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Global Feed Markets: November - December 2012

Global Feed Markets: November - December 2012

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Our commodities market round up for November & December 2012
Our commodities market round up for November & December 2012

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Published by: Milling and Grain (formerly GFMT) on Dec 06, 2012
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Digital Re-print November | December 2012

Global Feed Markets: November - December 2012
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 form or by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1466-3872


Every issue GFMT’s 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.
Grain and feed markets are also being restrained by ‘macro’ factors - the ongoing Eurozone crisis, joined now by constant talk of the US economy tumbling off the ‘fiscal clifff’ in the New Year. Along with China’s prospects for slower growth, this continues to encourage fears of global economic recession turning into depression.

Supplies less tight than expected?


HE past two months have been a roller coaster ride for the grain and feed raw material markets. In Europe, wheat prices rose sharply as this year’s smaller crop continued to disappear too fast for comfort into export channels as Russian and Ukrainian supplies dwindled and the Arab world stocked up. Prices also responded to unhelpful harvest weather threatening Australian and Argentine crop yields and quality, by dry weather plaguing the barely sown US hard red winter crop and far too much rain holding up planting of next year’s French and UK crops. Amid the perception of ever tightening world wheat output and stocks, frisky US futures markets helped pull European milling wheat futures to their highest prices since February last year. With its own set of unusually poor quality problems, the London feed wheat contract went one better still and traded its highest prices ever. Despite being braced for further unwelcome

data from the US Department of Agriculture’s monthly US and global grain and oilseed crop updates, consumers finally had some better news in November. USDA came out with bigger than expected US maize and soyabean crop estimates, raising rather than lowering its seasonal ending stock forecasts for both commodities (soya quite substantially). It also made only minor cuts in world wheat output and – with a significant cut in its consumption forecast – was actually able to raise ending stocks for this grain. In response, US markets for wheat, maize and soyabeans all fell to multi-month lows while forward futures months for the latter two markets continued to display big discounts. All this was at odds with some bullish views on forward prices from some of the big banks at last month’s Global Grain Conference, especially for maize. ‘Stale’ bulls may still argue that the USDA is too optimistic on some of its crop forecasts – chiefly those for South American maize and

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Feed Knowledge

Global Miller



turning into depression. None of this is encouraging for the food, feed and their upstream and downstream partners from the point of view of a healthy trading environment. But it may at least help keep costs anchored (not least by keeping speculators reined in). So where might the grain and feed markets go in 2013? Will Chicago maize be trading in the latter part of the year, as futures markets suggest, 16% cheaper than now, in the low $6’s per bu or less, soyabeans 20% lower at $11/bu as US crops revive by perhaps 100m and 10m tonnes respectively? Will Latin America grow 30/35m tonnes soyabeans and, to a lesser extent Australian fully reflect the possibility of more normal more soyabeans than it did this year and will and Argentine wheat output. US maize weather, high prices and consequent Russia produce 30m tonnes more wheat as production might also be reduced again expanded sowings bringing major crop its officials recently suggested? Or will the when producers, in their opinion wood pallets are areas and yeartransporting itself (maize weather again of pallet, theynastyalso considered USDA does its final acreage count rebounds next for - in the US finished product is enic type spring some are surprises not food-safe expected to be lower and a no brainer. The plastic pallets we recom- by many record high costs across are in January (generally in a preparation environment. soyabeans), in Russia and Ukraine leading to new to be the safest, as therethe no – but Bringing a wood pallet into a bakery could mend barley) and to a lesser extent, board? Nobodyedges or stage knows no risk of who knows, after the upsets in its (wheat and are manufactured from the highest nails, sharp at this splinters and and spell report? There is also little doubt Western and Central Europe (all grains). until some component parts breaking free under November disaster as wood chip could easily go quality food grade virgin or recycled materi- loose of these crops are seen up and unnoticed in product to consumption Details of some of these possible scenarios running toward harvest, we and causing that the ratio of maize stocks – the health, legal and als and comply with EU safety legislations. manual lifting conditions can doubtlessinjury is still economiclow levels that could be immense. discussed in bags,relevant sectionswith an open to more price volatility into first half at risky consequences could easily are For flour the a plastic pallet below. expect operatives. The same price explosion if the the finished flow-through top deck will offer the best grip trigger another goes for transporting past USDA has also helped underline our 2013. product. Metal nails problems repeats argument has no internal cavities demand year’s long list of weather in wood pallets can easily but in the last issue that grain where mould, A worthwhile investment work Although hygiene and food safety are into 2013. themselves loose and burst a bag of flour dust and other contaminants anything so cannot be guaranteed to grow at can collect, which longer a whole pallet load. However,could spoilterm bears might It only the pace be recentcleaned by hand or with an key priorities for food processors and like it can of easily years, or even remain takes tiny tear to make a flour don’t stable, when costs constantly rise to record manufacturers, cost will always remain a reasonably aclaim for ward futuresbag unsalable. automated system. Plastic pallets are not only the most hygi- major factor in any purchasing decision. Using plastic pallets in food preparation or near record levels. That is why the world Wheat – exports will cut EU this season is expec ted to stocks use over 20m tonnes each Amid fairly brisk demand from a number l e s s w h e a t of Middle Eastern and Nor th African a n d m a i z e countries, EU wheat exporters have been after decades making the most of reduced competition o f m o s t l y from the former Soviet ‘Black Sea’ countries relentless and consequent higher prices on the world growth. market this autumn. For the season to G r ain and date, EU export licenses are now running feed markets significantly ahead of last year’s pace, despite are also being the current crop turning out 5.5m tonnes restrained smaller than in 2011 (around 132m tonnes). b y ‘ m a c r o ’ Even with a predicted 4m tonne drop in factors - the domestic consumption, EU ending stocks ongoing Euro- next Jun 30 will be wafer thin at a forecast zo n e c r i s i s , 9m tonnes compared with 12/19m in recent j o i n e d n o w years. by cons t a nt Wheat prices peaked early in November t a l k of t h e when Ukraine announced it would curb sales US economy for shipment after November with Russia, tumbling of f the other cheapest seller, expected to follow the ‘fiscal clifff ’ soon afterwards. Ukraine’s move hardly in the New justified the market reaction (which didn’t Ye a r. A lo ng last long) as the trade knew this supplier with China’s had already committed all or more than its prospects for supposed 5/5.5m tonne export surplus. Since slower growth, then, various officials have tried to put an this continues acceptable spin on the export halt, aware to encourage that it is not only at odds with World Trade fears of global Organisation edicts but has not gone down economic well with Ukraine’s top customer, Egypt. recession At risk of having to re-source some of its

Main commodity developments since our last review


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Ukrainian wheat elsewhere, Egypt initially took Ukraine off its list of approved suppliers at one point but re-instated it after a pledged to honour all contracts – even if that meant paying to find the wheat elsewhere. Combined wheat production within the former Soviet bloc is expected to drop from last year’s 115m tonnes to 72.5m. Exports from the main three suppliers are expected to fall from 37.6m to 23m. However, the implications are less severe than in past year’s of crop shortfall, partly because the region’s carry-over stocks started out 5m tonnes higher than last year’s and, even more importantly, because world wheat import trade is also seen down this season by 14m tonnes. World wheat export competition hasn’t gone away this season because of the Black Sea shortfall, or the accompanying declines of about 4m tonnes each expected in Australian and Argentine exports. Australian expor t availability of at least 19m tonnes will still be huge by historical comparison while extra supplies are seen coming from Canada’s bumper crop (which will allow 2m tonnes more expor ts than last year) and India (exports up from last year’s 1.7m to 7m tonnes!) The biggest exporter of all, the USA, is also expected to raise shipments by 2.5m to 30.5m tonnes and still finish the season with a comfortable 19m tonnes of stocks – enough to expand foreign sales further still if need be. So far, the US is failing to meet its own export targets, undercut by Canada, Australia, Argentina, Europe, some residual Black Sea sales and India’s emergence as a serious competitor. These disappointing exports have been a constant drag on the US futures markets and along with the looser USDA supply figures and a 3.6m tonne reduction in estimates of world feed wheat use, have helped drive Chicago futures prices down to four-month lows in mid-November, a reversal that eventually helped to knock EU wheat prices off their peaks too. While an estimated 174m tonnes of wheat carryover stocks for 2012/13 is hardly tight relative to consumption needs, there are

some bullish aspec ts to this. One is that over 55m tonnes of these are within China’s strategic reser ve, so theoretically ‘off-market’ and unable to inf luence prices much (some western obser vers also doubt that China holds any thing like this much wheat). Another 22m tonnes is held in India, much of it poorly stored and of dubious quality. Even so, what’s left in other supplying and impor ting countries’ stocks should be enough to see this market through the season without price mayhem. The main uncertainties hanging over the wheat market, which could drive prices higher, are the uncertain outcomes for some of the big exporters’ 2013 crops. Australia’s may be under 20m versus the expected 21m tonnes and is experiencing some quality problems too from difficult harvest weather. Argentina’s crop is probably over-rated by 1/1.5m mn tonnes and much of its usually good export quality breadwheat has been downgraded by rain-delayed har vests. The USA’s hard red winter wheat crop is meanwhile suffering from prolonged drought. Wheat, of course, is a tough crop with remarkable powers of recuperation. Within the US itself, drought seems to be a recurring theme in recent winters – yet the crop usually seems to come through bigger and better quality than the pessimists fear. That said, this year is undoubtedly much worse than normal, official surveys putting crop condition ratings at their lowest level ever. Given that HRW is the largest component of the top exporter’s foreign sales, this could emerge as a bullish factor going into 2013. On the other hand, the USA’s soft red winter crop is doing much better while it could also make up for some of the hard winter wheat losses by sowing more spring wheat. Europe is another problem area with France and the UK both well behind on their autumn sowings. This could result in lower than expected planted areas and crops. However, Germany’s crop is in better condition while it’s also possible that the east European countries that helped pull down this year’s crop after droughts and heatwaves, could get better weather and crops next year. At this stage, it remains possible that 2013 will bring a bigger world wheat crop but it will be many months before a reliable picture shapes up. In the meantime, wheat will remain exposed to a tight maize market and the broader need to rebuild depleted feedgrain stocks – a situation that cannot be remedied before the next US maize harvest arrives in third quarter 2013.







+44 (0) 870-770-9861 VORTEX.EU@VORTEXVALVES.COM


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story is real in terms of human development indicators, the performance has been a cause for concern. India is way down in the Human Development Index and very high in Global Hunger Index. As per National Family Health Survey, 42.5 percent of children under the age of five are underweight and 69.5 percent anaemic. Pervasive malnutrition and undernutrition is for the across (CIS), • Winter weather reported‘Black Sea’the country. European and North American crops is seen Serious calorie and protein deficiency • Updated estimates of areas. The risk that the especially in rural sown areas for N Hemisphere winter wheat towards nutrition country may rapidly move • What shareiswill wheat take in feed insecurity real. consumption theplace profile ofin thepopulation Given in age of maize the EU, the (31 percent below theimport 15, and 53 perUSA & in Far Eastern age of markets? • Where will Australian &of 25 representing the cent below the age Argentine crops settle volume – andthe implications are serious. future of India), quality - wise? Malnutrition exerts long-term adverse effect on human health, labour productivity and general wellbeing. It is recognised that perMaize prices have been fairly ‘range-bound’resistpetual under-nutrition results in low duringance last infections andrestrained by the the to two months, increased morbidity. bearish USDA data and a welter of negative economic news with its possible implications Versatile processing for meat Extrusion technologyand, notof the most and energy demand is one least, by unusually poor foreign demand for US with versatile food processing techniques grain.wide range of and many inOne of the most The USDA applications. the trade are still expecting some sort of US export important applications of extrusion technolrevival in the New Year, however, as intense ogy is to produce healthy and nutritious Latin American and other competition starts Also, alternates /analogues to some staples. to fade. extrusion technology can help in utilising low Keycost raw materials as well as underutilised changes to the supply//demand data this month manufacture US crop going grains to include the these analogues in


Maize prices restrained

large quantities. One of the unique features of this technology is to fortify processed food products with micronutrients. As extrusion process is a high temperature short time process, it can retain the micronutrients efficiently. Some of the most promising products that can alleviate both micronutrient and macronutrient malnutrition are, textured protein products, lentil analogue, reconstituted rice, snack products etc. All these products can be efficiently fortified with various micronutrients.

Table 2: Category Size (Million Rupee) Size (Million US$) Growth (%)

Packaged Milk Biscuits Edible Oil Tea Savory Snacks * Confectionery Vegetable Oil Milk Food Drinks (MI Ds) Ghee (Clarified Butter) Salt

11000 6500 6100 3700 2100 2100 1950 1450 1300 1300

220 130 122 74 42 42 39 29 26 26

7 17 13 8 19 12 7 2 17 13

Baby Foods 1100 22 1 One further advantage of this technology is to reduce 1000 million (Indian Rupee) = 20 million US$ the cooking time of the procSource – AC Nielsen retail audit, All India (Urban + Rural), MAT Dec essed products. This has an 2006 economic advantage while using these processed products in the feeding programmes. This technol- and nutrition security in India include: microogy can be used to manufacture a number nutrient fortification of basic commodities; of processed and value added food products manufacturing reconstituted rice; production in large volumes. Some of the products and of textured soy proteins in large volumes; applications which have relevance to food manufacturing high protein snacks.

A variety of applications

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u p 50 0 , 0 0 0 4.3m lower than last year’s. Many in the t o n n e s o n trade contest the USDA’s EU demand highe r y ield figures, including the forecast of just 5.5m estimates tonnes of maize imports against NAI, Iseason’s N last NDIA HE (+0.3bpa), 7.1m. The popular range is 8-10m with one Russia’s crop leading analyst as high as 11.5m. This would up by a similar make the EU second only to Japan (15m) in a mount bu t the global import stakes – a development the EU harvest viewed on the US markets – which tend to 79F revised down set the world maize price trendebruarya2bullish – as 013 by 1m tonnes factor going forward. to just 54.7m However, anchoring that sentiment tonnes – somewhat, there has been plenty of 11.5m below competition in in the global maize export last year’s and markets recently, chiefly from Argentina, t h e l o w e s t Brazil, Ukraine and, to a lesser extent, India. level for many Some of these origins have been regularly years. Along undercutting the US prices by $20/$40 per Safety, sustainability and food supply in milling w i t h o t h e r tonne which explains why US sales are doing for the 21st Century minor changes, so badly. In fact the lion’s share of a 2.4m that aggregatesmaterials -increase in supply maize trade this tonne demand & world trends • Raw a world maize & food safety • Food season is seen going to Brazilian expor ts c r o p• Milling technology developments be surprising to o f (+2m tonnes). It would not 840m • tonnes see formulation down its fairly large stocks Nutrition & Brazil whittle - 6 8 0 , Environment & sustainability if the demand was • 0 0 0 further to export more higher• than in security and the price right – so that US sales Food there OctoberStorage revival could come later than they think. but & transportation • still almost 41m Despite weeks of rain-delayed planting, d o w n Find out more at: f r o m the USDA kept its South American maize l a s t y e a r ’s . crop forecasts (harvest first quarter 2013) The EU maize unchanged on the assumption there was consumption still time to get these crops in and achieve forecast was normal yields. However, not all analysts also raised by accept USDA’s high crop figures, especially Jointly organised which could be over-rated 1. 5m tonnes for Argentina,by Assocom and Grain & Feed Milling Technology magazine bu t r emains by anything from 2m to 6m tonnes, all of




the world’s second largest market




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grain next year? This factor will continue to dominate others influencing grain costs right through to harvest in 3rd quarter 2013. At this stage it could be under or over-reflected in weaker forward futures. Competition from L atin Amer ica , former Soviet countries and India has cut demand for US maize. So has availability of Australian & Indian feedwheat. But will Argentina’s next crop fall shor t of the record forecasts? How much corn will the EU use/import in 2013 to meet its own feedgrain crop shortfalls? - probably more than expected by USDA Will US corn ethanol use revive after dropping in 2012? Will China need more or less maize imports next year and will suppliers like South America and Ukraine benefit more from this demand than the USA? Will global economic recession continue to curb expansion in meat/consumption, help cap feed grain demand & anchor grain and oilseed costs?

• which would have to come off exports. Also, these crops will likely be harvested later than normal in a year when tighter US supplies need this seasonal supply top up on time. Overall, then, maize supplies are still fair from comfortable ahead of nine months of unknown growing weather. So again, this is a market that could go either way.

• Has the US 2012 maize crop gone from under to over-rated? • Will farmers there sow a large area again and will weather favour normal yields – perhaps recovering 100m tonnes more


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• Speculators’ enthusiasm to exploit any maize crop weather problems Proteins/oilmeals - demand to mop up extra soya? US soyabean and meal prices fell to fivemonth lows in November after the USDA raised its US crop forecast by 3m to 80.9m tonnes. That was not only more than expected but a remarkable shift from the view just two months ago, when USDA was expecting the Midwest summer drought – possibly the worst since the 1930s - to cut the crop to just 72m tonnes (some traders even less). The USDA also surprised the markets by making no cuts were to its crop forecasts for Latin America (harvested first quarter 2013) where Argentine sowing has been held up by wet weather and parts of of Brazil have been getting too little rain. Many private trade estimates are lower than the USDA’s but not all. The crops are still going in as we go to press and the weather could look up in time to keep sowing roughly on target. Argentina might even so a bit more than expected as farmers giver up on corn planting which has to be completed earlier. However, later than normal sowing could mean the crops arrive a bit later than usual. Two months ago, that would have made a lot more difference as US supplies looked in serious danger of running out long before then end of its Sep/Aug marketing year. Now, with the larger US supplies, that looks less likely. If all goes well, world soyabean output should expand by about 28m tonnes to a

new record 268m in the full 2012/13 season. Supplies could get another top up later in the year if the US gets a return to normal yields for its summer 2013 crop. Even on unchanged acreage, some analysts think could expand its next crop by as much as 10m tonnes, back to the peak levels of 2009 and 2010, assuming weather does normalise. In soya meal equivalent the increase in 2012/13 supplies equals about 22m tonnes. However, USDA expects world crush to increase by only 4.5m, the rest of the extra beans going to food use and stocks. On paper, this suggests adequate beans to meet an expected increase of about 4m tonnes in world soya meal demand spread over China (+3.6m), Europe (+0.6m), Brazil (+0.4m) offset by a near 2m drop in US consumption. If the US futures markets are right, soya meal should be about 10% cheaper this time next year although, if the US crop does rebound, the drop will be a lot bigger than that. However, there are some mitigating bullish factors in the current season’s supply and price outlook for oilmeals, One is the poor performance of other oilseed crops this year. After two years of stagnating production, the world rapeseed crop is expected to drop by about 1.6m tonnes to a four year low of 59.3m, after disappointing yields in Europe, the former Soviet Union and especially Canada, where the harvest has come in about 2m tonnes under an earlier expected record level. Current pointers suggest the FSU countries are sowing more winter rape

under much better conditions than last year, laying the foundations for bigger 2013 crops. Among the top EU producers, rain has held up and may limit sowings in France and the UK but Germany is looking more promising and maybe the East European countries, who lost yield to drought and heat this year, will get better weather next year. Largest exporter Canada’s 2013 crop is larfgely spring sown so an unknown quantity at this stage but it would not be surprising to see farmers there sow a big acreage again at these still high prices. World sunflower seed production underperformed even more than rapeseed this year, dropping 5.4m tonnes or 13% to just 34.8m tonnes after disappointing crops in Europe and the FSU countries. With little change in production of the other major oilmeals – groundnut, cottonseed etc – it is clear that most of the increase in global consumption will have to be fed by soya. It should also be noteds that carryover stocks of the alternative oilseeds will be unusually low at the start of next season, especially for sunflowers and rapeseed, the latter at a nine-year low. So even if these crops do rebound nextyear, supplies will probably not be so flush for yet another year. Even so, if the optimistic soya crop predictions do materialise, that should be enough to hold costs down in the protein sector.

• South American crop weather and final sowing, timing of their harvests • The brisk pace of global soya demand makes it vital that next year’s production forecasts do pan out • Key to demand is top importer China. Is soya meal use there slowing somewhat as officials suggest are will it continue to surprise to the upside? • Will EU/CIS rapeseed and sunflowerseed and Canadian canola crops perform better after a disappointing 2013, easing the onus a bit on soya supplies? • How much will the US plant in the spring? What weather will crops get in 2013?

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