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Global Feed Markets: May - June 2014


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Where will wheat prices be in six months time? Will the bellwether CBOT market be lingering in its recent range of $6.50/7.00/bushel - or down to the mid $5’s as some investment bank analysts have recently suggested? Will European milling wheat prices stick with the E200/205/tonne indicated by Paris futures – or reflect the US trend with a 20% decline by end-year?

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Global Feed Markets: May - June 2014

  1. 1. Digital Re-print - May | June 2014 Global Feed Markets: May - June 2014 Grain & Feed MillingTechnology is published six times a year by Perendale Publishers Ltd of the United Kingdom. All data is published in good faith, based on information received, and while every care is taken to prevent inaccuracies, the publishers accept no liability for any errors or omissions or for the consequences of action taken on the basis of information published. ©Copyright 2014 Perendale Publishers Ltd.All rights reserved.No part of this publication may be reproduced in any form or by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1466-3872
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  3. 3. GFMT’s market analyst John Buckley reviews world trading conditions which are impacting the full range of commodities used in food and feed production. His observations will influence your decision-making. The USDA expects world barley output to drop by about 12.6m tonnes in 2014/15, offset only partially by higher starting stocks (up by about 3.6m tonnes). Main declines are seen within the EU (minus 4m tonens), where less spring barley will be sown, reversing last year’s trend when a lot of spare land was left over from failed winter wheat plantings. W here will wheat prices be in six months time? Will the bellwether CBOT market be lingering in its recent range of $6.50/7.00/bushel - or down to the mid $5’s as some investment bank analysts have recently suggested? Will European milling wheat prices stick with the E200/205/tonne indicated by Paris futures – or reflect the US trend with a 20% decline by end-year? Much depends on the fruition of recent favourable outlooks for the next world crop. The USDA’s first take on this is for 697m tonnes – 17m less than last year’s, yet still just over estimated consumption (seen down by 6.6m tonnes). FAO/AMIS meanwhile suggests something in the order of 700m-plus while others are even prepared to countenance the possibility of crop close to last year’s record 714m. It’s early days yet to be too complacent about crops that, apart from India’s, are not yet ripe, let alone ‘in the bins.’ Comfortingly for consumers, though, we might remember that last year’s first forecast from the USDA was about 701m tonnes – 13m lower than it turned out. The International Grains Council was initially even more pessimistic about 2013 prospects, looking for 680/682 in its early forecasts. The biggest surprise last year was probably the extent of Canada’s crop increase as amazing yields delivered a record 37.5m tonnes – over 10m more than the previous year. Canada will also be the main component in this year’s anticipated decline. Though much of its predominantly spring-planted crop isn’t even sown yet due to wet, cold weather, the USDA is looking for a drop in production back to the 28.5m tonnes level – accounting for more than half the anticipated decline in the world crop. Lower crops are also expected in Turkey (-3m), Ukraine (-2.3m) and Australia (-1.5m) and smaller producers (a combined 4.5m tonnes). Outside of Canada, though, the biggest fall is in the USA where drought is expected to slash production of its most important export class, hard red winter wheat, and total wheat production is seen dropping by 4.5m tonnes to a ten-year low of just 53.4m.. The US, long the world’s leading wheat exporter (but probably ceding that place to the EU this season), also starts with its Season of plenty beckons GRAIN&FEED MILLING TECHNOLOGY52 | COMMODITIES
  4. 4. lowest carryover stocks in many years – about 12m less than it began with at the start of this decade. On the plus side, Argentina – one one of the top 5 exporters - is expected to produce 2m more this year and, provided the government doesn’t interfere too much with export policy, could ship 6.5m tonnes after managing only 1.8m this past season. Apart from Australia (+1m) and Russia (+800,000 tonnes), most of the other year-on-year changes to prospective export market shares are on the debit side. However, against that, import demand will not reach last year’s record 158.4m tonnes (plus 12m on the previous year) and may instead retreat by about 7m, largely due to smaller requirements from China, Iran and Brazil. Also, we should not forget India’s potential to export an awful lot of low/middling quality wheat. It has probably produced a record/ near record crop for the third year running – about ten million tonnes more than usual, holds enormous stocks and needs only a moderate rise in world prices (and a bit more pro-active approach from the Indian government) to start pouring this into export channels. The markets have had a fairly volatile two months since our last review. A fairly strong supportive undercurrent has emanated largely from two factors – the poor state of the US hard winter wheat crop and fears that a political meltdown in Ukraine will spark a Russian invasion, disrupt shipping schedules and amid western sanctions and Russian retaliations, create a hole in the assumed supply of wheat and maize exports from this region. As pointed out in our last review, markets have probably been over-reacting somewhat to this issue. Russia and Ukraine have set a low benchmark for world wheat and maize export prices over recent seasons, diverted much demand away from traditional exporters, especially from the more contested markets of the MENA (middle east/North Africa) region and effectively allowed the EU to have its cake and eat it – i.e. to export record amounts of milling wheat while keeping its own feed consumers satisfied with cheap maize and, to a lesser extent, feed wheat imports. But CIS export campaigns for this season are already on the home stretch and, so far, both have continued to ship out huge amounts of both wheat and maize without disruption (even from the key Ukrainian export port of Odessa when hostilities recently flared there). While business as usual has continued from the two main CIS suppliers, Europe has also sold off its wheat surpluses freely, benefitting from the relatively firmer wheat prices that have ensued on US and global markets. Canada, as mentioned above, still has a lot of its record crop to sell with March stocks about double last year’s levels with a heavy emphasis of these being held on-farm, rather than in commercial hands. So far most of the pointers towards 2014 world wheat production are fairly favourable. Even if yields don’t quite match last year’s levels, Russia and Ukraine combined may come close to last year’s bumper 74.4m tonne crop. EU output is expected to rise by at least 1.5m – though, with an early start, plenty of rain and a decent summer, it could gain even more. Late planting of the US and Canadian spring wheat crops – key components of the global top-quality hard bread wheat supply – does not seem to be over-exercising the trade at the moment. The current view is that most of this grain will get sown to plan while Canada has still has those large stocks from last year’s crop. Australia’s wheat crop, another key quality contributor, is being sown under mostly normal conditions and could be another large one. Wheat prices as we go to press are at similar levels to this time last year in Chicago and Europe, whereas maize is about 20% cheaper than it was then. Does that mean wheat is over-valued, in feed markets at least, by 20% (as the bank forecasts above seem to imply?). Perhaps the fact that banks, who have pulled a lot of money out of commodities, especially the ‘agrics’ over the past year are talking grain prices down rather than up – as they so often have in recent years – is an encouraging sign for consumers. MAIZE surplus on the way It has been a choppy couple of months for maize prices on the leading US market, driven by unhelpful US planting weather and fears that political meltdown in Ukraine might disrupt export shipments from what has recently been the world’s fastest-growing corn supplier. Yet the US crop is now going in according to plan and the Ukrainian situation – while apparently far from resolution – has not had any significant impact on trade - just as we expected in our last issue. Further forward, of course, the possibility of political issues turning to military conflict has not gone away. And there remains the nagging question of how a collapsing Ukrainian currency and other factors reducing its use of expensive, largely imported, yield-boosting agro- chemicals may deplete yields. Yet sowing of Ukraine’s 2014 crop (and Russia’s) has been going at a rapid clip, much earlier than last year’s crops, which were delayed by a late spring. Planted area will probably be close to last year’s in both countries (maybe even up a bit in Russia, where some spare land was available after wet weather delayed and downsized its winter wheat plantings). The generally favourable outlook was underlined by the first global crop estimates for the coming season from the USDA, suggesting Ukraine at 26m and Russia at 12.5m tonnes. That’s a drop of 4.9m for Ukraine from last year’s record harvest but still far more than it normally produces (10-20m) and it also has an unusually large carryover stock of 3.4m May - June 2014 | 53GRAIN&FEED MILLING TECHNOLOGY
  5. 5. tonnes to supplement its exportable supplies. Russia’s crop forecast, meanwhile, is almost 1m tonnes bigger than last year’s. USDA has the two countries’ combined export potential at 19.5m tonnes – only 3m less than last year’s peak and compared with only 6-10m normally. It could even go higher if yields have been under-estimated – which they may be, given the favourable weather both are currently enjoying. Overall the USDA’s first take on the 2014/15 season for maize (starting September 1) promises abundant global supplies, well in excess of demand, leading to steep growth in global and, especially US, carryout stocks by September 2015. The all-important US crop is currently forecast almost unchanged from last year’s at around 354m tonnes. That figure could go higher still if the US plants more than the 91.7m acres that USDA forecasts (down from 2013’s 95.4m due to lower prices) which some think possible given the amount of land that went unsown after a wet spring. The rationale is that the US actually has far more acres to divide up this year, allowing it to expand soyabeans, as it plans, without taking so much away from maize, their main rival for land. The main obstacle to maize sowing has been wet, cold weather which has been overcome in the main Corn Belt but left some northern states lagging. Farmers running up against last planting dates for crop insurance may turn to soyabeans, which can be sown later but our sources suggest that, at most that would affect about 1m acres. As we went to press, though about 88% of the crop was in the ground and amid plentiful moisture and rapidly warming weather, has a good shot at achieving the USDA’s fairly high ‘trendline’ yield forecast of 165.3bu/acre. The past season’s demand for US maize, export and domestic, is estimated to finish at 346m tonnes while next season’s total offtake is forecast at 340m. That should allow carryover stocks (at September 2015) to rise from an already comfortable 29m to 44m tonnes or more. Other main crop changes for maize (versus last season’s) include 2m more for Argentina offset by 1m less for Brazil. Both will carry in large stocks so their exports are actually seen higher at a combined 38.5m tonnes versus last year’s 31m. That would significantly outweigh the expected smaller Ukrainian crop. The world’s second largest maize producer and consumer, China, is also expected to make its usual annual increment to production, though, so far, this is estimated at only about 2.3m tonnes versus the 12-14m jumps that characterized the past few years. Overall, world output – like the USA’s – is seen identical to the past season’s 979m tonnes. A forecast rise of 17m tonnes in maize consumption is spread over a large number of nations on the basis that corn - which is still 20% cheaper than it was this time last year – will continue to expand custom at the expensive of relatively less attractively-priced feed wheat. The outstanding growth factor, though is China, seen boosting its consumption by 10m tonnes to a new record 222m. That’s broadly in line with China’s average annual growth trends over the past few years but importantly, most of this is coming out of China’s own domestic crop. Moreover, China will continue to hold massive reserve stocks of corn – USDA sees these around 79m tonnes – slightly larger than this year’s carry-in stocks, 11m more than in 2012/13 and a staggering 27m more than it was estimated to hold five years ago. China is currently auctioning these off – which seems to put the lid on last year’s theories that China would provide a bonanza 10m tonnes or more of import custom for US and other exporters. In fact, the USDA sees China’s imports from all sources dropping to 3m tonnes and has also revised down this season’s total to 4.5m. The other key factor for maize is Europe’s own import demand, revised up this season to a record 13m tonnes and seen repeating that in 2014/15. It’s interesting to note that, at the start of this season, EU maize imports were expected to drop from 2011/12’s 11.4m to just 7m tonnes. Overall, though, global corn import trade is seen slightly lower next season, another restraint on prices. Despite China using more, foreseen global consumption of corn at 966m tonnes still lags forecast total fresh supplies, leading to stocks rising by over 13m tonnes globally and by almost 15m in the US. These figures will also work against higher corn prices and if the wheat market starts to lose its current large price premium to maize, that could put the latter grain under further downward pressure. The current futures market projection for corn a year hence is similar to spot prices – just under $5/bu or about $185-190/tonne. With recent new crop offers by the CIS countries and by Brazil and Argentina undercutting the US, corn could get cheaper than this before 2014 is over. Other feedgrains The USDA expects world barley output to drop by about 12.6m tonnes in 2014/15, offset only partially by higher starting stocks (up by about 3.6m tonnes). Main declines are seen within the EU (minus 4m tonens), where less spring barley will be sown, reversing last year’s trend when a lot of spare land was left over from failed winter wheat plantings. Among the other big traditional suppliers of barley, lower plantings and a retreat from last year’s above trend yields are also expected to reduce Canada’s crop by 3m tonnes and Australia’s by 1m although Russia’s crop is seen about 700,000 tonnes higher. Barley consumption is expected top drop by about 3m tonnes, two-thirds of that fall within the EU, where it loses out to plentiful maize and feed wheat, the rest mainly in Canada and Australia. Given the much smaller crop, that will not prevent stocks declining by about 6m tonnes to their lowest for some years. Whether that will generate any independent strength in barley prices is uncertain as the main consumption outlet in the livestock sector remains vulnerable to competition from other, probably cheaper feed grains. Also global barley import trade is seen remaining flat at around 20m tonnes. Sorghum area is seen similar to last year’s but yields could improve with better weather in several regions, adding about 2m tonnes to the world total. Demand is expected to grow to absorb that, especially in China, where it has been replacing US GM maize but not much change is expected in world carryover stocks and the price outlook, tied to cheaper corn is seen lower overall. GRAIN&FEED MILLING TECHNOLOGY54 | COMMODITIES
  6. 6. Oilmeal outlook Oilmeal/protein supplies are looking fantastic for the year ahead as the top soyabean producers again head for record crops (chart). Overall world production is seen advancing by about 16m tonnes to nudge 300m for the first time ever, largely due to the US (+9.4m) and Brazil (+3.5m). Together with Argentina, these countries will have expanded their contribution by a staggering 30m tonnes over just two years. Global crush on the other hand is only expected to advance by about 9.5m tonnes for the second year running, resulting in carryout stocks piling up for a third year to a new record 82m tonnes by September 2015. The lion’s share of stock accumulation will be in the USA, in sharp contrast to the past two years of extremely tight end- season stocks after heavy export campaigns. The carryover should provide a formidable anchor on CBOT soyabean futures prices and the world market. So should the record crops in South America as it undercuts US prices. Most of the demand growth is again in China (crush +4.1m tonnes). With Canadian rapeseed, Ukrainian sunflowerseed and the global cottonseed crop expected to contract slightly, soya will effectively enlarge its share of the world oilmeal market to about 68%, allowing it exert its downward price pressures across the board. That’s already reflected in forward soya meal prices that are already quoted nearly 20% cheaper than spot. Of course, we still have to see what the northern hemisphere summer and Latin America’s later planting weather brings before counting these crops in the silos. But it is certainly an encouraging start. KEY FACTORS AHEAD - WHEAT • World wheat stocks will grow, despite a lower crop as consumption falls too • World wheat trade is seen declining from this season’s record high • India may step up its exports – it certainly has plenty of wheat to spare • Canada has large unsold, old crop stocks • Wheat feeding levels and wheat value will be under further pressure from new crop maize, especially within the EU. • Political instability in Ukraine might yet affect its new crop marketing • Will an El Nino bring dry weather to Australia? COARSE GRAINS • The maize market expects another season of plenty, led by stock growth within the USA – still far and away the world’s largest supplier of this grain • Large Brazilian and CIS crops for a third year running will make for continuing brisk export competition, keeping prices under downward pressure • The EU will probably see its third season of massive maize imports, weighing on internal feedgrain prices – not least feed wheat • China – as warned in our last issue – is releasing some of its own huge stocks, cutting its import needs. OILMEALS/PROTEINS • Big US and LatAm crop surpluses will continue to set the backdrop for cheapening meal supplies – even as production of competing oilseeds retreats slightly May - June 2014 | 55GRAIN&FEED MILLING TECHNOLOGY BUILD YOUR LEGACY. Protecting your hard work and investment is critical. From initial drawings to delivery and assembly, you can trust our dedicated team of engineers, designers and logistics experts to craft your perfect storage solution. Together we can build your legacy. Visit to begin your journey. STORAGE SYSTEMS FOR THE WORLD’S MOST VALUABLE RESOURCES North America 888-WESTEEL (937-8335) Madrid +34 91 216 14 97 India +91 96 1922 1123
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  8. 8. LINKS • See the full issue • Visit the GFMT website • Contact the GFMT Team • Subscribe to GFMT A subscription magazine for the global flour & feed milling industries - first published in 1891 INCORPORATING PORTS, DISTRIBUTION AND FORMULATION In this issue: • Role of extruders in Halal food production • Fortification Fortification in rice and flour • IAOM 118th Annual Conference & Expo May-June2014 • GM soybeans The on-farm facts • Harvest conditions: wheat quality and addressing issues • The Mills Archive GFMT becomes a patron first published in 1891 This digital Re-print is part of the May | June 2014 edition of Grain & Feed Milling Technology magazine. Content from the magazine is available to view free-of-charge, both as a full online magazine on our website, and as an archive of individual features on the docstoc website. Please click here to view our other publications on To purchase a paper copy of the magazine, or to subscribe to the paper edi- tion please contact our Circulation and Subscriptions Manager on the link adove. INFORMATION FOR ADVERTISERS - CLICK HERE Article reprints All Grain & Feed Milling Tecchnology feature articles can be re-printed as a 4 or 8 page booklets (these have been used as point of sale materials, promotional materials for shows and exhibitions etc). If you are interested in getting this article re-printed please contact the GFMT team for more informa- tion on - Tel: +44 1242 267707 - Email: or visit