European debt crisis offers feed opportunities

There are opportunities in the dairy feed markets as the European debt crisis returns, reports KW feed specialist, Chris Davidson.

European economic concerns have had a big impact on the commodity markets in recent weeks, with stock markets falling, significant fund selling and crude oil hitting a six-month low.

However, the soyabean market remains stubbornly buoyant, quickly regaining ground lost as most other commodities remained down.

Soyabean

It’s perhaps the clearest indication for some time of how fundamentally tight supply of soyabeans is compared to demand. The Argentinean harvest continues to disappoint as it reaches 65% complete, and Chinese imports remain both strong and focused on North America – a situation that only further erodes predicted US year-end stocks.

However, most of the rallying in soyabean meal prices has been for spot purchases or nearby forward contracts. Prices for next winter and even through to summer 2013 are now trading at a significant discount, with contracts available (at the time of writing) for November-April delivery in the region of £341/t, and £291/t for next summer.

This compares to a spot price of about £363/t, and has been helped by a United States Department of Agriculture (USDA) prediction for global soyabean production to hit 272.4m tonnes in the 2012-13 crop year. In contrast, the current year is expected to yield just 236.9m tonnes, though we’ve seen all too clearly this year how much impact the weather can have on such predictions.

So far, US plantings have made good progress, being 46% complete against a five-year average for May of 24%. And the suggestion that soyabean plantings in the USA will be higher than predicted are gaining strength, particularly with soybean prices remaining so strong, but it won’t be until next month that the next USDA estimates are published.

The price of soyabean meal in the UK also continues to be badly affected by the weakness of the pound, and the latest chapter in the European debt crisis hasn’t helped the value of the pound against the dollar. With Greece confirming another bout of elections, and the “anti-bailout” parties gaining ground, it appears that the uncertainty and subsequent market volatility are far from over.

But for the livestock farmer looking to secure feed supplies, that volatility does at least provide the chance for the current high prices to dip every now and then. The prices still aren’t what most would like to pay, but forward contracts for soyabean meal are better value now than they have been for many months.

It’s not necessary to book everything forward, but locking in maybe 20-50% of winter requirements if dips allow will cut a lot of risk out of the feed budget, with summer 2013 also worth serious consideration at the moment. Compared to the prices paid by most farmers in recent months, it’s looking like a sensible move to protect businesses from the worst a strong soyabean meal market can deliver.

Rapemeal

In contrast, currency issues have helped keep rapemeal prices down after the markets fell, with the pound reaching E1.25 at one point. This effectively reduced the relative value of rapemeal in mainland Europe, which UK crushers use as a guide to set home-produced prices. Prices are also being kept lower by the lack of interest from buyers, even for the currently discounted August-October delivery period, with forward contracts at about £190/t still failing to generate many sales.

In addition, European oilseed rape crop estimates have been further reduced (to 18.1mt) – the lowest figure for six years – and this is adding support to the price of all rapeseed-derived feeds.

However, with the potential for additional mid-protein feed supply from the Vivergo Fuels bio-ethanol plant in Hull when it comes on-stream this summer, most buyers seem to be adopting a ‘wait and see’ approach for now.

How the price will react is uncertain, with a lot of potential demand waiting in the wings to mop up any additional supply. Currently, distillers’ feeds are extremely hard to source, with no imported prices being offered by shippers until the winter, and all domestic supply sold out.

And those holding off rapemeal purchases will have to come to the market at some point. The uncertainty has caused the price of imported distillers’ feed for November-April delivery to drop to £200/t delivered, for example, but there’s no guarantee how long this price will remain – there may yet come a point where booking contracts to secure supply becomes the priority, not waiting for the price to improve.

Market influences:

• New Eurozone debt concerns

• Fund sell-offs cause markets to drop

• Pound weak against US dollar

• but strong against the euro

Soyabean meal:

• Prices hit by market concerns, but rallied fast

• Fundamental weakness of supply dominates

• But volatility creating opportunities to buy

• Forward prices now low enough to consider

Rapemeal:

• Little interest from buyers at current prices

• European harvest predictions at six-year low

• Uncertainty over future price trends

• Securing supply may outweigh price concerns

 

Feedwatch

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