Global Feed Markets: September - October 2014

Where will all the wheat (& maize & soya) go?
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  Digital Re-print - September | October 2014 Global Feed Markets: September - October 2014  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 2014 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 A new dawn for...In 2015, welcome to...  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. Overall, world output is expected to reach a comfortable 70/71m tonnes, keeping rapeseed meal supplies near to last season’s levels. World sunflowerseed production will be down by about 5% or 2m tonnes this season due to smaller crops in Russia and Ukraine and a slightly smaller harvest in Europe. However, using some of the stocks carried in from last season will help maintain crushings and meal output close to last year’s levels. Where will all the wheat (& maize & soya) go? T he old adage that ‘big crops get bigger’ has certainly been borne out this year. Not everybody has had ideal weather – we think particularly of Canada and the northern US states, France, parts of Northern and Eastern Europe, Ukraine, parts of Russia where there has been too much and eastern Australia, too little rain. But amid pretty much ideal conditions in most other areas, that hasn’t stopped the global crop estimates climbing far beyond anything anyone dreamed possible back in the early summer.  Just since our last review, according to the latest USDA assessment, the world wheat crop estimate has soared by a further 15m tonnes to a new all-time peak of 720m, largely due to big increases for Russia (+6m), Ukraine and the European Union (+3m each). Among other significant exporters, crop estimates have been boosted for Kazakhstan and the USA. Even China (the largest single country producer and consumer of wheat) has seen its forecast raised by 2m to 126m tonnes. So world wheat production, rather than dropping significantly from last year’s record (714m  tonnes) has actually exceeded it. The USDA will have some further fine tuning to do to these numbers. Australia’s crop estimate of 25.5m tonnes is probably about 1.5m too high versus official forecasts while Canada’s may also have to come down from the current 28m. On  the other hand, USDA’s 151m tonnes for the EU now looks about 3m too low while Russia’s harvest yields are implying something higher than USDA’s 59m – perhaps as much as 61m or 62m tonnes. Overall, then, final world output could well turn out even higher than 720m. The USDA has softened the blow on prices from this rising supply by balancing it against higher consumption. In global terms this is now seen 10m higher than in July and about 7m over last year’s. The latest increases come mainly in countries whose crops have risen most significantly - the EU, CIS and China – as well as a number of moderate/smaller sized users expected to consume more as supplies rise and prices drop. Maybe USDA’s 710m is a bit optimistic for global consumption, however, given (a) the competition coming for feed outlets from a massive maize crop and (b) the still wide premium wheat is charging over maize. Even if that proves close, world wheat stocks will jump by 10m tonnes to the top end of the range of recent years. GRAIN & FEED MILLING TECHNOLOGY54 | COMMODITIES  Taking all this on board, along with the huge increase in foreign competition and its own inability to compete enough on world wheat export markets, the bellwether US futures market in Chicago has seen yet another collapse in prices since our last review. As September drew to a close, the nearby month was trading down to $4.68/bu ($172/tonne) compared with about $195 two months ago and about $250 this time last year. Another issue driving wheat prices is the quality factor. Much of this year’s European, Ukrainian, probably North American wheat too, is of rain-damaged sub-par quality that will have to be cleared closer to feed prices. We have already seen the dramatic impact of this on the European (Paris-based) milling wheat futures market with its heavy bias towards French wheat. This ‘hedging’ or ‘price-insurance’ tool has had to lower its quality specs (in the event of a seller making a physical delivery to a futures store) to accommodate the unusually low-grade French harvest. The new milling requirements - Hagberg falling numbers from 220 but with tolerances and price discounts down to 170, and minimum proteins of 10.5% - were on the low side of some traders’ expectations and, amid ongoing concerns about how much grain might meet even these requirements, this action has not stopped French milling wheat prices toward feed-wheat value.As we go to press, the nearby month has fallen to a four-year low of under E150/tonne compared with E170.50 at the end of July. A year ago, the near contract was quoted at over E193 with forwards (including the current spot position) at similar levels – quite drop. Feed wheat is closer to E140 and many observers think that is where it will end up – unless that floor moves lower too, which is not ruled out While the surplus of feed wheat is tugging at the market’s ankles, September - October 2014 | 55GRAIN & FEED MILLING TECHNOLOGY Precision Sensors for inline production Analog & Digital RF-Solutions  ã Suitable for solid, granular and powdered materials  ã High speed measurement  ã Non-nuclear technology Premium Quality FoodsSensor   the flip side of reduced high quality supplies is leading to some wide premiums for the latter. US hard red winter breadwheat for example, is quoting $272/277 (fob export port) depending on proteins ranging from 12.5% to 14.2% while Dark Northern Spring wheat for 14%-plus protein is almost $90/tonne more expensive. But competition for export markets is keeping ordinary milling wheats closer to the $230 level amid a multi-cornered fight between various European, Russian, North-American and, before long, Australian offers. Despite their quality problems, the French appear determined to clear as much grain for export as possible, possibly fearing further quality deterioration in store of moist-harvested grain and have been offering some astonishingly cheap deals to important importers like Egypt (which lowered its own quality specs on moisture last month to keep France in the competition).  Within Europe, the Germans at least appear to have some good quality wheat to sell to Third Countries or ship around Europe where it’s needed. They will probably capitalise on the French quality problem to grab some of its traditional milling wheat custom in countries like Algeria (which has refused to take low quality French wheat even if blended up with better quality imported wheat). Quality is also good for the Northern member states, parts of the eastern EU and, not least the UK which is enjoying its best crop for many years in terms of Hagbergs and proteins and is actually exporting some milling quality to France. Pressure is also being put on wheat prices by forecasts that world import demand will drop this season by over 7m tonnes from last year’s record level as China requires less (with its bigger crop) and several smaller buyers trim their needs. The forecast 155m tonnes global total could, however, turn out a little on the low side as Iran and some of Mid-east/North African countries achieve smaller  than expected crops.  Where will the wheat price drop end? It remains a popular guessing game. Current levels are still some way off the lows seen over the past eight years of extreme market volatility which included not only record highs (13/bu or $478/tonne) but the low $4’s/bu. The forward CBOT futures market points to modest recovery for grains into 2015 but it is hard to see what will drive prices up in the near future especially if production does turn out higher and/or consumption lower than expected. Futures are often a poor forward indicator. Back in the spring, CBOT September suggested wheat would be in the low $7’s/bu. Even the increases we noted above to world crop estimates in the interim don’t seem enough to justify prices falling that far short of forecast – unless they had been way too expensive to start with (or indeed had over-reacted to supply shortfalls over the past decade of GRAIN & FEED MILLING TECHNOLOGY56 | COMMODITIES  
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