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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 - May | June 2011
Global Feed Markets: May - June 2011
GLOBAL
GRAIN & FEED MARKETS
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.
The USDA’s firstofficial forecasts forthe new 2011/12season suggest world wheat outputcould recover to669.5m tonnes fromlast year’s 648.1m,matched againsta consumptionestimate of 670.5m(662.1m).
T
HE first official forecasts for the 2011/12
season from the US Department of
Agriculture in mid-May offered a less
fraught view of the forward supply/
demand balance for grains and feeds than marketswere expecting. These included upward revisions
to US starting stocks of maize and soyabeans
(after lower than expected demand), a big jumpin the coming US/global maize crop, rebounding
wheat output in former Soviet countries, Canada
and Europe, more Russian and Ukrainian barley
and bigger Latin American soyabean supply.
Yet with the ink hardly dry on these estimates,
some are already in contention. Wet weather
continues to hold up US maize as well US and
Canadian spring wheat planting while droughtquestions whether USDA is too optimistic on
US and EU winter wheat crops (more details onthese below).
However, demand does appear to be slowingin the face of high prices and other factors. Thepreviously breakneck expansion consumption of US maize for ethanol (now taking a staggering third of the US crop) is seen braking sharply as
most of the government incentives near maturity,
world energy markets peak and economic recession
and high costs start to curb fuel use – even in the
affluent, gas-guzzling USA. While maize supplies will
probably remain finely balanced against demand,
they should be adequate with US and world stocks
even growing a little.Oilmeal demand is also expected to expand ata slower pace than last season as growth in meat
consumption slows. Wheat consumption continues
its gradual, long-term, year-on year increasebut, according to the USDA, not by enough to
outweigh the forecast crop gains. For wheat and
soyabeans, ample new supplies imply stocks of
these commodities will stay at comfortable levelsright through to mid-2012.
Yet the total stock numbers tell only part of thestory. While US wheat supplies remain historically large, much of the world stock is tied up ‘off-market’in countries like China and India (though India does
now seem to be preparing to export significant
quantities for the first time in five years). An even
bigger issue for wheat is how much of the new
season’s crops will turn out quality milling grades.
Quality supplies, as readers will be well aware,
have been run down over the past year after wet
harvests in Australia, Canada and
Germany – a significant factor in this year’s return to near-record
wheat prices on world and
European markets.
Since our last review, grain and
feed raw material markets have
seen another couple of months of
extreme price volatility. The US
and EU drought problems andUS/Canadian sowing holdups,pushed wheat prices back to2½-year and maize to new all- time record highs. Only a week
Will weather spoilimproving supply picture?
Gri
&
fd milliG tcholoG38 | may - June 2011
COMMODITIES
or two before this issue went
to press, the more comforting
USDA figures had combinedwith fresh global economic
jitters to propel prices to near
two-month lows. But at this point (late-May)
markets are roaring back again as thesepersistent weather problems start to eat
further into crop estimates.This volatility is likely to continue. On the
one had, there is the real possibility that new
crops will run short of forecast and short of
demand – for a second year. Against that,
the ‘outside’ macro-economic indicators that
underpin speculative investment in futures
are looking shaky. These include fresh signs
of a slowdown in China’s economy – thepowerhouse of Asian and global economicgrowth/recovery, further fiscal tightening
measures in China and India, the nagging failure to resolve Eurozone sovereign debt problems
and a constantly backsliding US economic‘recovery’ (not to mention the USA’s own
eye-watering debt problems). All these factorshave combined to make speculators far more‘risk averse’ toward commodity markets. This
is good news for consumers who don’t want
to see their raw material
costs constantly drivenfar higher than supply/demand ‘fundamentals’
justify and if some of thegloomier economic prognosess are right, the
withdrawal of more of this speculative frothin coming months could help restrain prices
of food and feed raw materials. However,if US and European crops seriously under-
perform forecast, ‘macro-economic’ factors
will not prevent prices being exposed to
open-ended rises. Effectively, weather in the two or three weeks after this issue goes to
press may determine the direction of grain
prices well into 2012 and possibly beyond.
Gri
&
fd milliG tcholoGmay - June 2011 | 39
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convincingly, the possibility of EU milling andfeed wheat prices breaking the 2008 recordhighs can’t be ruled out – though curbing the
EU’s exports would help restrain the internal
market.The US also offers a mixed picture. After
sowing a lot more winter wheat, drought since
last autumn in the hard red winter wheatbelt has cut sharply into yield prospects for this, the most important US export class.
Prices of HRW have remained firm, especially
for higher protein grades. USDA thinks the
crop will fall to 20.7m tonnes, about 7m less than last year. However, the soft red winter wheat crop has had plenty of rain, even too
much in some states, and could be up by 5m tonnes. As well as forming the basis of
the highly influential Chicago futures market,
SRW is a key pricing guide for European
soft wheats, so an important element in themix of factors affecting European, Asian and
Near eastern bread, noodle and biscuit wheatcosts. Uncertainties over late sowing are also
keeping US hard spring wheat export pricesfirm. Assuming it did meet area targets, theUSDA expects US total wheat output to fall
by about 4.5m tonnes this year. This is notespecially bullish as export demand for US
wheat is also expected to fall by about 6.5m tonnes amid the increased competition from
Black Sea and other suppliers, leaving US
surplus stocks at the end of 2011/12 at a stillcomfortable 19m tonnes.Later in the year, the weather odds might
reasonably be thought to favour a much
better performance (late in 2011/early 2012)
for another big quality wheat producer,
Australia which saw an extraordinary slumpin its bread/feed wheat ratio after last year’s
weather washout. Most analysts think output
may contract by 2m to 3m tonnes on smaller sowings and there have been drought issues
persisting in Western Australia (though these
seem to be improving as we go to press).
However, the main issue for Australia this year is the need for a quality rebound. The other big
southern hemisphere breadwheat exporter,
Argentina, has meanwhile announced plans toraise area for 2011/12 beyond levels predicted
by USDA and will probably export more.
Many other smaller producers could make a
similar response amid these high world wheat
prices.pricing from the region
as a whole). However,even taking all this intoaccount, the region’smarketing strategiesare notoriously unpredictable and it
would not be surprising
if (as has often happened
in the past) their crops
turned out larger than
expected and the return
of supplies from this region did become a
significant bearish weight on world prices.USDA also sees wheat production up this
season in Canada, China, India and the EU,offset partially by expected lower crops in
Australia and Argentina. The Chinese figures
– if they prove correct – are comforting.
Drought earlier this year in this (the world’s
largest wheat producing country) was onereason why world prices went up in firstquarter 2011. Normal yields here confirmChina’s approximate self-sufficiency, makingit a neutral factor. However, India’s crop
gains will put more pressure on already tight
storage space with government security stocks of wheat and rice running at nearly
three times the needed level. That suggestsmore exports, mostly of the middling/lower
milling/feed grades to Asia customers but a
factor that should help restrain world wheatprices nonetheless.Canada’s vaunted crop gain of almost 3m tonnes is open to question, at least until one
of its latest planting campaigns ever gets
drier weather to complete successfully. If thathappens, and the crop gets more sunshine
and less rain in the late growing/harvest
period than last year, world milling wheat
importers may see a very welcome top
up of these higher quality breadwheat
supplies and perhaps some easing of price
premiums for these grades.Europe’s picture is more complicated
by varying weather in the 27 member states. USDA currently sees a near 3m tonne gain in total EU production at
138.6m tonnes. However, Germany hassuffered a tough winter and, like France
has recently been plagued by severe
drought. Some pundits warn yield losses
of 10-15% or more are possible which
could take European and world output well
below forecast. In the context of this season’slower starting stocks, that could spell a tighter
EU market during 2011/12 and keep prices
far higher than consumers would like – even
with some extra export competition from
the ‘Black Sea’ region. Earlier, hopes had risen that, later summer weather being normal, (less
rain at the wrong time) the quality quotient,
from Germany especially, could be higher than last year’s, even from a smaller overallharvest. However, until the droughts break
Main commodity highlightssince our last review
Ample wheat supplies?
The USDA’s first official forecasts for the
new 2011/12 season suggest world wheatoutput could recover to 669.5m tonnesfrom last year’s 648.1m, matched against aconsumption estimate of 670.5m (662.1m).Main gains are for the former Soviet Union
with combined Russian, Ukrainian and Kazakh
crops seen rising by a hefty 19m tonnes to87m, allowing their total exports to more than double to 26m tonnes. Trade trade
reports suggest the region’s crops have beenlooking very promising recently and with talk
of shippers already starting to line up suppliesin port stores, markets have been anticipatinga ‘Black Sea’ exporter comeback sooner rather
than later. Some caveats apply here. One is
that the crops are not yet made. After last
year’s shock losses from summer droughts andheatwaves, the authorities are bound to want
to see the harvest coming in before makingcommitments (even though reports suggest
Russia and Ukraine may have overdone the
caution during the past season and still have
exportable old-crop supplies). The other is
that, even if crops do recover to the expected
extent, surpluses will be smaller than in the
boom years prior to the 2010 drought. when
the three top regional exports regularly
supplied at least 25% of all world wheat trade.
Some of the surpluses will probably go to
rebuilding domestic security stocks against the
threat of future weather upsets, especially in
Russia with Ukraine probably more inclined to
take the opportunities offered by high world
prices. Thirdly, Ukraine is swapping the quotas
with which it restricted exports last year for
duties which will effectively raise the floor price at which it sells to the world marketbeyond the rock-bottom levels to which
customers became accustomed prior to 2010,when Black Sea exporters earned a reputation
as cut-price sellers. (After last year’s upsets,
one might, anyway, expect less aggressive
Gri
&
fd milliG tcholoG40 | may - June 2011
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Global Feed Markets: May - June 2011
THE first official forecasts for the 2011/12 season from the US Department of Agriculture in mid-May offered a less fraught view of the forward supply/demand balance for grains and feeds than markets were expecting.
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