Market dips prove their worth as fundamentals remain firm, reports KW’s Colin Shepherd


Although there’s little to suggest any long-term drop in feed prices this year, recent dips in the market following the Libyan crisis did create a great opportunity to secure summer soyabean meal at just over £290/t delivered.

With prices now back at about £300/t, it’s clear proof such buying opportunities will occur, but also confirms they’re likely to be short-lived.

The dip appeared after fund buyers sold off some of their contracts when the Libyan crisis briefly shook confidence and created some uncertainty in the markets. The volume involved was big enough to drop the price of soyabean meal for summer delivery in the UK by about £12-14/t. Those farmers in close contact with their suppliers were able to book contracts quickly and make the most of the improved forward price.

For the time being, any dip below £300/t for soyabean meal should be seen as a buying opportunity, while the differential to rapemeal continues to make rumen-bypass heat-treated rapemeal a good alternative at present.

However, the fundamentals remain the same. Soyabean supply for the 2011/12 year appears to be tight compared to estimated demand, with the recent week-long strikes at the Argentinean ports of San Martin and Lorenzo only adding to concerns over availability.

Rapemeal continues to buck this trend to some degree, with a substantial volume of oilseed rape remaining to be crushed in Europe, and buoyant oil prices putting pressure on crushers to increase throughput. So the next three to four months may see additional rapemeal entering the market, which, combined with current slow demand, is likely to increase the discount to soyabean meal.

At present, rapemeal is trading at about 55% of the value of soyabean meal, so we may see this drop as low as 50% before the new crop is harvested. But with late summer contracts for rapemeal remaining good value at present, don’t wait too long in the hope prices will improve – remember 55% of soyabean meal at £300/t is cheaper than 50% of soyabean meal at £335/t.

And there is definitely still potential for these markets to rise. Supply and demand are finely balanced, so it will only take weather or harvest problems in one or two key growing areas to send prices even higher.

How high they can go remains to be seen. However, at present the best value options for protein continue to be rapemeal, the rumen-bypass proteins and bio-ethanol wheat distillers’ feed.

In terms of the energy feeds, the USDA has predicted a corn yield for this year’s harvest above the recent average, but there’s little confidence in this prediction within the markets – the last five years have seen US corn yields averaging about 151 bushels/acre, yet the estimate for the current crop is just over 161 bushels/acre.

In addition, the USDA is claiming an extra 3-4m acres are being planted with corn this season, despite an increase of 1-1.5m acres in soyabean plantings, implying that additional non-arable land is being cropped this year – a factor more likely to lower the average yield than raise it.

On the demand side of the equation, North Africa and the Middle East are frantically importing grain to help quell unrest, while the Chinese government is spending $1bn (about £600m) on emergency measures in an attempt to combat one of the most serious droughts in decades. If the Chinese wheat crop is damaged by the drought, expect energy feed prices to rise again.

And while uncertainty rules, then so does market volatility. November forward wheat prices (ex-farm) are currently close to the recent average at £162/t, but highs of £182/t and lows of £148/t have been seen within the last month alone.

For those livestock farmers needing to buy energy feeds now, liquid feeds are still good value for the summer, with the molasses blends and cane molasses typically only £5-10/t above winter prices. For digestible fibre to balance lush spring grass at turnout, the main option is soya hulls, which are good value for May-September delivery. Some imported sugar beet feed is also now available through to mid-April.

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