globalfeed markets - july | august 2010
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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 form or by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1466-3872
Digital Re-print - July | August 2010 Globalfeed markets - July | August 2010
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GLOBAL 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.
Two key factors
caused a shift of
emphasis in the
maize market
during the last
month. One was
an official update
of US planted area
which came in
well below trade
expectations. The
other was a lower
than expected US
quarterly stock
estimate at June
1, the result of
feeders and ethanol
consumers having
to use more of last
year’s lower quality
crop to get the
same end result.
World prices of cereals, as measured on the benchmark Chicago futures market – were
getting incredibly cheap during June – maize edging towards three and wheat to four-year lows under pressure from excessive stocks, uncertain forward demand for feed and expected large world crops. But the picture has changed radically in the last few weeks as those optimistic world wheat crop estimates have started to slide on unexpected weather problems – first in Canada, then Europe itself and latterly in the former Soviet Union, where coarse grain output could take an even bigger hit from droughts and heat-waves.
At the same time the US has not only found itself with less old crop maize stocks than it expected (a legacy forewarned in earlier GFMT’s amid last year’s poor quality/lower energy value crop) but a much smaller than expected increase in planted area – though the latter could be offset by ideal weather promising bumper yields.
Stocks of wheat, as our regular readers will be well aware, are still huge by any traditional
reckoning. And even if this year’s world wheat crop (details below) does fall, say, 10m or 15m tonnes below the previously assumed level, the carryover into 2011/12 season will still be ample, though probably no longer larger than this year’s.
Maize, as the main constituent of global coarse/feed grain supply, is hardly in a squeeze either. Although US ethanol demand for this grain is still expanding, the growth rate has definitely slowed. Demand for maize from the animal feed sector, while apparently higher than expected in the US itself, is also subject to some caveats going forward amid still slack conditions in livestock markets there. Export demand for US maize, especially from some of the key Asian importers is also looking less than stellar as the global economic recession threatens a ‘double-dip’ and many buyers show increasing interest in an abundance of discounted feed grade wheat.
That said, the radical turn downwards in wheat crop estimates is a caution to the bears, at the least, a warning that markets may have become complacent about excessive supply bringing ever cheaper prices. There is also the possibility that the top quality wheats may be in less abundant supply than expected earlier after Canada’s spring wheat sowings were held up and eventually downsized by incessant wet weather. The US, which sowed
far less winter wheat this year, has also had some problems with rain slowing harvest and resulting in some lower than expected proteins and vomitoxin scares for soft wheats – though that situation seems to be improving as we go to press. In Europe, French traders have been concerned about heatwaves and a prolonged drought resulting in quality loss from shriveling
Cheap cereal offers dry up amid FSU/EU crop concerns
Grain&feed millinG technoloGy36 | July - august 2010
COMMODITIES
meal-rich soya will more than make up for disappointing Canadian and EU rapeseed crop prospects and a probable flattening out in production of some other oilseeds including
sunflowers. Provided the crush incentive is there, there is ample if not excessive oilseed raw material to keep meal buyers well supplied.
Meanwhile, for European grain and feed customers, much of the benefit of cheaper international prices has been denied by the chronic weakness of the euro. Thanks to the almost daily drip of worrying news about Euro-
For oilseed crops, the picture remains much brighter. Record Latin American soya crops have been confirmed and, while a bit slower than expected coming to market, these will eventually fill the coffers to overflowing, resulting in stock buildups to record high levels during 2010/11. The US has meanwhile expanded its soyabean plantings to a record level too. The massive influx of
or, at best, lower specific weights. Some eastern European and former Soviet countries which (despite their emphasis on the middling milling and feed grade wheats), often have some good quality too, may also take a hit from dry weather/heat in terms of volume if not quality. However, these crops are not yet in and it is quite possible that some of the countries getting a bit too much of the sunny dry weather will also see some bonuses in terms of higher proteins – so it is maybe it bit early to worry about constant big hikes in price premiums demanded for top grade milling wheats.
Grain&feed millinG technoloGy July - august 2010 | 37
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the latter’s strength to the list of reasons (weak euro, better export demand, lower than expected domestic crop) why EU prices should have a pre-harvest rally. The firm EU export price, of course, spills over into the value of domestic grain too.
At the lower end of the scale, the ‘Black Sea’ exporters had been offering much cheaper wheat with milling (grade 4) recently down to just $160, about $15 cheaper than the EU, and feed grades as cheap as $138.
However, in recent weeks that has all changed amid worrying reports coming out of the former Soviet Union about heat and drought affecting production on this year’s smaller sown areas. The Russian crop is now seen about 49/51m tonnes compared with 57/60m earlier and last year’s 61.7m while Ukraine’s could be down from 20m to 18.5m tonnes. Kazakhstan, often a useful source of harder/quality breadwheats is meanwhile expected to produce only 11m tonnes this year against earlier hopes it would repeat last year’s 17m tonne crop. All of these figures are well down on USDA forecasts, suggesting that at least 8.5m tonnes more has to come off the world wheat crop forecast. Fortunately for consumers, the Black Sea Region is going into 2010/11 with fairly large stocks for the second year running (about 19m tonnes) which should be be used to supplement exports. Readers may recollect it was only a few months ago that Russia and its neighbours were publicising ambitious plans to massively expand their exports into ‘non-traditional’ wheat markets in Asia and other regions. The ‘Black Sea’ exporters are aware that a ‘reliable supplier’ image is not to be discarded lightly so, despite some probable caution in for the early weeks of the new season, many analysts expect them to service all the export business they can once crop sizes are known (unless, of course, damage from heatwaves, drought etc turns out even greater than expected). That said, these usually highly competitive suppliers will probably not be undercutting the market to anything like the same extent we have seen in the last couple of years.
Concern is also focusing on the extent to which Canada will be able to perform its usual function of leading quality hard wheat supplier. Weeks of incessant rain have cut the planted area drastically, almost certainly by far more than the 200,000 ha (to 9.2m) recently estimated by Canadian officials who took their survey too early in the month to count all the
While cereal markets had probably become oversold – and farmers certainly needed some respite from the endless decline in crop values – current supply/demand balances offer no justification for a return to the bull markets
for cereals, let alone oilseed products. Lower than expected wheat and coarse grain crops will probably mean firmer prices in the season ahead than would have been expected a month or two ago. But, barring a late weather upset in the USA, supplies remain large enough to keep this rally in check.
Commodity highlights - World wheat crop still over-rated?
Recent weather problems in Canada, Europe and the FSU have resulted in the US Department of Agriculture lopping 7.5m tonnes off its world wheat crop estimate and recent reports from the countries concerned suggest there may be more ‘downside’ before all the crop numbers are counted. However, with world wheat stocks still riding at 8-year highs – and likely to stay loose well beyond the end of the new season, there is nothing in the overall wheat balance to explain the still huge premium or ‘contango’ quoted on the forward futures markets. Chicago May 2011, for example was recently asking 65c/bushel or about 11% more than the spot month after reaching a high of 80c ($29/tonne or 16%) at one point. On the one hand, the US soft red winter wheat crop (the basis of the Chicago market) is well down this year on unusually small planted area. However, carryover
stocks of this grade from last year are large and the total supply will still comfortably exceed both US domestic and export demand. That hasn’t stopped the US cash market rising too with the export price for SRW rising from $182 in early Jun to $234/tonne (fob) in July. This seems slightly bizarre amid the USA’s poor export performance for this grade which, even before
the firm dollar is taken into account, is out-priced by all the other main origins. Prior to the recent run-up in euro-terms, the French soft wheat price was undercutting the US (in dollars) by about $20/tonne. However, the European wheat market is influenced by what goes on in Chicago and has added
zone indebtedness, the common currency recently sank to its lowest level in almost four years versus the US dollar – in which most commodities are traded internationally. Since the start of this year, whatever has gone on in
the international cereal, oilseed and product markets, this has added almost 15% onto Euro-quoted prices - although the effect has been ameliorated in recent weeks by a partial rally in the common currency and a downturn for the dollar amid a massive EU debt rescue package and renewed US economic gloom..
If there is a plus side to these economic worries it is the quelling of speculators’ enthusiasm to invest in perceived riskier assets – a group in which commodities like grains figure prominently. This is likely to remain the case while Euro-zone anxiety persists, especially with the US economy still showing signs of faltering and the Chinese, seen as the engine of global economic recovery, trying to rein in their own growth. None of this news is bullish for industrial or food demand for raw materials.
The price of crude oil is often a pretty good indicator of the way the economic wind is blowing as well as directly affecting commodity prices. Not only is it, along with gold and some other leading commodities, a favourite of
investors, crude is also directly linked to the value of cereals and oilseeds. Crude’s price, after all, influences profitability and demand for bio-ethanol which takes up a third of the US maize crop. Since April, crude has come back from its highs in the mid-$80s to just over $70 per barrel before rallying recently to the mid-70’s.
Grain&feed millinG technoloGy38 | July - august 2010
COMMODITIES
possible Canadian, Black Sea or European losses not yet factored in, this would not make much of a dent in the huge 2010/11 surplus stock which the IGC estimated over 200m tonnes in late June. Overall, then, wheat
supplies should be more than adequate to meet demand – though some questions about quality remain to be answered by harvests in some key producing countries.
Less maize supply than thought
Two key factors caused a shift of emphasis in the maize market during the last month. One was an official update of US planted area which
conditions that were producing some worryingly low proteins. These seem to have improved somewhat since the harvest moved north under clearer skies. The US soft red winter harvest was also challenged by showers causing quality problems including greater incidence of vomitoxin in some states.
Among other key milling wheat producers, Australia still seems to be on course for its third large crop in a row with a developing La Nina climate phase expected to bring adequate rains. Argentina sowed a lot more wheat for its next crop and could expand output to about 12/14m tonnes from last year’s unsually poor 9.6m. If the growing season goes well, this important breadwheat supplier could have twice as much for export as last year’s measly 4.5m.
Turning briefly to demand, world wheat consumption is expected by the International Grains Council to rise from 649m to 658m tonnes, largely in the feed sector and especially in Asia. That should be easily accommodated if the crop reached the IGC’s projected 664m tonnes. Even if we knock off, say, 10m to 15m tonnes to account for
abandoned acres. With some trade estimates ranging down to as little as 7.3m ha (versus last year’s 9.9m), there is talk of a total wheat crop as low as 18.5m compared with recent hopes of 24.5m and last year’s 26.5m tonnes. As always with Canada, the proportion of top grade bread wheats in the total harvest will depend on weather in the run up to crop maturity and harvest. However, on current pointers, supply from this source does look likely to fall and this has already driven export prices of CWRS sharply higher.
Offsetting that slightly, the USDA did keep its US spring wheat sowing forecast at a surprisingly high 5.63m ha against trade ideas it would lop this figure. This crop is in the best condition seen for many years and, if the weather continues to co-operate, it should yield well in terms of both quantity and quality. However, the US hard breadwheat export benchmark (DNS) is still rising to reflect the threat to Canada’s crop, reaching a 19-week high of $296/tonne in mid-July.
US hard red winter bread wheat – the largest component of US wheat exports – had a shaky start to harvest under damp
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COMMODITIES
of cottonseed, peanuts, palm kernels and sunflowerseed, new USDA forecasts indicate. While the US is heading for another big, possib ly record soyabean crop this year, Argentina is expected to reduce sowings this autumn (for harvest spring 2011) while both the major Latin American producers are expected to see their yields retreat somewhat from this year’s high levels. The result could be a world soya crop of around 251m tonnes – about 8.5m less than the current season’s record level. As far as soya users are concerned this need not present any problems as this season’s supply was in record surplus. USDA estimates about 65.4m tonnes will be carried into the new season compared with just 43.7m last year – so the total soya supply will actually be even larger. That means that, as long as the crush incentives are there, adequate raw materials will be available for all the meal production the market needs. At this stage, USDA estimates world meal demand will grow from 159m to 168m tonnes. Even then, stocks of the raw soyabeans at the close of the new season could still be record large.
Where soya supply and prices go, the rest of the oilseed/meal complex must follow. Most of the other oilseeds are forecast in larger supply in 2010/11, the main exception being rapeseed. Canada’s crop, earlier thought capable of reaching 12m tonnes has been planted late on smaller than expected area after incessant rains and could be lucky now to scrape 10m. The EU harvest, planted on a larger area is also seeing stress from droughts and heatwaves and too much rain in some eastern member states with the current forecast of 20.6m (v last year’s 21.5m) seen open to further reduction. However, by drawing on stocks and importing more whole rapeseed, the EU is expected to keep crush and meal production close to the past season;s high levels.
This year’s record South American soyabean production has helped to keep prices down in Europe in recent months. Since May, meal in Hamburg has declined from about $292/tonne for nearby deliveries to $282 and as low as $273 at one point. Euro-quotes have been also fallen but at a slower pace during the period of extreme euro weakness. Cheaper meal in Europe has contrasted with a stronger US market, where tight old season soyabean supplies and strong Chinese demand have forced crushing well below year-ago levels. Under current conditions of good supply, meal prices are expected to stay fairly stable until the autumn when Latin American producers reveal their sowing plans.
forecasts for world total import demand for this grain only about 3.5m tonnes higher for 2010/11 than in the past season.
Overall, world corn production in 2010/11 is expected to grow from last season;s 809m to about 832m tonnes, slightly ahead of consumption needs of 831m. About 10m tonnes of that is expected in China so if anything major does go wrong with that crop, analysts will have to make some big changes to this
world balance. At this stage that looks unlikely, especially after recent good rains. A snapshot of other major maize suppliers shows some mixed trends. Europe’s own crop is now seen at just under 57m tonnes versus last year’s 55.8m but it has recently been exposed to some potentially damaging heatwaves and dryness so a downward revision would not be surprising. USDA was
recently forecasting the FSU countries would hoist output from 17.9m to 21.4m tonnes but that too looks less likely now after the extreme heat in Russia in the past month. Ukraine managed to export over 5m tonnes in each of the past two seasons and has become an important subsidiary supplier. In the southern hemisphere, Argentina and Brazil both expect slightly smaller crops but current thinking is that both will keep exports up at last year’s good levels, Brazil maybe even exporting more as it draws down large carryover stocks too.
Among the other coarse grains, world barley production prospects have been marked down sharply in recent weeks to account for potential crop losses in Europe and the former Soviet Union. Total output is seen around 135m tonnes compared with 142.5m earlier, last year’s 149m and 2008/9’s 155m tonnes. World barley producers are carrying about 5m tonnes more stock into 2010/11 than they managed the previous year but with world consumption expected to exceed output by about 9m tonnes, the stock figure will shrink by almost 6m tonnes in 2010/11 to a three-year low of about 27m. Apart from these tighter supply balances, barley prices will also be forced to rise with the trend in EU and world wheat prices.
Oilmeals/proteinsWORLD OILSEED supplies will show no
growth in the new season ending August 2011 as smaller South American soyabean crops and disappointing Canadian and EU rapeseed production more than offset higher output
came in well below trade expectations. The other was a lower than expected US quarterly stock estimate at June 1, the result of feeders and ethanol consumers having to use more of last year’s lower quality crop to get the same end result. With yield prospects still bright, the US corn crop is now seen just 3.3m tonnes lower than in June at 336.4m tonnes. With the above reduction in starting stocks (still bigger than last year’s), total availability will be about
6.4m tonnes under earlier forecasts but only about 1.5m below the 2009/10 supply. This in itself is not statistically significant enough to move prices. Neither is the anticipated rise of 5m tonnes in next season’s US ethanol usage of maize which will be neatly offset by lower feed/residual demand. US exports are also seen unchanged in 2010/11, so stocks carried into 2011/12 will be less than 3m tonnes below those brought into this season.
A third factor pushing up maize value recently has been the steep rise in wheat prices which maize has been obliged to follow as a competing feed ingredient. However, whereas Chicago wheat has risen by as much as $1.73/bu ($63/tonne) or 40%, maize has only gained 57c ($22/tonne) or about 17%. This seems to underline the US trade’s fairly sanguine appraisal of the domestic balance – that supplies will be adequate to meet demand.
Maize prices have also been anchored by a sense of anti-climax after all the hoo-hah two months ago about China emerging as a mega-buyer of US corn. In the event, China’s own crop appears to be doing much better than thought earlier, when cold and dryness threatened a potentially poor result. Although USDA’s forecast looks a bit high at 166m (and last year’s Chinese crop may well have been 10m below the official 155m figure), this second largest world consumer of maize is showing no sign of concern about the adequacy of supply. So far it has bought about 2m tonnes from the US, probably as insurance when the crop was looking vulnerable. Ideas that it might take another 5m or 6m over the next six months are being played down, leaving
Grain&feed millinG technoloGy40 | July - august 2010
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