Feedwatch: Uncertainty in feed markets presents a challenge for livestock farmers

The three main fundamentals affecting UK feed prices – supply, demand and exchange rates – have all been at play in recent weeks, resulting in uncertainty within the feed markets and a real challenge for livestock farmers looking to buy the feeds they need for the rest of the winter.

The feed markets are a different place today than they were a few months ago, with price swings of up to £10/t in soyabean meal, for example, going back and forth within just a few days.

Of the three influences driving markets at present, the underlying lack of supply remains, and it is this that keeps the prices bouncing back following any dips. The latest USDA report cut estimates for corn yields, soyabean yields and end-of-year stocks, and resulted in a reaction within the markets that sent spot soyabean meal briefly over £310/t. A week later it was back to over £290/t.

There is also concern over US corn supplies, possibly leading to limits being imposed on the amount that can be used for bioethanol production. And according to the Food and Agriculture Organisation of the United Nations (FAO), global wheat output for 2010 is set to be 5% down, at around 648m/t, due mainly to the 32% reduction in the Russian harvest.

China continues to have the biggest influence on the demand side of the equation, with news of a potential rise in Chinese interest rates causing markets to drop significantly. Any such tightening of economic policy to help control Chinese inflation (currently at around 4.4%) would likely reduce economic growth, and with it China’s ability to pay for imports.

But the Chinese population continues to grow – some estimates put growth at 130 million in the next 12 months alone – and Chinese food prices in October were 10.1% higher than the previous year. Importing more food would tend to address both of these concerns.

The result is huge uncertainty around future Chinese demand for soyabeans and corn, with every new rumour causing the markets to react. And since supply and demand is very delicately balanced at the moment – there is potentially too much worldwide demand for the predicted global supply – those market reactions have become very strong indeed.

Currency values are also playing a big role in how these global trends are affecting UK feed prices and supplies.

Sterling’s weakness (combined with a lack of global supply) has seen strong wheat export activity, with the UK filling export orders to countries like China that would normally be filled by the Ukraine or Russia. Good for business if you’re an arable farmer, but it appears that UK exports have now exceeded the 2010 harvest surplus – from now on, the UK will be a wheat or corn importer if estimated demand for the rest of the winter is to be met.

The impact of the EU bailout of the Irish economy may also have a significant impact, although the direction of any effect remains to be seen. The recently-announced support package for Ireland could weaken the Euro if fears remain over the sustainability of such economic measures, or the Euro may strengthen if the world’s financial institutions feel that the problem is now under control.

Previous advice about watching the market closely and responding to a dip remains, but additional caution is now required as the swings are just as likely to be in the order of £10-20/t as £4-5/t. If you get the chance to buy soyabean meal in the £280s/t, consider covering both winter and spring requirements immediately if no cover has yet been taken, while prices in the £290s/t could be worth booking for December and January only, then waiting for the next dip to secure further ahead.

Rapemeal prices remain high on the back of limited supply and high soyabean meal prices, and look set to stay that way. However, the good autumn weather, along with ongoing concern about milk and beef prices, has kept demand relatively low so far this winter, resulting in some better-than-expected deals on alternatives like high-protein liquid feeds (e.g. Regumaize 44) and the various distillers’ feeds.

Keep in close contact with your feed supplier to make the most of any short-term opportunities as and when they appear during the rest of the winter.

For energy feeds, British sugar beet feed remains the outstanding buy of the winter, even compared to cereals, and is definitely by far the best value source of digestible fibre. For those needing starch energy, the confectionery blends such as SweetStarch and FormulaOne remain the most cost-effective options still available.

Prices for next summer will clearly depend on the potential changes in demand discussed above, but will also be heavily influenced by the development of next year’s crops. If yields are good – or good growing conditions lead to strong harvest estimates – then some price correction is possible.

* Prices correct at the time of writing, all prices quoted are for 29t tipped bulk loads delivered on-farm within 50 miles of origin. Prices subject to change.