s export of wheat, barley and sorghum are going “just” okay.
Planting and pricing prospects
Table 3: Current Australian Planting Progress
State Queensland New South Wales Victoria South Australia Western Australia Progress 20-30% 50-60% 80-90% 60-80% 20-40% Prospects Good once it dries out Variable across state with combination of wet and dry holding up planting Just waiting for more rain in a few areas Waiting for some rain in last few areas to finish planting Good rain has just fallen or just about to fall and this will see a rapid plant follow
The rains that growers have been waiting for have Figure 1: Australian Grain Price Trends fallen on a fairly widespread basis and for those areas that have missed out, the forecast is optimistic in the short term. Table 3 provides a snapshot for current progress and prospects. Forecasts on planted area are not yet forthcoming but an initial survey by the NSW Dept of Ag has suggested that NSW growers will plant about 350,000 ha (-7%) on last year, this split between wheat 300,000ha (-9%), barley (-9%). It is important to note that the cost of inputs are still elevated and given that prices are low and the prospects for a significant adjustment upwards uncertain, some falloff in planting is understandable. Figure 1 shows the price trends for the last year and current positioning. Though there has been an increase since February, it is fair to say the main
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grains are struggling to break the pricing shackles. A significant discount to the same time last year is clearly evident. The relative strength of the Australian dollar seems to be the curve ball preventing further upside that is evident in the international market.
Global
Current market situation
Recent International Grain Council (IGC) reports show that world grain prices have advanced significantly through May. The contributing factors being: weather related crop concerns, resurgence of both the biofuels and equity markets and futures once again attracting significant attention. Although the world wheat crop estimate is increased because of significant upward revisions for China and Russia, markets reacted to difficult spring planting conditions in parts of North America and dry weather in southern and eastern Europe. Heavy demand for remaining Black Sea region supplies of feed and milling wheats added to the more bullish market picture. The first official US forecast of maize (corn) supplies and demand in 2009/10 added to concerns about continued tight availabilities of this grain, especially as the major planting delays in the country’s eastern corn-belt suggest that more area might be switched to soyabeans and that yields may be lowered. US export sales, while remaining well below last year’s, were also strong. In the oilseeds sector, US soyabean futures at one stage rallied to eight-month Figure 2: Wheat and Maize Pricing January-May 2009 highs, underpinned by tight US stocks, some further downgrading of Argentina’s crop, continued heavy demand from China and strengthening crude oil prices.
World Supply & Demand 2008/09
Strong planting and yields in 08/09 have boosted grain levels back to comfortable levels. However, world grains production is expected to fall short of use in 2009/10, eroding some of the gains in stocks achieved after the bumper 2008 harvests. Despite sharp falls in grain prices over the last year, and poor weather in some major producers, plantings for 2009 are little changed, but yields are likely to be lower than the exceptional Source: International Grains Council 2008 levels. In IGC’s 29 May report, global grain production is projected at 1,721mmt, 61mmt less than in 2008. This figure is down 6mmt from the April projection due to reduced crop prospects in the EU and the US. Total consumption in 2009/10 is put at 1,736mmt, 4mmt more than previously and 13mmt up from last year. Grain feeding is expected to reduce slightly due to increased use of alternative feeds, but there will be further gains in food and industrial uses (particularly for ethanol). Total grain stocks are forecast to fall by 15mmt during 2009/10, to 328mmt. The new forecast of world wheat production is 652mmt, but 35mmt below the 2008 record. Rains improved prospects in Russia and China, and North Africa expects large crops. However, rains failed to improve US winter wheat prospects, while wet conditions in the northern Plains seriously delayed spring planting. Dry weather stressed crops in south-eastern Europe, reducing the EU production estimate. Much of Argentina’s wheat areas remain too dry. Global consumption is forecast at 643mmt (about the same as in 2008/09), because of a higher US feed use estimate as maize availabilities tighten. Worldwide, wheat feeding will still be less than in 2008/09, but more will be used for food and industrial purposes. Global stocks are projected 4mmt lower than before at 167mmt, mainly because of revised estimates for the current season: stocks in both the US and the EU are now expected to fall in 2009/10.
Table 4: Global Wheat Supply/Demand Forecast 2009/10 Table 5: Global Grain Supply/Demand Forecast 2009/10
Source: International Grains Council
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Maize production in 2009/10 is forecast at 771mmt 7mmt below April’s forecast. In the US, continued planting delays due to wet weather are likely to have a significant impact on yields and production may fall short of last year’s. Hot and dry conditions in south-eastern Europe are affecting EU crop prospects, but the forecast for China is increased after good rains. Projected global maize consumption is 792mmt, 2% more than in 2008/09. While financial and economic difficulties in many countries are affecting meat consumption and therefore limiting feed demand, total feed use of maize is expected to increase in 2009/10, partly at the expense of wheat. There will also be further growth in industrial uses: maize use in ethanol manufacture in the US is projected to rise by a further 9%. The global closing stocks forecast is revised down by 11mmt from April, to 118mmt. The biggest fall will be in the US, while stocks in China are expected to remain ample. Maize trade is forecast at 83mmt, the same as last month and 2mmt up on 2008/09. US exports are expected to rebound from last year because of firmer world demand and less competition from Ukraine.
Pricing
Figures 3 & 4: CBOT Wheat and Corn Futures
As can be seen corn has rallied somewhat in the recent past. This is driven by a combination of continued strong export, the reinforced ethanol production demand and the ongoing slow planting and associated concerns about yield. Additionally there maybe some shift from corn to soybeans. The overall impact is a drop in supply which in turn may provide some upside for pricing unless there is a good summer. Wheat has shown upward trend due to ongoing delays in planting particularly in the US, a strong oilseed market and aggressive short covering in wheat futures. There has also been active buying by Egypt, and Iraq purchased 310,000t between them. Whether this pricing stays elevated, remains to be seen but commentators are fairly optimistic.
Conclusions
Source: ProFARMER
International events in combination with climatic factors have driven some resurgence in grain pricing particularly in the last two months. A rise in global economic activity, a lot of which has been driven by financial stimulus packages, have seen demand for commodities rise and with it grain demand and therefore related prices. A poor finish to the summer growing season in South America, combined with increasing purchasing especially from China, coupled with fears about planting levels particularly in the US, have all played their part in further inflating global prices. Closer to home, the $NZ and $A are playing a key part in keeping the lid on prices domestically but they are quite volatile, particularly in relation to the $US which is a key determinant in pricing and related costs such as freight. However, given the current scenario, import prices and local prices will continue to jockey for position; particularly for those grain users in the North Island. Producers should continue to monitor prices and medium term prospects with regard to timing, quantum and pricing of contracted grain and whether some spot options are desirable.
0800 NZ PORK
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New Zealand Pork Level 4, 94 Dixon Street, PO Box 4048 Wellington 6140, New Zealand
www.nzpork.co.nz www.pork.co.nz
A New Zealand Pork publication for the pork producing industry and interest groups. Edited by Sam McIvor (CEO) and Sharon Bowling-White (Business Support Executive) New Zealand Pork Phone Fax E-mail 04 917 4750 06 385 8522 info@pork.co.nz
References & Further Reading
• International Grains Council www.igc.org.uk • Eyes&Ears: market News for Australian Pork Industry www.australianpork.com.au • Dairy Australia – Weekly Grain and Hay Report. Written Reports www.dairyaustralia.com.au • New Zealand Feed manufacturers Association – Compound Feed Production and Raw material Usage www.nzfma.org.nz • Australian Crop Report www.abareconomics.com • ProFARmER Australia www.profarmer.com.au
DISClAImER
All due care has been taken in preparing this information, however New Zealand Pork does not guarantee its accuracy, and opinions expressed can change without notice. To the extent possible New Zealand Pork’s liability is excluded, and persons acting in reliance on the information do so at their own risk.
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