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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 - May | June 2010 Feature title: Hygienic Global Feed Markets - May | June 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.

At the moment,

oilseed/protein

markets still have

to see what the

weather brings

for Northern

Hemisphere oilseed

crops – and what

South American

farmers will

actually sow later

this year. However,

if these projections

are anywhere near

correct, consumers

can probably look

forward to some

declines in oilmeal

costs later in 2010.

are also keeping downward pressure on prices across the feed raw material sector.

Sowing progress and crop development has been slower for spring wheat in Canada, parts of Europe, the former Soviet Union and Far East Asia after a long hard winter, followed by too little rain in some areas and too much in others. However, with no major weather problems yet, adequate crops are still being built into most analysts forecasts for these regions too. Global supplies will also be supplemented by huge wheat and ample maize stocks being carried in from last season.

World barley production will be down for a second year running and below consumption but that will not require much stock drawdown. In Europe itself barley output should still exceed demand, keeping carryover stocks at the high level of the past two years. World sorghum, oats and rye supplies are also fairly well balanced. All this is promising for consumers’ costs in the year ahead.

On the demand side of the market, world import trade appears to be starting to respond to cheaper grain and feed prices. US feed demand,

Weather for northern hemisphere winter-sown wheat and barley crops has remained

mostly favourable in recent weeks and harvests prospects currently look promising. As expected, world wheat area has not dropped much in response to low prices and current estimates suggest output within 10m tonnes or so of last year’s bumper 680m tonnes. EU wheat production is actually expected to increase by 5m or 6m tonnes, creating a larger surplus over domestic and export demand – even with an extra 2m tonnes going to the new outlets in ethanol fuel plants.

The spring planting season for maize, soyabeans and quality milling wheats has meanwhile got off to a record fast start in the USA where larger sown areas should also translate into higher production – a probable new record for maize if the rest of the growing season runs normally. Big South American maize and huge soya crops

Big crops on the way

Grain&feed millinG technoloGy28 | may - June 2010

GFMT10.03.indd 28 28/05/2010 10:16

COMMODITIES

which - like Europe’ - flattened in the past season, has shown signs of picking up. Stronger maize import buying has also been seen from some of the big Asian importers like South Korea and Japan. China has also also brought a frisson of excitement in the market, buying some signicant volumes from the US for the first time in several years in an attempt to control rising domestic feedgrain prices. Given the size of China’s market (the world’s top soya

meal consumer, second largest maize user) this factor – i.e. Chinese weather and crop progress - will certainly be watched closely by the international grain trade in the weeks ahead. If China’s domestic grain supply deficit

there has been under-rated as some analysts suspect, resulting impor t needs could become an impor t ant inflationary factor for feedgr a in

costs, including wheat. International wheat trade also had a more

active spell mid-way through the period under review as some import buyers appear to have started to scent bargains. However

Grain&feed millinG technoloGy may - June 2010 | 29

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cost of this will halt EU growth have seen the euro plummet to four-year lows versus the dollar as we go to press. With some financial analysts questioned the long term survival of the euro itself, it seems likely that the currency will stay under pressure for some time yet, keeping EU cereals more expensive than expected – at least until the next crop is seen to be on its way and farmers have to clear more bin space.

Last but not least, world financial /commodity markets are also watching US and European government moves to curb the influence of speculative money in grain futures markets with their huge influence over the cost of grain in physical markets. Given the key role the ‘outside’ forces played in the record grain price boom of the previous season, such curbs will doubtless be welcomed by grain and feed consumers.

Commodity highlights - Chinese maize demand offsets record US sowing pace

Market-leading US maize futures prices have firmed up in recent weeks as big US crop hopes have been subdued by ideas that China might continue to raid world supplies to fill its growing deficit in this grain. China used to be a major maize exporter itself, overtaking Argentina as the second largest supplier earlier this decade on the back of annual rises in its domestic production. In recent years, however, China’s own crop expansion has slowed amid competition for dwindling agricultural land resources, droughts and other weather problems. At the same time, its domestic demand continues to reach new record levels, mostly driven by its expanding feed industry. As the price of corn on Chinese markets has begun to soar, the government has begun to make big inroads into its strategic reserve stocks, auctioning them off to feed users in an attempt to control the market. China is actually the largest maize stockholder by far outside of the USA with an estimated 53m tonnes at the close of this season (end of August( equal to about a third of its annual use (compared with the US which seems to be quite relaxed about hold less than 16% of its consumption in stocks). Officially, the Chinese authorities say they can manage comfortably on their stocks but many western experts have doubts about that. For a start, some think Chinese crop figures are inflated and that last

exchange rate which has spurred more EU export trade and raising the intrinsic value of grains in euros. The price rise was also exaggerated by a previous long standoff between farmers and consumers with their opposing views on the value of grain. When exporters and domestic users eventually started to run out of stock to cover their commitments, farmers and merchants had a strong hand to play and milling wheat prices leapt to three-month highs.

Protein markets have been dominated by the conflict between tight US old crop and record global new crop supplies. Latin American soya output has met our most optimistic trade forecasts but slow marketing caused by weather, currency differentials, expensive Latin American freight costs and fears of Argentine farmer/port strikes has

forced top soya importer China and other buyers to keep mopping up remaining US old crop supplies. Some analysts see this buying (at a time when the world is facing a potential new crop glut of soyabeans) as evidence of a bigger problem with China’s own oilseed crop and perhaps a pointer to much greater feedstuff demand from this buyer down the road.

Grain markets are also continuing to struggle with volatile ‘outside’ influences – the macro-economic markets like equities, gold, crude oil and currencies. Most of the news has centred on the problems in the eurozone and the interminable efforts made by German, French and other leaders to assure markets that Greece’s economic problems can be contained and will not be repeated across south Europe. But even a trillion-dollar rescue package put together in May has struggled to convince sceptics that the EU is back in control. Fears that the

so far, there are no windfalls for exporters like last year’s, when Iran turned around world wheat trade, emerging as the largest single importer when it took 9m tonnes. In fact, this year’s, Iranian crops may have recovered enough to allow it to export to its Arab neighbours. India is also exporting surpluses.

Even so, forward markets for both wheat and maize continue to point ‘North’ with higher prices. This is especially true of wheat which this month displayed a hefty 17% premium on the Chicago futures markets for spring 2011 deliveries. The forward strength is mainly driven by ‘outside’ investors buying into distant futures markets on the assumption that grains are ‘undervalued’ versus other commodities and assets, that global economic recovery will ultimately

expand demand at a faster rate and/or that something major might eventually go awry with crop weather.

However, until there is any evidence to support that view – and with supply/demand fundamentals as slack as they are right now - it remains very hard to see how higher forward prices can be justified. Consumption of wheat, outside of shifts in feed demand (mainly caused by fluctuations in maize supply), is still growing only slowly over the long term and will not expand by enough in 2010/11 even to match this year’s forecast production. That means wheat surpluses are likely to keep growing in 2010/11, providing an ample security stock in the run-up to next year’s harvest.

Ironically, the adequately supplied European wheat market has recently ignored this global/domestic picture of plenty to rise strongly over the past month. Most of this trend is down to the plunging euro/dollar

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ever tightening balance because supply isn’t growing fast enough over the long term to meet demand. In fact, world demand for maize, outside of the US and China and, to a lesser extent, Brazil, is only increasing slowly.

While the US accounts for about 40% of world maize output, supplies are also growing overseas. South American crops now being harvested have turned out much bigger than expected and about 8.5m tonnes above last year’s rather poor results. Plantings in the former Soviet Union are also seen higher this spring. Ukraine this season managed to export 5m tonnes for the second year running – more than double its normal level and plans a 10% increase for 2010. Good crops in South Africa and parts of Asia have also been contributing more to world supply. The EU’s production is also seen rebounding this season to 57m from last year’s 55.6m tonnes, more or less in line with consumption (58m).

Feedgrain costs generally will always be heavily influenced by maize which accounts for 45% of total world grain supply.

EU wheat prices upEU wheat markets staged a remarkable

recovery last month as many consumers came in to cover long-delayed needs only to find farmers digging in their heels for higher prices. Primarily, the move reflected the weak euro stimulating more export demand for EU grain. However, it was also fed by bouts of strength in the US market, largely caused by speculators needing to cover some of their large short (sold) position in Chicago futures. However, while the US soft winter wheat crop, as traded on Chicago, is expected to be considerably smaller this year, stocks from last year are high and demand for this grade poor, especially on export markets where much cheaper European and ‘Black Sea’ (former Soviet Union) soft wheat has dominated most of the non-routine business for months.

Higher up the wheat quality scale there is no lack of competition for business either. A lot of higher protein Canadian wheat has been available recently while quality wheat supplies are also said to have been piling up in Australia which failed to export as much as it needed to in the first quarter of this year from a bumper harvest. As a result, hard quality wheats have generally tended to come down in price in recent weeks. During May,

completed at a record fast pace, taking advantage of some fine early season weather to pile in the seed with most of the crop already in the ground in mid-May.

Last year, crops performed well despite the late start, delivering record yields for many farmers. This year’s flying start, an excellent moisture base and some warm

weather in the near term forecast gives early promise of yields at least as large (though the USDA currently has them a little lower than last year’s). As always there is still time for a mid-season drought, a heatwave to spoil pollination or a wet harvest but unless conditions do turn unfavourable the crop outlook is very promising. Some sources also suggest US farmers might sow more than the officially forecast 88.8m acres, perhaps as much as 90m or more. That could push production from the world’s largest maize supplier up by 15m or even 20m tonnes from last year’s record 333.5m tonnes.

Analysts are currently looking for a rise of no more than 10m tonnes in US domestic demand, mainly down to higher ethanol use (+7.5m) with animal feed up by perhaps another 1.5m. That would still leave the US able to export 5m tonnes more than in 2009/10, without eating into the comfortable carryover stocks carried in from last season. US stocks are larger than expected a few months ago after official surveys found less had been used than expected - despite ideas that lower quality from the wet 2009 crop might mean more grain having to be fed per head of livestock (see earlier GFMTs).

Nothing in the US picture at present is remotely bullish for maize either in terms of prompt or forward delivery prices. Yet some of banks and investment houses have still been trying to talk the market up on the basis that this market is heading for an

year’s maize harvest was closer to 140/145m tonnes than the 155m accepted by USDA and others. Consumption on the other hand, is already at 155m and expected to get close to 160m this season. Some analysts think China will absorb the lion’s share of its maize production deficit by taking its stocks much lower and that it is only importing

US maize now because it is much cheaper than domestic corn. They expect import purchases to slow markedly once China’s crop is seen to be up and running. Others are not so sure, questioning the accuracy of Chinese stock estimates and pointing to a late cold spring delaying Chinese maize sowing this year as possibly pointers to a greater deficit and perhaps 2m to 4m tonnes of imports this year (versus about 600,000 bought to date).

However, even if that were the outcome, the world maize market should have no difficulty meeting this demand without causing a big jump in prices. The US, which exports about 50m tonnes a year (about 57% of world maize trade) is hardly short of supplies and expects to see its carryover stocks of this grain increase in the coming season. About 38m tonnes of maize exports should also be available from other suppliers, led by Brazil, Argentina, the Ukraine, other eastern European nations, India and South Africa.

The world maize balance meanwhile looks reasonably healthy with production expected to grow by about 26m tonnes in the coming season as consumption increases by just 19m – so some stock accumulation on the way.

The US maize crop picture could hardly be much different from that of the past two years when incessant rains delayed sowings well beyond what the prime sowing window for good yields. This year, sowing is being

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COMMODITIES

This situation is unlikely to last much longer as the full weight of record Latin American soyabean crops comes to bear on the market. These are up by about 36m tonnes in a season when US output also rose 11m to a new record 91.4m tonnes. The total increase in terms of world soya meal equivalent is over 37m tonnes whereas demand for the latter is only up by about 7m tonnes this season.

Soya meal prices have already eased in recent weeks on US and European market and, if the US crop continues to get good weather, the trend is expected to remain downward.

Next year, supply may not be quite so loose as USDA expects soya production in South America to slip back by 7m or 8m tonnes. Even so, if the US crop again exceeds 90m, as currently seems likely, new supplies of soyabeans will again outpace growth in world demand, leading to carryover stocks (into 2011/12) rising to a new record 66m tonnes.

Moreover, even if soyabean output does slip back a bit in 2010/11, USDA expects that to be offset by increases in supplies of cottonseed, rapeseed and sunflowerseed, leading to a decline in world oilseed production of just 2m tonnes. That will be eclipsed by an expected 75.5m tonnes of various oilseeds carried into the new 2010/11 season this autumn – 11m more than last year.

At the moment, oilseed/protein markets still have to see what the weather brings for Northern Hemisphere oilseed crops – and what South American farmers will actually sow later this year. However, if these projections are anywhere near correct, consumers can probably look forward to some declines in oilmeal costs later in 2010.

rising sharply from Argentina (if the crop there recovers as expected) and moderately for Europe too, based on crop expansion, weak currency and smaller crops from key competitors in the former Soviet Union (currently expecting a 5m tonne drop in production). Canada will also have a smaller crop but Australia should have another large one and with countries like India and Iran also joining the export fray, keen competition

for import customs should continue for some time yet. This should help keep the price of wheat down on international and EU markets.

Oilmeals/proteinsSoya-meal costs had a brief run-up in

April as top importer China continued to buy heavily from the US at the tail – end of the latter’s season. Latterly, however, prices of beans and meal have been working lower again amid confirmation of record crops in South American and an excellent start to the US planting and growing season.

Latest estimates suggest China will import 49m tonnes of soyabeans in 2010/11 (starting September 1) – accounting for 57% of world trade. It was also consume about a quarter of all the world’s soya meal production (40m tonnes), putting it well ahead of the EU’s 32m and the USA’s 27.6m tonnes. In recent months it has surprised the markets by buying up the USA’s rapidly dwindling old crop stocks, partly because it is still cheaper to ship beans of the Northwest American coast than from Latin America and partly because of concerns that strikes in Argentina, port congestion in Brazil and slow selling by producers will result in delays in shipments from the Latin American origins.

US Dark Northern spring wheat for shipment out of the Gulf fell from $294 to $270/tonne compared with $325 this time last year. Hard Red Winter Wheat also slipped from $199 to $184 versus $243 a year ago. Unusually the lower grade Soft Red Winter wheat has been trading at a premium of up to $6/tonne over HRW compared with its normal discount of around $50/tonne. Along with the soaring dollar, this has shut the US out of most soft

wheat import tenders as buyers paid up to $25/30 less for EU/Black Sea grain. Even US hard spring wheat is struggling to find enough buyers amid the competition from similar Canadian grades.

World wheat production in 2010/11 is currently forecast by the IGC at 660m tonnes versus last year’s 675m due to slightly lower sown area and ideas that yields will probably slip from the past two years’ above-normal levels. The USDA is more optimistic, pitching output at 672m tonnes (680m) but has consumption at 667m (up 15.8m) versus the IGC’s forecast 654m (+9m). The biggest increases are seen in EU ethanol and feed demand (+3.2m in total) and former Soviet countries (mainly in feeds, +3.8m tonnes). Demand is also expected to rise in India and in aggregate in a number of smaller countries.

The bottom line is that both the USDA and the IGC see world wheat stocks increasing next season - by 4.7m and 6m tonnes respectively. At 198m tonnes, USDA’s stock forecast for July 2011 would be over 73m more than the 2007/08 total and a nine-year high.

USDA also sees world wheat exports next season staying fairly flat at around 129m tonnes with no notable swings in importing country trade. Plentiful supplies should keep competition for sales brisk with exports

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