Countering the risk in the market

Market stability may be a welcome relief, but volatility is still a concern, reports KW’s Colin Shepherd

An uncertain balance has emerged in the feed markets in recent weeks as ongoing concerns about the European debt crisis are countered by better crop results globally.

The price for most feed commodities fell by about 10% over a 3-4 week period, prior to stabilising in mid-October.

Although the drop in prices is great news for UK livestock farmers, there’s still a lot of risk in the markets. Attention remains heavily focused on Greece, Italy and the European banks, and any news about the fundamentals that would normally be expected to strongly influence prices – supply, demand, harvest progress – is generally being overshadowed.

It makes predicting the next phase in market movements difficult, and the overall advice remains the same – make sure you’ve got at least 50% cover for the winter to guard against the risk of markets rebounding, and maintain that position going forward. Consider covering up to 75% of requirements if the price looks right and an opportunity presents, topping up on the spot market as needed.

In a potentially volatile market (which it is, despite recent stability), careful risk management is the key to keeping feed costs under control this winter.

In the end, it was the inability of the EU to come up with any clear plan to resolve the debt crisis – rather than any dramatic crop supply or demand news – that sent prices tumbling. The investment funds ran for cover, exiting the commodity markets to reduce risk and exposure amid growing fears of another recession.

The resulting sell-off saw feed prices drop significantly, and created a great opportunity to add extra cover for winter feeds that still continues at the time of writing. Winter soya bean meal contracts are available for about £273/t, with wheat futures trading just under £150/t and rapemeal in the mid-£170s/t.

Some consideration should also be given to taking at least some cover for proteins next summer. Although soya bean meal for May-October delivery in the mid £270s/t isn’t particularly attractive, some customers have booked up to 25% of summer needs to guard against prices rising through the winter if demand increases on the back of improved milk and beef prices.

Rapemeal is perhaps more worthwhile at the moment, with contracts for August-October delivery currently £18/t below the spot price. Rapemeal continues to be competitive against soya bean meal, although with a number of the European crushers switching to sunflower seed, rapemeal supply has been kept in check. Prices are likely to remain relatively buoyant.

However, there are those in the industry who feel that supply of mid-proteins generally is going to improve in the New Year, increasing the pressure for prices to fall again towards the end of the winter. Some rumours suggest a re-opening of the Ensus bioethanol plant in the coming months, combined with a ramping up of bioethanol distillers’ feed supplies from mainland Europe.

In terms of energy feeds, the big news in recent weeks came from the United States Department of Agriculture (USDA). In its latest report, the USDA raised the world wheat crop estimate by three million tonnes and world stocks by six million tonnes, sending wheat futures to their lowest levels since March.

Wheat supplies, particularly from the Black Sea region, now appear plentiful, and the Ukraine has now lifted export duties on wheat and maize. Russia continues to win a large percentage of the export contracts offered, and the Australian and Argentinean harvests will also soon enter the market.

Against this is the below-average US corn crop, and potential for increased demand – China unexpectedly bought 900,000t of corn, and may increase this to four to five million tonnes for the year (something not factored in to current supply estimates), while demand from US bioethanol production continues to grow. A poor wheat crop in Scotland and rumours of the Ensus bioethanol plant re-opening could also see cereal supplies tightening in the north of England.

But overall, no immediate increase in energy feed prices is expected in the near future. Liquid feeds remain the stand-out choice for value if extra energy is needed to balance rations low in sugars, with pressed pulp now available for those short of moist feeds or forage. Book now to secure supplies and clamp on-farm until needed.


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