Unsettled weather causes feed prices to soar

A poor start to 2012 has sent feed prices rising, reports KW feed specialist Chris Davidson.

With recent drought in South America threatening corn and soya bean crops, heavy rains delaying the Brazilian soya bean harvest and cold weather damaging European and Black Sea region wheat crops, 2012 has started poorly.

Prices reacted by rising steadily from the lows of just before Christmas, and firmer prices – and market volatility – look set to remain until the extent of any damage has been confirmed.

The issues and problems surrounding the European debt crisis haven’t gone away, but for the time being they’re playing a secondary role to the fundamentals of uncertain supply versus demand.

Soya bean

But recent rains in South America that may have been too late to help the corn crop will be of benefit to soya beans. The trend at the moment is for soya bean yield estimates to be reduced in light of the drought, but the markets do have a tendency to overreact (as happened last year). If the favourable weather continues, the outlook may change quite quickly.

Of more immediate concern is the delay to the Brazilian soya bean harvest that has caused a substantial spike in spot prices. With large volumes of export demand switching from the USA to South America – current export contracts for Brazil total 2.7 million tonnes (mt) compared to just 0.3mt last year – current weather delays are causing a backlog of ships in Brazil’s ports waiting to be loaded.

Some of this demand has switched back to the USA, adding pressure to US year-end stocks and causing the soya bean futures market to rise. But as long as the Brazilian harvest can get fully underway soon, the situation should be resolved within just a few weeks.

The longer-term picture shows extremely poor US export demand, low interest from China and the US cattle herd at a 60-year low, so if the South American crop eventually harvests well, there is potential for the price of soya beans – and soya-bean meal – to fall back.

It means that for the time being, all attention is on harvest and yields. However, if the South American soya bean harvest does turn out to be poor, attention will quickly move to the anticipated reduction in US soya bean plantings as growers switch to the potentially more profitable (at the moment) corn. A smaller US soya bean acreage, plus reduced production in South America, would put a lot of pressure on both 2012-13 year-end stocks and forward prices.

Rapemeal

Rapemeal has followed soya bean meal closely, with forward contracts for August-October delivery at about £160/t, plus a £20-25/t premium for spot purchases caused by the crushers being nearly sold out for the rest of winter. If soya bean meal prices do fall back, rapemeal is likely to follow, though any drop may be delayed by the current rapemeal shortage.

In contrast, forward contracts for distillers’ feed are lower than they have been for a while, with imported bio-ethanol wheat distillers’ feed for January-October delivery currently available at £185/t.

Wheat

In terms of the energy feeds, May wheat futures have risen by more than £20/t since just before Christmas, to nearly £170/t at the time of writing. The initial increase followed a rise in the corn markets as Argentinean corn crop estimates were cut from 24mt to 22.5mt – with some sources talking as low as 20-22mt – as a result of the dry weather.

With US year-end corn stocks extremely tight, the potential reduction in South American supply had an immediate effect on the energy feed markets. The threat of extremely cold weather in Europe and the Black Sea region damaging wheat crops added further pressure, and it’s currently unknown whether there’s sufficient snow cover to insulate crops from the worst of the damage.

The good news is that world wheat stocks remain at good levels for the time being, but expect considerable volatility while weather concerns dominate both the corn and wheat markets. For digestible fibre, sugar beet feed is still on offer for about £176/t and soya hulls can be secured on forward contract right through to the end of the summer for £143/t.

Feed purchases for the rest of the winter should be managed carefully, maintaining full cover a month or two ahead to avoid paying the current spot market premiums. For the summer, work towards securing perhaps 25% cover as opportunities arise during dips in the market.

Although prices may not look particularly encouraging at present, it will be important to have a good summer feeding plan worked out to allow additional forward cover to be booked quickly if supply expectations do worsen.