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Global Feed Markets: July - August 2013
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 2013 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
GRAIN & FEED MARKETS
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.
China’s problem caught the cereal world off-guard, largely because it has had a long run of good luck with its crops in recent years, these frequently exceeding forecasts made by western observers like the USDA and mostly keeping pace with China’s own rocketing demand for grain, especially in the feed sector.
China stalls cereal price drop – for now
this is over-rated by at least 10m tonnes and/or that up to 20m tonne of milling wheat crops have been lost or downgraded to feed. China’s maize crop is still expected to increase this year from 206m to between 211 and 214m tonnes according to the USDA and IGC respectively. These figures too may be exposed to some downward revision. China’s crop problems clearly aren’t on anything like the scale of last year’s US and Russian droughts which combined with other global weather issues reduced world maize output by 28m and wheat production by 42m tonnes. However, they have to be seen in the context of China as the fastest growing consumer of cereals. Its maize consumption this season will outweigh domestic crops by at least 13m tonnes, possibly much more, wheat by about 4m tonnes (which masks the possibly far bigger deficit in its milling wheat supplies indicated above). The bleaker supply assessments have been backed by a surge in Chinese buying, especially from the United States, which at the time of writing, has logged sales to his destination of 3.2m tonnes of wheat – 10 times as much as at this time last year. China has also been buying wheat from Australia and France. The USDA currently sees it importing 8.5m tonnes of wheat from all sources, some trade
hen things start to go awry in China – the world’s top wheat producer and largest consumer of cereals in total, there’s bound to be a market impact. Such has been the case over the past month, as a grain market confidently expecting much improved global supplies - and consequent lower costs - found its attention diverted instead to an upsurge in Chinese grain import purchases. China’s problem caught the cereal world offguard, largely because it has had a long run of good luck with its crops in recent years, these frequently exceeding forecasts made by western observers like the USDA and mostly keeping pace with China’s own rocketing demand for grain, especially in the feed sector. This year, however, a series of problems starting with a tough winter, droughts in some areas, floods in others and recent wet harvest weather have slowed development and/or interfered with sowing plans – the result, a significant dent in official production targets. How big a dent is uncertain at this stage. In the wheat sector, production is still seen by the USDA and International Grains Council between 118m and 121m tonnes – similar to last year’s. However, recent reports have suggested
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Table 2: Roughage and concentrated feed Cow Feed Main Species Properties Good palatability, easy digestible, large volume, high water content. High quality, low fibre, easy to store and transport Nutrition Feeding Value
Table 3: Common additives for dairy cows Cow feed additives Dosage (per day) Anionic salts 200 g 300-500 g 110-225 g 50-90 g 50-80 g 30 g 50-200 mg 30 g Bentonite Baking soda Magnesium oxide Isomeric acids
Suitable growth period
Grass, hay, crop straw, alfalfa, chaff species Corn, cottonseed meal, wheat bran, etc.
Rich in crude protein, carotene, vitamin D, inorganic salts Abundant in digestible energy and protein
Prenatal 3 weeks (calves) Lactating dairy cow Lactating dairy cow Lactating dairy cow Lactating dairy cow Lactating dairy cow Dairy heifer, young cows Lactating dairy cow
Choline Monensin Methionine
be strict control of the dosage. Hydroxy Analogue Calves, breeding cattle and lactating cows Table 3 lists common additives for Prenatal 2 weeks, analysts far more, compared with the past questions the Niacin 6-12 g have different nutritional requirements and dairy cows. postnatal 16 weeks season’s 3.2m and normal imports of only 1m trade frequently will need different feed formulations. Raw tonnes or so. China’s maize imports are also asks but the way Prenatal 2 weeks, Yeast culture 10-120 g materials have great effect on milk quality; Conclusion postnatal 8 weeks expected to expand to 7m tonnes from the China calculates for instance, rapeseed dregs, worse slag, fishSince cattle eat primarily forpast season’s 3m, again with a heavy emphasis and protec ts Biogen 10-50 g Lactating dairy cow meal, and silkworm chrysalis powder should age, cow pellets are a concenon US supplies. Some trade estimates for its data make be strictly limited. Otherwise, it may make trate. Feeding pellets to dairy Zinc methionine 5g Lactating dairy cow these also range higher, to at least 10m tonnes. them impossible to answer with more than – and probably of a more reliable and regular the milk with a peculiar smell. Conditioning cows gives the ability to package Prenatal 1 week, China’s pivotal role in cereal supply and an educated guess. It’s also possible The quality factor is clearly an that quality too. Propylene glycol 0.25-0.5 kg is a key factor in pelleting for starch pasting minerals, buffers, rumen modifiers postnatal 2 weeks demand extends to its position in the table China is looking at world cereal prices that incentive for the wheat purchases too. China and sterilization, improving the quality of and other ingredients required of global grain stockholders. The 57m tonnes have collapsed by almost 30 percent in recent has always liked to use some higher grade grain, grain hardness and durability including in small quantities in a homogof wheat and 55m tonnes of maize China is months to their cheapest in over a year (almost foreign milling wheat to improve the strength material moisture content, retention time, enous way. There is nothing inherently reckoned to store in its strategic reserves is three years in the case of forward maize of its flour grist and this season’s emphasis is and the temperature. special about cow feed pelleting technology More InforMatIon: equivalent to one third of all world stocks of deliveries) and thinking this is a good time to on US soft red winter milling wheat suggests Feed additives have an obvious effect on but particle size, mixing time, conditioning firstname.lastname@example.org cereals. Does China really hold these large build up the reserve stocks it has always liked Email: the bulk is going to China’s massive noodle improve milk yield and milk composition and degree, feed additives dosage should all be Website: www.pellet-machine.net stocks and/or is their quality (some of it would to hold for food security. Imported maize is industry, rather than being imported as a feed reduced milk production stress, but should considered. be very old) highly questionable? These are cheap compared with China’s own production substitute for maize.
Pellet quality and productivity
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26 | July - august 2013 Grain feed millinG technoloGy
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The international wheat market has also been enlivened by a surge in Brazilian buying from countries like the USA as it seeks to replace supplies that would normally have come from its main source, Argentina, (where wheat crops have been in decline in recent years due to government interference in export trade). Barely into the new marketing year, the US has already sold over 1.1m tonnes of milling
markets and a consequent drop in average traded prices. On the leading bellwether cereal markets of the USA, this is having less impact so far because of the Chinese business and because traders there want to see their rebounding maize crop proved and ‘in the bins’ – a situation still a month or two away as this issue went to press. However, along with Europe’s own crop rebound, the CIS recovery is having quite an effect on EU cereal prices.
wheat to Brazil – 20 times as much as at this time last year. Between them, China and Brazil, now the world’s second and third-largest wheat import customers respectively, have caused a big increase in US total wheat export sales for the season to date – even at a time when the US is pricing its wheat far too expensively to compete in more traditional markets like the Mid-East/North Africa region (MENA) and non-Chinese South-east Asia. These two have also helped replace business lost to former top wheat buyer Egypt which has slashed wheat imports this year due to financing difficulties in the wake of its political upheavals. As the trade had been expecting for many months past, the advent of harvests across the Black Sea region – weeks early than usual in some cases – is leading to intense early season selling pressure on global wheat export
On the Paris MATIF milling and London feed wheat futures markets, prices have already collapsed to their lowest levels since early last year. Looking at the cheap prices for forward deliveries being offered by Russia and Ukraine across the board of cereals – wheat, maize and barley – the European and global markets for cereals seem likely to continue to point ‘south.’ Some recent bank surveys, not always noted for their bearish attitude towards cereal prices have been talking of a further 10 percent loss for last half 2013. A snapshot of the main components in 2013/14 cereal supply starts with the Black Sea wheat crops, expected to rise by about a third from last year’s drought reduced level. The USDA is predicting almost 103m tonnes (plus 25m tonnes) while some trade estimates range from 4m to 9m tonnes lower.
USDA has exports for the main three FSU suppliers at 32m tonnes (25m last season). This also assumes the Black Sea suppliers will also attempt to rebuild their depleted stocks as well as raise their own domestic feeding of wheat. Maize production in the Black Sea region is also expected to expand, from 33m tonnes to a post-Soviet-era record of almost 40m, again allowing a big surge in export supplies. The lion’s share of these will be coiming from the Ukraine which has been already begun aggressivelypriced forward marketing of its crop to south east Asian customers like South Korea. But for maize, the key issue this month remains the size of the US crop recovery which will be largely defined by the weather from late July onward. So far this has been benign. While up to 2m or 3m acres of planned area might not have been sown due to rain delays – which also made for later germination and development, the bulk of crop has had a roaring start with plenty of moisture. A recent warmup but without extreme heat and plenty of forecast showers will be welcome for the key pollination phase (which will be more or less over by the time this issue hits the press). Recent US maize crop estimates have settled around the 350/355 tonne level – an increase of 80m tonnes or 30 percent on last year’s and, if it comes to pass, a new record level. This will leave ample supplies for the US to expand its corn consumption by the 25m tonnes predicted by USDA, raise its contribution to world export supplies by over 15m tonnes and still have enough left over to bump up next year’s carryover stocks from this year’s wafer thin 18.5m tonnes to a hefty 50m. Even without the above-mentioned increase in Black Sea maize supplies, this is a pretty bearish scenario – but that is by no means all of the maize story. Perhaps the biggest surprise as we go to press has been a steep upward revision for the Argentine crop harvested last spring, from 26m to 32.1m tonnes – a new record and 50 percent up on the year. That comes on top of a 77m tonne (some say higher) Brazilian harvest which is up by 4m tonnes and also a second consecutive record crop. These are unprecedented quantities of maize flowing out of Latin America at prices that, like the Ukrainian maize, will continue to keep US exporters on their toes for some time yet. This may make it hard for the US to attain its currently planned revival in expor t to 33m tonnes, resulting in it ending up with even larger carryover stocks next summer.
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FEATURE The abundance of maize goes on. South Africa’s crop is also a big one, up on last year’s and currently vying for export trade at cheaper prices than the US can offer. Here in the European Union, meanwhile, maize production has recently been revised up from 63.9m to 65.6m tonnes. EU maize consumption estimates have risen too this month, from 67.8m to 70m, compared with the past season’s 69m. However, EU imports will clearly be able to drop from the mammoth 10m needed last year to offset tightness in the cereal feeding sector (and in the process enable the EU to export wheat freely and exploit last year’s Black Sea crop shortfalls and consequent higher world prices. The relationship between maize and wheat prices, especially in the feed sector, remains a talking point this month. Using the rough comparisons from the Chicago futures markets, maize prices for November delivery have now dropped to around $212 per tonne from $290 in the spring and about $300 late last year. Wheat on the other hand is quoting closer to $250. While wheat has an intrinsic higher value as a predominantly food crop versus maize with its emphasis on feed/ industrial outlets, prices of the two grains ran neck and neck for much of the past year, with wheat often offered at a significant discount. While wheat prices do now seem to be returning to their normal premium, they may ultimately get dragged lower as maize prices succumb further to the growing global crop outlook for this grain. Wheat’s rally last year was, after all, partly justified by the strength of the maize market. We should also remember that world wheat stocks are estimated at 24.6 percent of consumption needs whereas maize stocks are equal to only 16 percent - so why is wheat so relatively expensive? bin following a policy in which an employer requiring employees to maintain a minimum an extra 47m tonnes, equal to sweep aroundauger. 38m distance of six feet from the tonnes more meal. With in rapeseed In a September 29, increases 2008 Interpretation and sunflowerseed crops, the total oilseed gain Letter from OSHA responding to the insuris closer to 51m tonnes. Worldexplained consumption ance agent’s request, OSHA that of oilmeals in total over the same is 1910.272(g)(1)(ii) governed this period scenario, only to that growemployees by 12m, however. and projected concluded were That proleaves a lot of the extra raw grain material supply hibited from being inside bins with unaccounted for in terms of its disposal. A energized sweep augers unless the employer lot of itdemonstrate will go to building stocks of oilseeds – could that appropriate protecproviding a good cushion to next year’s tions were in place to prior prevent exposure to the hazards of the moving machinery. OSHA offered two (not so helpful) methods by which employers could comply: (1) completely guarding the auger (including the flighting that contacts the grain); or (2) using a rope position system (i.e., a human leash) to prevent employee contact with energized equipment. A policy requiring employees to remain at least six feet from the sweep auger, according to OSHA, was not an “otherwise equally effective means or method” to satisfy 1910.272(g)(1)(ii). The insurance agent sent a second request to OSHA for further clarification, crops. However, also be drawn in explaining that it a could sweep auger couldon not the if world crush/meal demand be interim guarded on the front and still turns funcout than expected and that should tion,higher and that the rope positioning system put some restraint on protein prides going OSHA suggested would be “extremely danforward. gerous”. OSHA responded with another The full impact of these increases Interpretation Letter onsupply Christmas Evehas of only recently begun toemployees be felt in the oilmeal 2009 explicitly barring from being
Abundant supplies are also arriving on the oilmeal/protein markets, thanks largely to record large soyabean crops, complimented by increases in rapeseed and sunflowerseed supplies too. Over the two marketing years from 2012/13 to 2013/14, world soya supplies have gained
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markets as the record South American crops were harvested a bit later than usual and their passage to market delayed by farmer and portworker strikes, keeping importer demand directed toward dwindling US supplies. However, with the US new crops now just around the corner and the delayed South American exports staggered much later into the calendar year than usual, competition for buyers
is likely to be fierce in the weeks and months ahead. We are already seeing this in forward prices of soyabeans and meal, discounting spot prices by as much as 15-20 percent. Some sources see these coming down by a further 10 percent, 15 percent, even 20 percent as we move into 2014. Whichever way the euro/dollar exchange rate moves in the months ahead, this looks promising for a period of cheaper costs for European meal consumers.
KEY FACTORS AHEAD –
• Resurgent ‘Black Sea’ (former Soviet country) crops may not be quite as big as the most inflated estimates floating on the market recently but they are now making an impact on weaker wheat prices on international markets. The price downtrend is helping to constantly chip away at EU wheat, barley and maize costs. Watch for possible government intervention in Russia and Ukraine to support prices and rebuild depleted reserve stocks but we don’t expect this to have more than temporary stalling effect. • Sunshine and warm weather came just at the right time to jump start lagging West European cereal crops and improve quality potential. Yield estimates have risen after the earlier abundant rains and output nudging 140m tonnes (133m last year) is more likely by the day. Europe has already begun a another fairly aggressive export campaign and – assuming again that there will be plenty of backup from cheap imported maize – may continue on this path rather than rebuilding depleted EU stocks (the past seasons EU maize imports hit a modern record of 10.5m tonnes and at least 7m is expected to come in this season).
• Canadian, Australian and Argentine crops are all expected to rise this season – by a combined 8m tonnes, possibly more. These are all quality bread-wheat producers who will be able to keep world markets well supplied with these grades. US spring wheat is in very good condition too, another important component of the quality wheat market. • India’s crop might have been over-rated by as much as 5m to 7m tonnes but it still carries huge and burdensome stocks. These will flow onto world feed markets if prices get frisky again. • Chinese wheat impor ts have surged and we may not, by any means, yet have seen the end of its purchasing programme for 2013/14. This factor maintains the potential to excite markets and stiffen prices from time to time. • Middle Eastern/Nor th African wheat importers have been very active recently, taking advantage of cheaper wheat prices to keep their stocks topped up at a time of huge political upheaval around the region. Expect this trade to continue fairly brisk but whether the world’s former top buyer Egypt can recapture that role remains questionable – a possible dampener on bullish sentiment. • A huge maize crop will keep wheat use in feeds down below the peak level of two years ago. But food and bio-fuel use will add about 3 percent or 20m tonnes to world total wheat consumption, matching or exceeding by up to 10-20m tonnes the projected global production forecast (this currently ranges between 680m and 700m tonnes). That means little or no stock growth or even stock depletion. Nonetheless the global wheat inventory remains large in relation to consumption needs.
• Earlier delays marketing record Latin American crops means these will be competing with the US later into second half of trhe calendar year than usual. • CIS countries are likely to remain cheap maize suppliers as they seek to dispose of record crops. However, big the US crop, its customers will have more choice in the year ahead. • Europe’s own maize crop rebound should cut its import needs. • US corn consumption for both feed and ethanol is expected to increase in 2013/14 but its expected record crop should easily accommodate that. • Will China spring more surprises with its maize import programme – a potentially bullish factor for prices? At this stage, the demand foreseen by most analysts from this buyer should be easily absorbed by huge world supplies. • Funds and other speculators have had a lean time recently finding reasons to invest in maize, other crop markets – indeed commodities per se. Their absence as big buyers this season will be welcomed by consumers. • Looking further down the road, will Latin America maize producers sow smaller crops as prides drop on world markets amid the competition for markets? So far, the USDA is expecting Argentina to keep expanding but Brazil to producer less next year. Yet it is worth pointing out that the performance of both these suppliers (the second and third biggest exporters) has been underrated in recent years .
• Will the US get a record soyabean crop this year if recent favourable weather persists? The potential is now there. And how will US exports perform as delayed Latin American marketings drag on into the late autumn/ early winter months? • One big factor will be demand from the world’s top soya importer China. USDA expects to to import 69m tonnes – 10m more than last season but Chinese officials and some western trade analysts think the figure will be closer to 64/68m tonnes. China’s own crush is only expected to grow by 3m tonnes and its economy is slowing. Lower than expected Chinese imports will more more soyabean stock buildup in exporting countries. The global soyabean stock is already expected to jump from last year’s 61.5m to a record 74m tonnes. • EU and CIS rapeseed and sunflowerseed and Canadian canola crops - now appear to be turning out larger than expected, pushing up global oilseed supplies to a new record 493m tones. That’s over 50m tonnes (11.6%) higher than two years ago. Global oilmeal consumption next season is forecast at 274m tones – up by less than 12m tonnes over the two year period. No wonder forward meal markets are pointing ‘south.’
• Did the US manage to plant all its planned (97.4m acres) area or will this fall perhaps 2m to 3m acres short of target after rain delays to sowing? And will farmers get the high national average yield of 156.5 bu/acree yield expected by USDA? Our sources expect some trimming of harvest area but with mostly ideal conditions for pollination (cool and damp) and some spells of warm showery weather too, yields might well offset that. Either way, it will be a very big US crop. ‘Weather-risk premium’ is still built into US maize prices. Expect more of this to be whittled away as the crop starts to arrive.
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