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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 2010 Perendale Publishers Ltd. All rights reserved. No part of this publication may be reproduced in any formor by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1466-3872
Digital Re-print - March | April 2011
Globalfeed markets - March | April 2011
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GIN & FEED MKETS
Every issue GFMT’s market analyst John Buckley reviewsworld trading conditions which are impacting the full range of commodities used in food and feed production. His observationswill influence your decision-making.
US maize pricesrose to their highestlevel since June2008 in earlyMarch as traderscontinued to factorin forecasts of thelowest US seasonalending stocks in15-years. The USstock is the mainfactor in decliningworld inventories asthis season’s globalconsumption of thegrain runs about22.5m tonnes overproduction.
N
ERVOUS grain and oilseed marketsrose above last year’s summer highs
to near three-year peaks toward the
end of first quarter 2010 – though
wheat and soya prices are backtracking steeplyas we go to press.
Wheat and maize initially took turns to leadrenewed market strength as traders continuedto fret over the adequacy of projected 2011
crops while a resurgent energy sector suggested
competition for grains would remain strong
between food, feed and fuel users. ‘Panic’ buyingof various foodstuffs, especially staples like wheat,
sugar and rice, by Arab governments facing politicalupheavals gave markets a strong ‘demand-led’ feel
at times. However, the turmoil across the MiddleEast and North Africa appeared to be a double-
edged sword for speculative buyers in grain futures
markets, encouraging them with steep gains in
crude oil and gold prices but also raising fears that
rising energy costs would send the global economic
recovery into reverse with all the implications for slower commodity demand.
On the supply side, big question markscontinue to overhang USand Russian winter wheatprospects following their poor start amid autumndroughts and, in parts of the US Plains, persistent
dryness problems. Australia
continues to count thecost of the devastating
Queensland floods although
its continuing role in world
food wheat export tradeand its overseas millingcustomers’ ability to work round some of its quality problems with creative
blending, suggest the bullish impact of this factor may have been somewhat over-played. Ongoing
competition on world export markets from
Canada and Europe too, despite smaller and lower quality 2010 crops respectively - plus a larger than
expected Argentine crop - have also stopped the
bulls running away with the wheat market entirely.Yet the year ahead is full of uncertainties. While
the latest International Grains Council report ischalking in a possible 24.5m tonne recovery inwheat output, a Canadian Wheat Board official
recently suggested the gain might be closer to 6m
tonnes (albeit within a broad 635/675m range
that would allow for 12.5m less as well as 24.5mmore grain than last year, depending on weather and other factors).
The CWB also expects a minimal rise in this
year’s Canadian crop although the more important
issue here is whether, within the total, Canada
can produce a more normal proportion of milling
wheat after two years of weather hindrance on
that front. Prayers for that outcome must be even
more fervent in Australia, where officials recently
suggested their next crop (harvested late 2011/
Trade pins hopes on 2011crop rebound
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Whatever maize crop the US does achievein 2011, it will start with extremely low stocks.
Until there is evidence of these being rebuilt,prices could stay firm in this sector, keepingother grain and oilseed markets up. The US
will also need a timely harvest as supplies
dwindle from July into August.
Oilmeal costs have also risen in the last
month or two, propelled by extremely strong
Chinese demand for US soyabeans, eating
too quickly into the latter’s total supply and
threatening a possible severe end-season stock
squeeze. US traders have also been fretting
about fairly conservative figures being toutedfor this spring;s US soyabean planted acreage – just enough, maybe, to meet demand if perfect
weather delivers good yields. Demanding
some price-restraint, though Latin American
soyabean crops are turning out far bigger thanexpected. That should relieve pressure on the
US in the months ahead, possible leading to
some cancelled US export business. The South
Americans may also sow bigger crops again
this autumn, if prices persist at anything like
current levels. However, some improvementin supplies of the other leading traded oilseeds– like rapeseed and sunflowerseed - would be
useful in keeping prices under control acrossthe oilmeal sector.
Main commodity highlightssince our last review
Wheat up – then down
A glance at our wheat charts below
shows prices for the leading indicators haverecently been at their most expensive since
the summer of 2008. As noted above, thefactors behind the latest increases include
ongoing weather uncertainties in the US andRussia, Australia’s flooding/quality problems,
strong demand from the Middle East and a
fair dash of speculative support (fund buying)
each time the market gets a piece of bullish
news. One of the big differences between
now and 2008, as pointed out in this column
previously, is that world stocks were muchlower then – both in absolute terms and in
relation to consumption. This season’s endingstocks (in July) are in fact projected more than
50m or about 42% higher than those heldat the end of 2007/08, when wheat prices
last boomed. There is still a lot of grain in themain exporting country, the USA, especially - even before the next crop comes along. USplanted area is expected to be up by about6% but with drought stressing the hard red
winter crop since it was sown – and springwheat area possibly declining too – some
USDA economists believe production could
still drop by 3.5m tonnes to about 56.5m.
Even then, supply including carryover stocks
would still be comfortable. US wheat markets
to be tight atthe close of
2010/11 at end-
June. However,
the squeezeon supplies of higher grademilling wheatscontinues totighten, leadingto some very wide price
premiums in recent weeks. North American
hard spring wheat export prices, for example,
were recently quoted at their dearest levels
since June 2008. This is obviously focusing keen
market interest on how much hard wheat
will be sown on that Continent this spring – and early portents are less than encouraging.
Despite high prices, US spring wheat area may
decline as other crops offer better returns.
Canada, meanwhile, could see interruptionsto its mainly spring sown wheat crop
as a massive snow pack melts amidforecasts of heavier than usual rainsfrom latter March onward (possible
well into the growing period - though
these longer range forecasts can be
unreliable).
On the other hand, European
plantings are up – perhaps not quite
as much as earlier hoped but, with
decent summer weather and normal
yields and quality (especially in the
top quality producer Germany) things
could loosen up enough here by the
autumn in terms of volume and quality to ease
milling wheat premiums a little. The question
remains, though, what will wheat be worth on
world markets early in the new season. Will
persistent high world prices drag too much EUwheat overseas, as has arguably happened this
season? Wheat will also have to follow maize
prices, both in terms of the contest for spring
acres and as a competing feedgrain.
Maize markets grew jittery again in thepast month despite early USDA forecasts
of a possible 4.2m acre rise in US plantings.
Some traders believe that is unlikely, given the
demand for acres from all crops – althoughmaize prices are certainly attractive to US
farmers. Then there is the question of yields.
Last year – with supposedly optimum and
trouble-free growing conditions, the US cropraced to completion and ended up with rather disappointing yields whereas in 2009, a delayed
start and long cool development period saw
productivity soar (even with a wet harvest that
ran beyond the year’s end – though this didaffect quality in many areas). If all went well
this year, current planting forecasts suggest
the US could produce as much as 250/255 mtonnes, according to some observers - or 20mto 30m less if weather misbehaves, say others.early 2012) might decline from this year’s very
high level. With a return to normal weather,
Australia could still produce millions of tonnes
more high quality milling wheat next seasonthan this. Along with bigger expected bigger
Indian and Ukrainian crops, not to mentionstill large world carryover stocks from this
season (especially within the main supplyingcountry, the USA), this suggests a less bullishwheat market later in 2011/12.
On the demand side for wheat, a possible fly
in the ointment of potentially looser supply is
potential for stronger feed use. Consumption
by this sector is expected to rise by severalmillion tonnes globally this year to its highest
level since the early 1990’s as meat producersseek alternatives to tight and expensive maize
and barley. A currently forecast 5% rise in
world wheat feeding to 123m tonnes will be
spread mainly over Australia, Canada, theUSA, China and the former Soviet Union,
offset by a drop in the EU.
While wheat has remain expensive in
recent months, the price has recently comewell off its highs – dropping at one stage by almost 20% from the February peaks. Maizeon the other hand, has risen sharply in value,
narrowing the price spread between the two
grains to its smallest in many years. This is
influencing importers’ grain buying decisions,
especially in Asia, where feed wheat purchaseshave recently risen strongly. China has been a
notable buyer, taking advantage of the large
proportion of this year’s weather-damaged
Australian milling wheat supply downgradedto feed.
Even with this extra global demand for wheat in feeds, supplies are not expected
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Globalfeed markets - March | April 2011
NERVOUS grain and oilseed markets rose above last year’s summer highs to near three-year peaks toward the end of first quarter 2010 – though wheat and soya prices are backtracking steeply as we go to press.
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