Keep a watch on feed markets and plan
A more proactive approach to buying in feed could help manage the risk posed to profitability by feed markets and the unpredictable weather.
UK compound feed demand in March 2013 was the highest for 15 years following 2012’s poor forage season and a long and cold spring. So farmers are being urged to think ahead in terms of feed supply to avoid being bitten by higher feed prices when buying last minute, says Trident general manager Richard Cross.
“We knew it was probably going to be a bad forage year as early as June 2012, so that’s when the process of securing additional feeds for the winter and following spring could have been started,” he says. “Even if the rest of the summer had been great, that extra feed on hand would have helped with the late, cold spring, or been available as insurance against another poor summer.
“That’s good risk management, and reduces the need for last minute buying at high prices, or the chance of missing out on the feeds needed. Now’s the time not only to be finalising plans for any summer feeding, but also working on a feed buying strategy for the winter, the spring and even next summer,” he says.
Global feed market
Globally, the constantly changing fortunes of key exporting regions make it vital to look beyond the domestic situation when planning ahead.
One-third of the UK oilseed rape crop may have been ploughed up, but plantings in Germany have increased, for example, and although the UK wheat crop looks poor, key exporters like Russia and Australia are facing good harvests.
Both US corn and soya bean crops are also predicted to yield increased volumes for 2013, according to the United States Department of Agriculture (USDA), while an estimated bumper South American soya bean crop of 134.5 million tonnes (mt) is 27.9mt higher than 2012.
“But it’s not all good news. Current USDA yield estimates of 44.5 bushels/acre for the coming North American soya bean crop look optimistic compared to a 10-year average of about 41 bushels/acre,” Mr Cross cautions.
“And any reduction in UK cereal volume will have knock-on effects for co-product feed supply. Even the bumper South American soya bean harvest hasn’t reduced summer UK soya bean meal prices because a poor exchange rate is making Argentine farmers reluctant to sell, and Brazilian exports remain held up by logistical issues.”
Figure 1 shows how the rapemeal forward contract price for August 2013 delivery has varied since February 2012, when prices were as low as €403/t (£337/t*). Compared to a high of €476/t (£375/t*) in July 2012 and a current price hovering about €430/t (£367/t*), booking forward at the right time could have saved £30-38/t.
Figure 2 shows how different the price profile can be for energy feeds. It also highlights how acting in June 2012 (as soon as forage quality and quantity issues first came to light) could have secured additional feeds for the coming months at a better price than at any time since.
Mr Cross emphasizes the importance of planning to secure a proportion of requirements whenever a good buying opportunity comes along. “It’s far better to pay £10-20/t more now than be caught out by a £50-60/t rise if the unexpected happens. Even booking just 20-30% at any one time will help spread the risk, keeping perhaps 10-20% of predicted needs unbooked to allow flexibility if rations change.”
The clear exception is when availability could be an issue. In this case, getting 100% booked in advance almost regardless of price could be the only way to guarantee supply.
“It’s now much easier for feed suppliers to quote forward, so aim to build a portfolio of cover over time, even if it’s just a few months ahead to avoid short-term supply issues, as seen with soya bean meal this spring. This also provides shippers with a better estimate of future demand, and increases the likelihood of them committing vessels to the UK if supplies are limited.
“So think at least 12 months ahead, strike a balance between securing supply and waiting for a better price, and consider energy and protein feeds separately if markets dictate. Remember that according to the graphs, energy feeds were still at their peak when protein prices had already begun to ease back.”
Variation in wheat forward contract price for July 2013 delivery (source: Reuters)- see Grant/Hugh for figures 1 and 2
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