Feedwatch: Do not panic as Russia bans wheat exports

The massive increase in feed market volatility seen at the start of August will have caught many buyers by surprise, with little expectation within the markets that the reaction to potentially reduced wheat harvests would be so quick, or so severe.

But the announcement of an export ban by Russia, combined with drought conditions in a number of key wheat-growing regions, means many traders now estimate total world production of wheat to be even lower, by as much as another 5-10m tonnes. That would make a global harvest of about 640-645m tonnes.

The news put pressure on prices and, once the rise began to accelerate, the fund managers were quick to enter the market in the hope of riding the highs for a quick profit. By buying futures contracts in a rising market, they drive the price peaks even higher, and bail out as soon as the price starts to fall, magnifying the natural swings in price.

And when all the buyers who’ve sat back waiting for the price to fall suddenly re-enter the market as it drops back, a new demand peak is created. The fund managers then jump back in again to drive it as high as possible, and the cycle repeats.

The challenge is to manage the feed-buying process to make the most of these dips in the market when the fund managers sell off their positions. With the dips often only lasting for half a day, staying in very close contact with your feed supplier is the key.

It’s also important not to panic.

When there are immediate requirements to be filled, you’ve probably got little choice but to pay the price and secure what’s needed. But it’s also advisable to start booking contracts a month ahead, as soon as the opportunity arises. Expect a continuation of having to pay spot premiums for uncovered requirements for some time yet.

Prices for next month may not look attractive, but in the right ‘dip’ should be secured to guard against ongoing volatility. Paying £10/t more than you’d like now is better than taking the risk that it may be £30/t on the spot market when the time comes.

Unfortunately, the majority of the other energy feeds have generally followed wheat up, so the same advice holds true for most of the options available. Soya hulls are perhaps one of the few exceptions at the time of writing, though don’t expect this opportunity to last long.

For more information on moist feeds and protein feeds, visit www.fwi.co.uk/feedwatch