China is biggest threat to soya prices

Soya poses the biggest uncertainty to feed prices over the next 12 months.

That was the verdict of producers at the Pig and Poultry Fair after the first of the open forums on prospects for feed commodity prices

The likely outlook was put to a show of hands after the audience had heard experts on key commodities review the current state of the markets.

Cargill’s Alex Miller told them that the fundamentals were bearish for prices – indicating they would weaken – while the involvement of the investment funds provided the “froth” that was in the market.

However, China was the “tiger in the corner”, he said and representaed a massive unknown.

“We’ve seen their demand almost double in the last 10 years, and with people looking to increase their standard of living, for us in the UK and EU it’s definitely going to be a factor that we need to keep our eyes on.”

“If they want to buy it and are prepared to pay for it, it will only mean higher prices for us.”

Overall it had been an interesting 12 months in the soya market, said Mr Miller.

“A lot of people have got it wrong, and we are back where we were 12 months ago.

Then we were talking about much cheaper prices and the expectations of a big crop, but unfortunately that didn’t happen.”

Supplies from India, Argentina and Brazil had all fallen short, and against that background, although there had been a record crop in the US, world supply was lower overall.

“The US mostly filled the gap, but from October China started buying and buying,” he said.

“Total season-end stocks were 43m tonnes, which is a significant part of world production. The stocks-to-use ration is incredibly tight.”

Even though the supply outlook was now moving from a bullish one to a bearish one for prices, a major concern was the lack of understanding of what Chinese demand actually was.

In the immediate term he predicted that once the South American crush got going, the market should be seeing lower prices on soya bean meal for late July-to-August arrival in the UK. Prices for summer 2011 could be £220-230, but this excluded the China factor.

Another risk was the weather in the US.

“At the moment the conditions are good, but I’m a bit worried that if we’ve got high prices when conditions are good, a weather problem could send things even higher.”

A representative from Morrisons supermarkets wanted to know the likely future availability of non-GM soya.

“From a supply point of view, if people want the material then it will be supplied, but price will be a factor on that,” said Mr Miller.

The outlook for wheat was summarised by Simon Christensen from Frontier, who said that there was a stable situation at the moment.

There were some risks that could influence market prices but the overriding prospect indicated a flat outlook for the grains complex, he said.

“From a production perspective, things look pretty good for feed grains and particularly wheat.”

Globally, corn (maize) was the most important crop: “In the US they have had a fantastic initial planting, with ideal conditions and in a record time.”

Continued speculation from funds could be expected, which would drive sharp price movements in the short term, but in the longer term he anticipated no great movement in any direction, said Mr Christensen.

Buying activity in the short term could also strengthen feed wheat prices because traders had taken limited forward cover due to the bearish outlook, and at some stage these buyers would have to come back into the market.

During the 2009-10 year the sector had done a fantastic job of building wheat stocks, and the same could be expected for 2010-11.

“It’s a significantly different place from where we were, when the market was extremely strong.”

In the UK there was a possibility that the last part of this season could be particularly tight. It was almost certain that the UK would clear its wheat surplus by the end of the season, and the new crop looked like it might be a bit late. This could lead to a price spike on old crop wheat at the very end – especially if there was further export interest during the next 6-8 weeks.

“Wheat remains cheap and there are no crop issues there today, but at around the £100 mark we would question whether there is any downside.”

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