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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 - January | February 2012
Global Feed Markets: January - February 2012
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.
Although notdirectly affected bythe South Americandrought threat, wheat joined theend-year rally insoyabeans andmaize, even risingfaster than thelatter as funds who got into thehabit of selling thissurplus market were forced to buyback some of thesepositions. There was also much talkof wheat’s value asa feedgrain risingif Latin American weather did cutsupplies and driveup prices of maize.
G
rain and feed commodities started 2012
on a stronger note as a prolonged hot,dry spell over the Latin American grainbelt sparked fears of major crop losses
from this key exporting region. Some analysts drew
comparisons with 2008/09 when similar weatherchopped more than 17% - 14m tonnes of maize
and 20m tonnes of soyabeans off South American
production, squeezing world supplies and prolonging
the descent from that season’s record world grain
and oilseed prices. That season, drought also
coincided with a short US maize crop (down 24mtonnes) but was offset by a record wheat harvest
which gave consumers choice and helped stop prices
running completely out of control – also similar tothe current season.
In the event, things don’t look anything like as bad
2008/09 as this issue goes to press in late January.
Although Argentine weather might yet turn dry again,
a series of rain events in January has favoured most
of the drought-stressed areas and temperatures havecooled. Relief may have come a bit too late to put back
all the lost yield potential for maize trying to pollinate
during the December heat-waves but it has almost
certainly stemmed losses at far lower levels than thepessimists feared.
That was underlined in mid-January when theUSDA’s monthly world forecasts trimmed just 3m tonnes from Argentina’s maize crop estimate andleft Brazil’s unchanged. USDA also lopped just 1m
tonnes from Brazilian and 1.5m from Argentine soyacrop estimates. In fairness, most market analysts see
these estimates (which still suggest record or near-
record crops) as a bit too generous. However, they are probably nearer the likely outcome than some of the earlier dire forecasts.
In fact, in its second bearish global forecast in as
many months, the USDA calculated far looser suppliesoverall, including rises rather than expected cuts for US2011 maize and soyabean crops, lower US wheat and
soyabean use, higher US wheat and maize stocks as
well as those far higher than expected Latin American
crop estimates. Higher Ukrainian, EU and Russian
production also left world maize output and stocksslightly higher than in the previous month and 40mmore than last year’s.That said, coarse grain supplies will be lighter than
the trade hoped last autumn, in a season in which the
US maize crop has again fallen short of target (314mrather than the initially forecast 330/335mnnes).
On the plus side for supply, record maize productionand exports are coming out of eastern Europe, chiefly
Ukraine, which has been happy to slash its prices to establish itself as a serious challenger to the US
and Argentina. Along with the huge global supply of
competitively priced feed-wheat, this has considerably dulled the impact of smaller than expected American
maize crops.So has a slower trend in world demand for maize.
In the largest consuming country, the USA, maize
offtake has actually fallen by about 1.8% as corn ethanolgrowth has flat-lined while feed use has dropped. Thisis quite a contrast to recent seasons when ethanol use
was growing in leaps and bounds.Global demand for corn is still up overall by 25m
tonnes (the lion’s share of growth in China, Brazil and
India). However, that’s nowhere near the 40m tonneexpansion seen in 2009/10.
Even so, US/global maize stocks remain at their
tightest level in relation to consumption for decades- less than eight weeks’ supply cover. A bigger worldcrop will be vital this summer/autumn, even to meet
a continued slower rate of demand growth. That
means markets will remain highly sensitive to any US,
European or former Soviet country weather problems
in the months ahead and the level of spring plantingsin these countries too.
So far, the auspices are encouraging. Pundits are
looking for a rise of 3% or more in US planted areafor maize which, with a return from last year’s (low)
to normal yields - about 160 bu/acre - could result
in a crop increase to 350/360m tonnes. That wouldmore than take care of demand growth, the shortfall
currently foreseen for South American maize crops – and still leave some over to start rebuilding low stocks.
Ukraine, which lost a lot of its winter-sown wheat
and barley, maybe 20-30%, to drought, intends to
plant much of this land up to maize instead. It makes
Latam jitters stall price drop- but wheat supplies keep rising
Gi
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fd milliG tcholoG34 | January - february 2012
COMMODITIES
sense. This season’s Ukrainian maize exportsare expected to rocket from a normal 5m to
a record 12m tonnes. With maize selling at $6
instead of the usual $4 to $5/bushel (sometimes
considerably less) this grain should bring in a lot
more foreign exchange than Ukraine’s often low-
grade wheat exports. Europe also saw a huge
rebound in its maize crop this season to a record
64.3m tonnes from less than 56m in 2010. This
has not only boosted domestic use and exportsbut will add some to seasonal ending stocks too.
These are the main reasons why the ‘tight’
US maize futures market is currently forecasting
prices will be 7.5% cheaper at end-2012 – returning to a 17% discount to wheat after months of highly unusual
maize/wheat premiums.
As we expected in earlier issues, the worldwheat crop has been consistently under-ratedin recent months, largely due to better than
expected harvests in the former Soviet Union.
The main CIS or ‘Black Sea’ producers’ outputis now estimated to have rebounded fromlast season’s drought/heat-wave-reduced 81m
tonnes to 114m. This is expected to allow regionalexports of 35m tonnes compared with less than
14m last season. Only a few months ago, some
trade pundits were rubbishing ideas that sales
would come anywhere near the 25/30m tonnes
vaunted by other analysts. Heavy exports from
these countries have been the biggest factor
bringing down world and European wheat prices
in 2011.
Although this ‘front-loaded’ export campaignappears to be slowing now – and CIS grain pricesslowly rising – this season also has bigger exports
from good crops in Canada, Argentina and
(despite a lot of weather damaged grain this year)Australia. So, while world wheat import trade isseen about 5.5m tonnes higher this season than
last, the buzzword for many months has been
competition. This, rather than any strictures
on supply, is the main reason why US and EU
exports are currently expected to drop by about
Gi
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fd milliG tcholoGJanuary - february 2012 | 35
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Against that, Ukraine might lose 25-30% of its
winter wheat crop. Assuming more of this land
went to maize than spring wheat that could mean
5m or 6m less wheat next summer from this
source, However, even from this year’s bumper crop, Ukraine is only expected to raise exportsfrom 4m to 7m tonnes – not the biggest factor
in the current highly competitive export market.
More important may be whether Russia,
Kazakhstan and European countries manage torepeat last year’s good yields and whether theUS, Canada (which plans to raise are by 12% !)and Australia get the right weather for plenty of good milling quality wheat.
The current supply/demand situation for thesegrades looks better than a few months ago, whenUS Dark Northern Spring wheat for export from
the Gulf was trading fob terms at $420/430 per
tonne (hitting a high of $579 in the summer).
The January 2012 cost has fallen to a 13-monthlow of $366/tonne.
Whether or not the world gets a 700m or
650m tonne wheat crop for the coming season,
it will also start with massive carryover stocks
from this year, equal to 16 weeks’ consumption.
If the crop does reach the upper end of forecasts,
a burdensome wheat supply may have to be
priced lower to raise its share of the feed ration – unless of course, maize crops in the Americasor elsewhere do run into serious problems.
EU wheat prices as reflected on the Parisfutures market dropped from a high of �209/ tonne in early January to �194 a week later, then back to the �208 again recently. It seems
remarkable that the European markets are tradingso high against the wheat supply backdrop. Back inDecember, for example, EU March milling wheat
could have been bought for just �179.75/tonne.
London feed wheat futures at the same time
were around £140.50/tonne but have recently
breached £168.50. Moreover, feed demand in
the UK has been unusually slow for the time of
year with compounders reportedly intent on
making sales than wheat and other commodities.
However, markets here are largely following
the US response to Argentine weather/crop
reports with the other eye on Euro-zone issues
and their effect on the single currency’s valueversus the dollar. More volatility is likely aheadas these issues are resolved (or not) although
some analysts are looking for a possible further slide in EU soft milling markets into 2012 due to the ongoing weight of export competition and the possibility this will lead to end-season wheatstocks turning out larger than expected.
Russia’s aggressive early season exportcampaign – a key factor in setting low world
and EU wheat prices - appears to be easing now
as most of the freely available quality grain getsused up and its domestic and export prices rise.
nagging Euro-Zone debt crisis lurches on withoutreal resolution but maybe with a little less impact
from the markets. Financial pundits continue
to warn of potentially severe repercussions for
global economic growth and thus on demand for food, feed and fuel commodities. It has been a big
restraint on grain and oilseed bulls but markets
seem to have grown tired of listening to this
story. A steep drop in demand for ocean freightand lower shipping costs for grain also suggests
something is slowing down. Yet the total export trade estimates for the major grains and oilseeds
in 2011/12 (ends June 30 for wheat, Sep 30 for coarse grains) remain relatively robust.
Meanwhile, the speculators who played such alarge part in record grain and oilseed prices over
the last two or three years are still there but a
less strident force, having not got the profits they expected last year for investments in wheat and
soyabean futures at least. We can expect some
banks and hedge funds to continue trying to
talk prices back up at the first hint of a weather
problem, especially for maize with its record
low stock/use ratios. But aside of the Argentinedrought factor, 2012 does not at this stage look
like a promising year for the funds to gamble
again on price rises.
Main commodity highlights sinceour last review
Will wheat prices drop back?
Although not directly affected by the South
American drought threat, wheat joined the end-
year rally in soyabeans and maize, even rising
faster than the latter as funds who got into thehabit of selling this surplus market were forced to buy back some of these positions. There was
also much talk of wheat’s value as a feedgrain
rising if Latin American weather did cut suppliesand drive up prices of maize.
European wheat prices had to follow the
US/world trend in first half January with addedsupport from the weak Euro which dropped to
15-month lows against the US$ at one point. Thiscould boost EU export sales prospects although
there has been little sign of any incoming trade
bonanza yet amid still plentiful supplies fromNorth and South America, Australia and CIS
countries.
The USDA’s US wheat planting estimates were
also bearish (up 3% on last year’s) larger than
expected and focused on hard red winter wheat
(+6%), the mainstay of US exports and a top
indicator of world bread wheat value. If US spring
wheat plantings went up by the same amountand national average wheat yields returned to
the 2010 level (46.3bu/acre), the crop would be
closer to 60m than last year’s 54.4m.
one third this season and why prices in both
markets were 20% cheaper in January 2012 than
this time last year .
That trend may continue. World consumption
of wheat may be up by 27.5m tonnes or 4%
this season but production is growing faster, so
stocks will rise. In fact, the current USDA forecast
(for June 30 2012) is for a world carryover of 210m tonnes – 31% of consumption needs(about 16 weeks supply). Some analysts even
put them higher than the all-time record 211mof 1999/2000.
At the same time, the International Grains
Council is forecasting world wheat sowings 1.7%
higher for 2011/12 crops. If yields hold steady,
that could deliver the first world crop in excessof 700m tonnes.Steady yields might be a tall order for some
countries. Last year’s world average wheatyield was a record 3.1 tonnes/hectare (+7%)
eclipsing a slight decline in sowings. This winter,
East European and US crops have dryness issues that could work against maximum potential. TheEU has also been short-changed on rains in some
south/eastern member states. Nonetheless, there is an overall impression of ‘generally
favourable’ conditions around the main northernhemisphere wheat belt. Indeed, some countries,
especially Australia, Germany, Canada and the
Ukraine, might also expect a bit more luck with
grain quality – i.e. better summer growing/harvest
weather after two years of unusually challengingconditions.
This combination – big crop, huge stocks,bigger sowings, questions why the Chicagofutures complex should be forecasting wheatprices 11.5% higher at the end of 2012 than they are now. Consumers will rightly question the reliability of this futures ‘price revelation’,
given that this time last year, Chicago wheat wasforecasting $8.55/bushel for end-2011 compared
with the actual price with which the year end of
of $6.45¼. Chicago futures ‘price discovery’ was
just as wrong on maize. A year ago it saw a 10%drop in prices over 2011. Despite a 40m tonne
(5%) recovery in world output, values actually
rose 15% amid the US crop shortfall and China’s
return as a major importer. While still on the futures markets, we might
also question why, if maize is the main factor
holding wheat up as most trade analysts accept,
wheat should be forecasting a 17% premium over
the coarse grain by the end of 2012? Shouldn’t itbe the other way around?
As well as the ‘fundamentals’ (supply/demand
issues) above, grain and feed markets continue
to keep an eye on ‘macro-economic factors that
might influence physical demand, speculativeactivity etc. Over the least few months these
factors have been broadly bearish for prices. The
Gi
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fd milliG tcholoG36 | January - february 2012
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Global Feed Markets: January - February 2012
Bentall Rowlands Storage Systems are renowned worldwide for their designing, manufacturer and installation of grain storage silos and ancillary equipment. For example, PMR Contracts Limited silos, supplied by Bentall Rowlands survived the Christchurch earthquake, which flattened most other silos in the city.
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