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

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GFMTs 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.

Massive crop still driving wheat prices down

While soya drives the overall oilmeal price trend, there is plenty of good news 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 years supply. Supplies of palm kernels are also up by about 4%.

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 havent 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. 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 prices havent 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, 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 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. One key factor that dominates sentiment is the sheer size of this seasons world wheat crop. Back in the summer, most analysts were expecting a harvest somewhere in the 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. 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

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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 controlling expor t trade and lower returns, farmers cut acreage sharply, reducing the crop to 10m tonnes or less its smallest on modern record. Argentinas consequent absence from expor t trade hasnt been missed as much as it might in earlier years due to there being no lack of alternative wheat expor ters eager to supply the world market. India, for example, which used to produce about 80m tonnes a year, mainly for home consumption, has suddenly star ted turning out record crops of 90m tonnes and 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, Indias next crop (harvested around April) may be even bigger than last years 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. Indias wheat is not top quality and some buyers like the worlds 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 low as $260, India could set the bar low for other expor ters selling into markets more interested in bargains than quality. That includes many of the countries that attract most competition in 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. (Its interesting to note that this time last year, the Chicago markets predicted soft wheat futures would have risen by now to over $300/tonne versus the 3-year low of $202 that actually traded in Chicago in January). Recent international import tenders have shown that the Black sea countries are not finished yet with their 2013/14 expor t campaigns. This years large Canadian and Australian wheat crops also have to be fully marketed into expor t channels. Along with the drooping US price this requires European wheat exporters to keep prices competitive and, in turn, demands that EU domestic wheat prices stay down. 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

and Russias record 2013 crops. As we went to press, the EU had already granted 6.2m tonnes of licences to impor t corn in the season to date, largely from these two, even more than at this time last year. That contrasts with the USDAs assessment that EU corn impor ts from all sources will drop 20% this season. So long as this abundance of cheap imported corn persists, EU feedwheat prices should be held in check. Ukraine has so far expor ted over 11m tonnes of corn in total and is predicted to sell about 18m by the end of the season so there is some way to go yet - while Russia is forecast to expor t about 2.5m.

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Cheap impor ted corn plus this seasons 5m tonnes increase in domestic barley production - would be making an even bigger impact on EU feed prices if not for the pell-mell pace of EU wheat exports. So far this season, 17.5m tonnes of soft wheat have been licensed to non-EU countries over 50% more than at this time last year. That compares with the USDA forecast which has EU total wheat expor ts rising by only 15% this season, albeit to a record 26m tonnes. That implies another 8.5m can be sold or and if the cheap corn keeps coming in even more than that. The EU is forecast to use about 120m tonnes of wheat total this season out of a 143m tonne crop and about 42% of that is forecast in the feed sector. Finally to wheat crop prospects for 2014 which might be summed up as more of the same. A deep freeze in the USA seems to have caused minimal damage to winter wheat crops that were sown on a larger area last autumn than in 2012 and may yield better after a moister winter. European and CIS crops have had an unusually mild winter, putting Europes in much better shape than last year and allowing CIS fields to catch up with late planting. 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 years. 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 years 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 seasons 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 arent wor th investing in this year - which makes good news for consumers.

tonnes). This suppor ted recent trade and quasi-official Chinese estimates that the countrys import demand this seasons forecast biggest growth area would not reach the earlier expected 7-10m tonnes (USDA has now reduced that to 5m). It also sharpened the focus on Chinas continual rejection of impor ted corn cargoes from the USA containing an unapproved GM variety. China was the second largest growth factor (after Mexico) in this seasons forecast higher US corn expor t trade, having bought 4.9m of US total sales of 29.5m. Discounts have been required to diver t these unwanted cargoes have been diver ted to other Asian customers, weighing on US physical and futures prices. Even so, US maize expor ts are still expected to expand from 18.3m to 37m tonnes as Mexico doubles impor ts and other buyers take more at this years cheaper prices. Elsewhere on the supply scene, the newly planted Argentine crop has had some stress from hot dry weather, trimming some forecasts by about 1m tonnes from earlier ideas of a similar crop to last years bumper 26m. Brazil, on the other hand, has had mostly perfect weather, making the USDAs prediction of 70m tonnes

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. Its interesting to note that at this time last year, CBOT maize offered an $80/tonne discount to wheat on the exchange. Currently, its around $180 cheaper and the gap is indicated even wider later this year - despite the far looser stock/use ratio for wheat (for the end 2013/14, that equation is 26% or 13 weeks supply versus maize around 17% or just under 9 weeks). Since our last review, the USDA has issued its final US maize crop estimate for 2013 at just under 354m tonnes about 1.6m under its November forecast versus trade expectations of something 1m-3m tonnes higher. This change is not of lasting statistical significance in the context of a crop still 80m tonnes bigger than last years in a season when demand is expected to increase by a far smaller 34m tonnes. Although the consumption estimate is up almost 4m tonnes from November, it will still leave 2013/14 carryover stocks at a very ample 41.4m tonnes (versus last years 20.9m). No less impor tant was the USDAs 6m tonne increase to its crop estimate for second largest maize producer China (now 216m

look too cautious. A lot depends on the second or Safrinhas crop which was sown on unusually large area last year and had bumper yields. That is expected to contract somewhat this year but that hasnt stopped some analysts predicting a 74-76m tonne total crop (versus last years record 81m). Even if Brazils 2013/14 expor ts dropped, say 5m tonnes with a smaller harvest to the currently forecast 21m, that would still be massive by comparison with all years prior to last seasons record 26m (whe Brazils expor ts were usually only 8-12m). Along with the huge CIS maize crops mentioned above, this is unprecedented competition for US exporters and at discounted prices too. As a result, recent estimates suggest the US will only supply a third of world maize import demand in 2013/14 compared with 57% five years ago. In total, world maize output is now seen at 967m tonnes compared with last years 863m and the previous record (2011/12)

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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 years 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 end2014 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

Es timates of wor ld oilbearing crops seem to keep incr ea sing too with each passing month, promising ample supplies and cheaper for ward prices for oilmeals. The key factor remains this seasons expected massive Latin American soyabean crop which has just begun harvest. The popular range for Brazils output is now 90/91m tonnes versus last years 82m while Argentinas is expected to increase from just over 49m to about 55m. Just two years ago, these two produced 66.5m and 40.1m tonnes respectively. Along with smaller producers like Paraguay, that means the region as a whole is producing about 43/45m tonnes more beans than in 2011/12, equal to about 35m tonnes more soya meal. Over that time, global demand for the end product is projected to increase by just 9m tonnes, resulting in global soyabean surplus stocks rising

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especially in shipments to the worlds 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 Chinas 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 Argentinas economy, resulting in a collapsing currency and rampant inflation, prompting its farmers to hoard a huge chunk of last years big crop some estimate between 8m and 11m tonnes. That par ticularly affects foreign buyers of soya meal of which Argentina is the largest expor ter. So the US gets the expor t business in both beans and products, hoisting its crush and threatening very low pipeline stocks well before its season ends in August. The US can meet this challenge if Brazil gets its shipping sorted out and China cancels a lot of its US soyabean purchases or GRAPASisland:Layout 30/8/13 14:29Latin Page 1 the US itself could impor t1cheap and plentiful American

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supplies to keep its crushers and meal consumers going and their input prices under control. But in the meantime, there remains a theoretical gap to be filled and that is tending to keep soya prices higher than the longer term supply fundamentals suggest they should be. That said, forward futures markets show the way the wind is likely to blow. Even the 18% price drop they currently por tray may well prove conservative if all these fresh supplies arrive as planned. 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 years 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 sou r ces g r ou nd nu t s , cottonseed, copra etc, this puts total world oilseed supply 31m tonnes higher this year than last and almost 60m over that of 2011/12.

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 years. Moisture has been plentiful (sometimes too much of a good thing) in West Europe, better than in recent years in the US and after recent rain and snow, satisfactor y in the Black Sea region. Traders are expecting higher yields and bigger overall crops across all three regions if the weather stays cooperative. Canada may sow a lot less wheat for its mainly spring planted crop and see yields decline from las t years stellar levels but still have

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53 | January - February 2014

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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 seasons 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 Chinas 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, that should keep oilmeal costs down across the board in the har vest in four months time. Canada, Australia and India year ahead. have plenty of current crop wheat left to expor t. Argentina, 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 FIAAPisland:Layout 1 30/8/13 14:26 Page 1 or 24m tonnes to world total wheat consumption in 2013/14 (which may not necessarily take place). but the large crop will still allowing some moderate stock growth - to more than adequate levels in terms of global consumption.

COARSE GRAINS
Last years US maize crop rebound continues to hold down global feed gr ain prices along with record Latin American and CIS export supplies. Along with bigger barley output it will leave the world with much larger carryover stocks for the new coarse grain season star ting September 1. US planting might contract t his s pr ing a s f a r m e r s dis a ppointe d w i t h low pr ices tur n to more remuner ative crops like soyabeans. But with more 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 to remain key players in the global maize expor t market with huge influence on European feed values. Ideas that US feed use of maize will rise in the year ahead were reinforced by higher than expected consumption and lower than expected stocks for the first quarter of 2013/14. US ethanol demand for maize (40% of consumption)

8 10 April 2014 . Bangkok International Trade & Exhibition Centre (BITEC), Bangkok, Thailand

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