Threat of limited supply makes feed contracts a priority

The fundamentals of supply and demand have reasserted themselves in recent weeks as activity from investment funds settles down following lessening economic concerns in the US.

However, the markets are still extremely volatile, with the precarious balance between supply and demand resulting in substantial reactions within the market every time either positive or negative news emerges.

After a steady decline in soya bean meal prices in recent weeks following excellent growing conditions in Brazil, there was a rapid rise a week ago when reports suggested that Argentina was heading for a hot, dry spell.

The rise was further fuelled by rumours of increased demand from China, and there’s ongoing concern that the Chinese will need to replace last year’s cancelled contracts at some point.

The recent United States Department of Agriculture (USDA) report confirmed a small increase in estimates for the US old-crop soya bean harvest, but as this was expected it had little effect on prices. The main issue in the US at the moment is soya bean stock levels, and it’s now a definite possibility that limited physical supplies may become the overriding factor in the Mar-Jun period.

Regardless of how good the Brazilian and Argentinean crops turn out to be, if there’s insufficient volume in the US to meet demand before the South American harvest begins, we could see a substantial spike in late spring/early summer prices.

Given how far the market has moved towards the buyer in recent weeks, and this potential threat of limited availability in a few months time, it would be a sensible move to take at least some cover through into May-June, with prices currently around £345-360/t. And with the fate of the South American crop still largely unknown, booking soya bean meal contracts for next winter should also be considered – prices may yet fall lower, but could just as easily increase instead.

Feed markets at a glance

Soya beans:

• Fundamentals back controlling the market
  
  
  
  
  
• Extreme volatility, so watch the markets closely
  
  
  
  
  
• Recent falls make it an opportunity to buy
  
  
  
  
  
• Summer and next winter contracts worth considering

Rapemeal:

• Tight supply continues to control nearby price
  
  
  
  
  
• Better outlook from August on
  
  
  
  
  
• Watch distillers’ feeds as currently better value

Energy feeds:

• Cereal supply concerns remain dominant
  
  
  
  
  
• Consider early summer cover to secure supply
  
  
  
  
  
• Sugar beet feed availability limited
  
  
  
  
  
• Summer soya hulls better value

There’s better news for rapemeal at last, following a good Australian harvest, although availability from UK crushers remains limited. It means that there’s been little immediate movement in spot prices, with the main improvement being seen in contracts for delivery in August and beyond, where the price is now down to £196/t for August-October delivery.

Combined with the recent drop seen in soya bean meal prices, it means that spot and nearby contracts for rapemeal are still relatively uncompetitive, with rapemeal only starting to look attractive against soya bean meal towards the end of the summer. If the soya bean market continues to improve, then rapemeal prices could follow, though much will depend on how well oilseed rape crops are progressing in the key growing regions of the northern hemisphere. The UK crop is currently forecast to be significantly down this year, for example.

Consider booking perhaps 10-20% cover for August through to next April as insurance against the supply situation worsening, and keep a close eye on both crop developments and the price of the alternative distillers’ feeds as production from Ensus and Vivergo improves availability in the coming months. Compared with the prices for soya bean meal, rapemeal and wheat, the Vivergo bioethanol wheat distillers’ feeds are looking good value at the moment.

Those wheat values have seen some significant increases in recent weeks as concern over stocks continues. The latest USDA report reduced estimates for US corn stocks from 647 to 602 – lower than the trade expected – with the main impact in the UK being seen in the Jan-Mar cereal prices.

US exports remain lower than normal, with prices relatively expensive compared with Australian wheat. However, there’s still a scarcity of cereal supply in general, and grain continues to be hard to source in the north of England in particular.

It’s highly recommended that cover be taken for any cereal requirements right through until new crop becomes available, though we may see some improved availability come May-Jun as any remaining old-crop stocks are pushed out on to the market. Many sellers are understandably holding on to grain in the hope that prices will rise even higher on the back of predictions that the UK will run out of home-grown wheat before the end of the current crop year.

In terms of other energy feeds, the lack of sugar beet is keeping pressure on soya hulls, and prices are still somewhat expensive as a result. Summer prices do look competitive, though, at around £175/t, and there’s a slight worry that supply could be an issue in the Apr-Jul period due to ongoing US shipping challenges. Consider booking some cover now to guard against being left without supply.

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