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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 - July | August 2011
Global Feed Markets: July - August 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.
Amid the reboundin Russian/other CISsupplies, the worldmarket shouldeasily cope withless EU exports andEurope itself willalso avail itself ofa lot of this cheapBlack Sea wheatto keep upwardpressure off its ownfeedgrain prices(Black Sea milling wheat was offeredfor export $25/35cheaper than Frenchin early July).
I
mproving supply outlooks, a retreat of
speculative support and worries about the
global economy recently drove wheat pricesto their cheapest level for a year. Maize also
fell in a switchback ride from all time record peaksto seven-month lows in one remarkable fortnight.
Does this mean the bull market is over and thatconsumers can look forward to further declines in
grain and feed input costs? The answer is a mixedone – encouraging for some market sectors but
less certain for others – and with plenty of caveats
yet – both from weather and the demand side of the market. Wheat has long been – and remains - a tale of
two markets divided by quality. The worldwide
shortage of high grade breadwheats this past year
was real enough and merited a significant price
response. The jury is still out on this year’s crops
after wet weather delayed and downsized planting
of spring wheat in North America but a repeat of
last year’s pre-harvest weather disasters in so many countries for a second year running seems unlikely.
For ordinary bread/feed wheats the supply situation - even with the loss of 30m tonnes to
drought in the former Soviet Union last year - never
really justified ordinary milling/feed wheat costs
returning to the highs of 2008 as they did earlier this year. Markets are increasingly recognizing this
anomaly and coming, as we forecast last year, abouthalfway back to where they were before last year’s
supply upsets. The fall in these ‘run of the mill’
bread/feed wheats might have been even steeper if not for record high maize prices and short barley crops, raising the intrinsic value of all grains as feed.Even after the recent price drop, coarse grains are
still relatively expensive (maize is at highly unusualpremiums to wheat on the US market). This may
continue to prop up wheat to some extent, at leastuntil we know more about the coming maize crop
in the USA, the world’s largest supplier.
The key development for wheat in July has been the return of the Russians, ending their export banand already aggressively selling a barely harvested – but clearly recovered - crop on the world market,
undercutting all rivals as they attempt to restore
their role as reliable top suppliers. Better weather
across the region means Ukraine and Kazakhstanalso have more wheat to sell abroad and Ukrainehas also relaxed export restrictions. Big crops arealso coming onto the world market from past netimporters, Pakistan and India.
Against that, Western Europe has suffered a
muted version of the droughts and heatwaves wesaw in the Black Sea region last year and currently
expects to see only a marginal gain rather than
the originally hoped significant recovery in wheatproduction. Stocks have also been whittled down
to supplement last year’s disappointing harvest
as exporters cashed in on Russia’s
absence as a competitor. Still, thisyear could have been far worse
for the EU which at one time, was
looking at possible 20% to 30%
crop losses. Also, the EU’s principal
source of high grade milling wheat,
Germany, will hopefully get muchbetter quality than it saw fromlast year’s rain-spoiled harvest- assuming recent untimely rain
doesn’t set in the for too long.Given the lack of rain over much
of its hard red winter wheat belt
Grain
&
feed miinG echnooG42 | July - august 2011
Light at the end of the tunnelfor raw material costs?
Grain
&
feed miinG echnooGJuly - august 2011 | 43
- rr . .. li
maize crops) to return to much cheaper levels.Good pre-harvest weather in Canada, Europe
and, later in the new season, Australia, could
also reduce the big quality premiums currently
being asked on milling wheat.
Traders will also be keeping a keen eye the
US soyabean crop, sown on a much smaller
than expected acreage as farmers either planted more maize for the high prices or found themselves thwarted by the weather
at planting time. Any supply problems for the
world’s largest oilseed producer could seta firmer tone across the oilmeal complex,
especially at a time of disappointing Europeanrapeseed production (see below). Fortunately,
Latin America is continuing to reduce US
dominance of this market with its own larger
crops – a trend that should continue into 2012if soyabean prices stay anywhere near present
levels.
Main commodity highlightssince our last review
Wheat – a welcome drop in prices
Better than expected supplies, an early return of exports from the former SovietUnion and a crash in maize prices helpedwheat prices to drop on both sides of the
Atlantic to some of their lowest levels since
July 2010, almost 37% below the February
(2½-year) peaks. Strong maize prices had been
a key support to wheat through the feed link between the two grains. Without that help,wheat has had to acknowledge its own morebearish news. This included the Intrenational
Grains Council raising its world crop estimate
from 663m to 666m tonnes after upward
revisions for China, India, Pakistan Turkey andNorth African countries, more than offsettingan expected cut in the EU estimate. The IGC
also raised consumption, so world endingstocks will still decline slightly in 2011/12 –
though at 185m tonnes, the projected figure ishardly tight in relation to consumption needs.
The adequacy or otherwise of quality
supplies remains a key question for the wheat
market going forward after last year’s wetweather downgraded so much milling tofeed in North America, Australia and parts
of Europe. At this stage, it is too early to make
an assessment of any likely rebound – North
American spring crops are hardly sown,
Australia has just began planting and Europeanharvests are still some weeks away. Weather in the next few weeks and months will gradually clarify this picture. In the meantime, the omens
are mixed
Good quality – and a bit more tonnage than the pessimists feared – from the US
hard red winter crop has seen this important
breadwheat taking a larger role, both in the
US – where it has been replacing some of the market share held by tighter and moreexpensive hard spring wheats – and on
since planting time, the US also seems to beemerging with a better than expected crop
of this principal export grade, well down in terms of yields and tonnage but with somegood quality. However, both the US andCanada have had major problems with wet
weather holding up and downsizing their spring
wheat plantings from earlier targets. Withcrops still developing late in both countries,a needed rebound in quality milling wheatsupplies from this region may already have
been compromised – although it should notbe written off just yet. If Canada gets enoughsunshine from now through to harvest’s end,
it may yet end up with a higher proportionof milling quality wheat from a smaller than
expected total crop, rather than the excess
supplies of feed wheat that resulted from last
year’s wet weather.If the North American spring wheat crops
do fall short, the onus will fall more heavily on the other big quality supplier Australia.
Planting here has so far been going reasonably
well. Some dryness issues linger in the West
but if the eastern states avoid last year’shighly unusual harvest washouts, we could
see a complete reversal of that result (whenAustralia saw its worst milling crop for many years).Feed consumers praying for an end to thepast season’s endless litany of crop weather
problems must have wrung their hands during
May and much of June when incessant rains
threatened to stop US farmers planting
enough maize to keep up with demand (let
alone to start making up for last year’s deficits
and stock draw-downs). They needn’t have
worried, it seems, as the USDA’s latest survey shows the second highest acreage since 1944.
This came as quite a shock for the US maize
market, which had risen to record highs in June
after the USDA estimated lower plantings.
With good weather recently, maize yield
potential is rising and some analysts think the
crop could be large enough to start loosening
up carryover stocks (recently projected at
their tightest level for many years).
The USDA also ‘found’ an extra7.6m tonnes from last year’s crop
in its June 1 quarterly stocks survey
- which may mean the crop wasunder-rated or that feed/ethanol
demand has been over-rated.This combination of higher than
expected acreage and stocks caused
a massive slide in Chicago maize
prices in the first week of July- but
it wasn’t only ‘fundamentals’ that
drove prices down. Much of the decline was
down to a hemorrhage of support for futures
from speculative funds across commodities,especially ‘overbought’ markets like maize,
as investors become increasingly spooked by ideas that the global economic recovery was
stalling. There has also been a lot of discussion
in the grain trade and in the broader financial
community about record high commodity
prices – for grains, oil and metals - starting todestroy demand.
It is too early to judge how this phenomenon
will pan out. So called macro-economic
markets are notoriously fickle, rarely behavingwith consistency these days as fund managers
and currency dealers and their offshoots try to second guess the way ahead in unchartedwaters. There is also a school of thought that
some funds may actually be dumping their
commodity assets to help drive prices down,so they can buy them back at much cheaper
prices and so own both the good and the
profit (from the earlier price rises). No-one
knows how this story will end
because financial markets are beingdriven by ‘sentiment’ – perceptions,scare stories and hopes rather than
facts. As we go to press, fears of
another meltdown in confidence like the Lehman bank collapse of 2008 – focus on a potential Eurozone or USdebt defaults or a Chinese industrial
slowdown. Any of these could bea mega-restraint on cereal pricesalthough the potentially seismiceffects of more macro-economic
instability would hardly be welcomedby any industry, including the milling, feed and
livestock sectors.
Macro-economic meltdowns aside,speculative funds need fundamentals to go
their way before jumping on, or off, a marketbandwagon. In this respect all eyes in coming
weeks will be on the weather in the USA.High maize yields could pitch this market
into modest surplus, preventing prices from
returning to the highs and maybe allowing
them (depending on European and S American
Grain
&
feed miinG echnooG44 | July - august 2011
Topical liquids used in the extrusion process of pet foodmanufacturing are sticky and particularly hard to clean, especiallywhen they congeal in colder weather.“Before changing to Tapco urethanebuckets, we
dsometimes have tostop production and clean twice aday,” Jeff Bowman, Extrusion PlantManager, Spectrum Feed Services,Ltd. says. “That meant allocating2-3 hours for two staff members tohand scrape every bucket on our 60-foot-tall legs, each time.Trust me, nobody liked THAT job.”Cross-contamination was also a constant concern and led tomore rework to maintain product quality.After consulting with Tapco, Spectrum had Proactive IndustrialMaintenance replace the existing buckets with FDA-complianturethane resin CC-HD buckets. Tapco urethane buckets resistproduct adhesion and flex to release caked-on build-up.“Now sticky extruded pellets and kibble slide right out of Tapcourethane buckets,” Bowman says. “We went from scraping bucketstwice a day,to cleaning on a weekly schedule, without concernsof cross-contamination,” Bowman says. “The cleaning process isfaster and easier,too, which is important when you’reprocessing 140 tons a week.” Need help out of a sticky situation? Talk to Tapco andfind out why 75% of design engineers, contractorsand bucket elevator manufacturers* trust Tapcobucketsto keep business moving.
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Global Feed Markets: July - August 2011
Improving supply outlooks, a retreat of speculative support and worries about the global economy recently drove wheat prices to their cheapest level for a year. Maize also fell in a switchback ride from all time record peaks to seven-month lows in one remarkable fortnight.
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