Harvest concerns are rising for both protein and energy feeds, reports KW feed specialist Chris Davidson.
The feed markets have seen plenty of movement in recent weeks, with soya bean prices rising in response to continued old and new crop buying by China, concern over hot, dry weather in the USA and an easing of the European debt crisis. Increases in the corn markets have only added to this pressure.
The release of a United States Department of Agriculture (USDA) report earlier in June also had an impact, with estimates for the Brazilian soya bean crop up 0.5 million tonnes (mt) to 65.5mt, but coupled with a 1.0mt lower figure for the Argentinean harvest, down to 41.5mt. And this Argentinean estimate is still higher than most market expectations.
The biggest concern at the moment is the weather in North America, with crop conditions seemingly downgraded on a weekly basis as forecast rains fail to appear. There is more rain reportedly on the way, but it’s unclear whether it’ll provide enough volume in the right places to benefit those crops in greatest need.
The next USDA report will contain the first update to US corn and soya bean acreage figures for some months. A shift of at least 2-3 million acres toward soya bean planting is needed to help the current situation, but it would take a significantly higher switch to have any real impact on current prices. At the moment, this looks unlikely.
For rapemeal, a lack of availability has increased the spot price to about £238/t. Forward contracts for the rest of the summer and next winter are also still high thanks to the strength of the soya bean meal price and increasing local demand as old crop rapemeal begins to sell out.
Fundamental concerns about the European oilseed rape crop remain, with rumours that the Ukrainian crop could be reduced by 25-50%. And as rapemeal contracts for August-April delivery trade at around £225/t as a result, it’s the £178/t contracts for next summer that are attracting what little buying interest remains.
In fact, we’re seeing more and more interest in those summer 2013 contracts, and certainly much greater take-up than for the coming winter. And with good reason – given the way the protein markets have moved since the start of the year, prices in the mid-£170s/t are worth serious consideration, even if only to secure perhaps 30-60% cover to guard against the worst of a repeat next year.
A recent comment from a US analyst from AgResource offered the opinion that soya beans appear undervalued at present, and that the price of all oilseeds could hit record levels over the coming six months due to continuing high demand, particularly if the weather continues to affect yields. It’s hard to recommend booking cover for this winter at current prices, but remember that it might get worse.
Although the European debt crisis has been averted for now, it’s only a return to significant economic uncertainty that offers any real hope of prices easing back, and buying opportunities emerging in the coming months. And given the fragility of the supply versus demand balance, even substantial fund selling in response to increased economic risk would likely only produce a shortlived respite in prices.
If it does happen, be ready to act quickly to secure at least some cover going forward.
For cereals, the wheat market has firmed substantially as availability prior to harvest tightens, and dry weather in both the USA and Russia causes harvest estimates to be reduced. Rains in Europe and northern Russia have been beneficial, but the Russian south remains hot and dry.
With rumours that the Russian harvest might now total just 48mt – some 10mt lower than originally forecast – the view that cereal prices won’t now drop once the European harvest begins is beginning to take hold. Concerns over global wheat supply have been further heightened by the Ukrainian agriculture ministry predicting a crop of just 14.5mt (compared to 21.0mt last year), while a recent sale of 110,000t of wheat to China reported by the USDA is the largest sale in eight-and-a-half years – it looks like export demand might also be on the rise.
The price of most other energy feeds has risen as a result of increases in the cost at source, with soya hulls now trading about £164/t for summer delivery, for example, but still available. However, liquid feeds continue to be a good value source of energy in the current market, with the benefits of extra sugars an added bonus.
Protein feed markets
- Soya bean harvest concerns continue
- Weather the biggest influence
- Poor rapemeal availability increased prices
- Summer 2013 contracts attracting interest.
Energy feed markets
- Cereal prices may not now drop post-harvest
- Russian wheat harvest poor in the south
- Less export capacity for Russia and Ukraine
- Chinese imports could be on the increase.
Eurozone debt crisis
- Still a major influence if situation worsens
- Any fund selling a good buying opportunity
- Quick reactions needed to take advantage
- Buy in the dips to take at least some cover.