Soyabean meal futures continues to fall
Soyabean meal futures have continued their recent drop-off during the last week or so as worries that the European debt crisis might spread, along with slow global economic growth, sparked nervous selling by the fund investors.
With economic uncertainty comes a desire for the funds to find a safer haven for their investments, and all commodities – not just agricultural commodities – have seen large sell-offs.
The impact is clear – regardless of the actual position regarding crop volumes, import demands, export availability or weather reports, if large numbers of those holding contracts sell, the price will fall. Recent movements have seen 1m tonnes of soyabean contracts traded, along with 3m tonnes of corn contracts.
The result has been that the main protein and cereal markets have now dropped steadily for a few weeks, following soyabean and corn prices lower. Any indication that Europe has re-entered recession, or that further bailouts are needed to support the European banks and indebted economies, is likely to further weaken the feed markets as the funds move to reduce risk exposure.
With demand for soyabeans falling and planting of the Brazilian soyabean crop progressing well (66% complete versus a 55% five-year average), plus rising year-end stocks in the United States (US), protein feed prices are expected to stabilise around current levels for a time. There may be significant upwards “spikes” if demand or crop supply news warrants it, but until greater stability is seen in the world economies there appears little scope for a longer-term rise in prices.
China continues to dominate the demand side of the equation, with Chinese soyabean imports slowing to just 13.3m tonnes so far this crop year, compared to 18.2m tonnes at the same time last year. Most of the soyabeans heading to China are also coming from South America, with the resulting increase in US year-end stocks at present more than compensating for falling yield estimates.
The latest report from the United States Department of Agriculture (USDA), for example, reduced domestic soyabean yield estimates by 0.2 bushels/acre, to 41.3 bushels/acre. Where the global supply and demand balance finally settles will depend heavily on how much China needs to import, and the Chinese economy isn’t growing as well as it was.
Soyabean meal is available at about £260/t for delivery through until April, with rapemeal close to £154/t. If the weather turns unfavourable in South America, we may see more attention focused on potential supply shortfalls, but it’s still too early for this to cause any significant rebound in the markets.
Buyers are understandably cautious about over-committing in a falling market, but for most livestock farmers these drops do represent great opportunities to gently increase cover for the rest of the winter. Yes, prices may fall further, but keep focused on ensuring at least 50% of all requirements are covered going forwards, and start easing that towards 70-80% if you feel prices have fallen as far as they might.
Cereals have also dropped relatively sharply, with the London wheat futures trading at about £145/t for January-April delivery, and it’s clear that good supply is helping to drive the current downward trend. There should be knock-on effects for other energy feeds in due course.
In addition to good export surpluses in Russia and the Ukraine – both of which have been aggressively snapping up the majority of the export contracts available to date – it has now been confirmed that Australia and Kazakhstan will also have significant volumes of wheat available for export. This has eased pressure on European supplies, helping to keep domestic prices falling, whilst expectations of more rain for the southern plains of the US during the coming week is good news for next year’s harvest.
With volatility expected to remain high across all the feed markets, particularly while worldwide economic uncertainty continues, a cautious approach and a focus on risk management should be the priority. Keep a level of forward cover at all times to avoid having to buy during any “spikes”, and use the price drops to secure additional contracts for a good average price through the winter.
• Prices correct at the time of writing, all prices quoted are for 29t tipped bulk loads delivered on-farm within 50 miles of origin. Prices subject to change.
Feedwatch