Global demand keeping dairy feed prices strong

Global demand is continuing to keep feed prices strong for the dairy industry, KW’s Colin Shepherd reports.

High prices continue to dominate the feed markets, with little reason to expect any dramatic change in the near future. Global demand remains strong, worldwide supply shows no signs of overtaking that demand, and the weakness of Sterling continues to push domestic prices even higher.

With little summer discount currently available for many feeds, including soya bean meal, it’s hard to recommend buying forward, but with the potential for prices to go even higher, taking at least some cover (perhaps 20-40%) may be prudent at this time.

The exceptions to this are rapemeal for August-October delivery, which has been traded at £185/t, and May-October contracts for Scottish distillers’ maize and barley, which have been taken at about £190-205/t – consider booking 50-75% of requirements now.

Liquid feeds are probably the best buy for energy at the moment, even on the spot market. Anyone with the ability to incorporate liquid feeds into rations for the rest of the winter or through the summer should be doing so.

Other feeds worth looking at on the spot market include wheat feed pellets – higher flour production has increased domestic supply. Rumen-bypass proteins are still a better-value way to supply high-quality protein than soya bean meal.

Apart from the exchange rate impact on UK prices, the biggest factor affecting the feed markets in the coming months is likely to be weather. The January USDA report revised downwards, not only ending stocks for old crop corn and soya beans, but also the estimate for new crop soya bean yields.

The Argentinean crop has recently received more rain, but this news hasn’t resulted in any major shift in yield expectations. In fact, while the USDA’s January forecast for the Argentinean soya bean crop was 50.5mt, Oil World recently re-forecast its estimate downwards to 46.0mt.

Chinese demand for soya beans remains strong, and looks set to continue – overall, 25% more was bought in 2010 than in 2009 – with the country currently buying from Brazil. Unusually, China has also entered the global wheat market, with the purchase of 500,000t of Australian feed wheat. It’s rumoured that dry weather is affecting the Chinese wheat crop as well as that in the USA.

Globally, there appears to be a good volume of wheat planted, yet UK wheat prices in January still generally ran at more than £200/t. New crop values for the summer will depend heavily on the weather over the coming months, but with demand from bio-fuel production continuing to rise throughout Europe and the US, few are predicting much of a surplus.

The UK position is finely balanced, with a reported 1.8-2.0mt of wheat having been exported, and insufficient stock in the country to meet demand. Many buyers don’t appear to have cover beyond March, so prices are expected to continue at more than £200/t when that demand enters the market. Rumours of two ships of Australian wheat heading this way are unlikely to be enough to keep prices down.

Don’t expect turnout to cause much of a change in feed prices either. Most feeds now operate on a truly global basis, with the small change in UK demand following spring being insignificant compared to demand from the likes of China. Home-produced feeds such as wheatfeed, molasses and Scottish distillers’ feeds that are likely to be affected are already showing appropriate discounts for summer delivery.

Many of the factors at play now are similar to those seen in 2007-08 (the last time feed prices soared) and there are no indications that prices will crash any time soon. What does appear to be happening, however, is that many of the investment funds are over-bought when it comes to commodities such as feedstuffs.

It means that at some point they will need to sell off those positions, creating temporary dips in the market. These dips won’t be large, and won’t last for long, but they could provide real opportunities to save £5-10/t or more on forward contracts for the summer, and even next winter.


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