MARKET dynamics are swinging firmly toward 2012 crop and demand prospects - and what a mixed bag the preliminary estimates present!

1. Digital Re-print - May | June 2012
Global Feed Markets: May - June 2012
Grain & Feed Milling Technology is published six times a year by Perendale Publishers Ltd of the United Kingdom.
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2. GLOBAL
GRAIN & FEED MARKETS
Every issue 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.
‘Between-crops,’ consumers
Global consumption
hope for big feed grain recovery
of wheat is
M
ARKET dynamics are swinging firmly in the absence of competition with very little overall
expected to fall toward 2012 crop and demand supply growth expected for the alternative oilseeds
prospects - and what a mixed bag the that make up almost two thirds of world production.
back too next preliminary estimates present! Mother nature, as always, will have the final say on
If all goes to plan, feed consumers could be cheering crop yields and production which, as last year showed,
season, by about an 86m-tonne recovery in world coarse grain (mainly could look quite different to the forecasts once the last
maize) production, two thirds of that coming from combines have come to rest. Right now, the biggest
8m tonnes, as within the USA. That would be quite some rebound producer, the USA, is getting mostly favourable
after the past season’s 45m tonne crop decline. It weather for possible record yields and earlier harvests.
various countries would not only leave plenty of room for expanding Europe has been severely challenged by winter frosts
coarse grain consumption around the globe. It would and droughts yet abundant rain might yet rescue
use more maize also allow for some significant replenishment of rock- decent crops in most member states. Further east
bottom stocks, removing much of justification for the there are dark mutterings about drought re-emerging
(assuming the big past year’s record maize costs. Indeed some pundits in the former Soviet Union – not on the devastating
are already talking of a possible return to the sort of 2010 scale but maybe enough to trim yields and
maize crop does maize prices markets grew used to over the last decade current (already much lower than last year) wheat crop
or two – perhaps 25% cheaper than present levels! forecasts. China (the world largest wheat producer
come through as But will there be surprises on the demand side of and consumer) also has some dyness issues while
the ledger too? Will China, for example, reveal a far Argentine wheat farmers are cutting back sowings due
planned). However, larger than expected feed raw material deficit as many to disappointing returns and government interference
analysts have been forecasting, mopping up some of in their export market. Canada has sown 11% more,
world wheat stocks these extra supplies? Will cheaper maize prices also Australia maybe 4-5% less wheat but both might have
stir demand from other importers large and small? better quality if they avoid last year’s untimely rains –
will decline by And just how much maize will be fed to livestock or which would be good news for millers..
used for ethanol fuel within the USA itself? In these Overall, if pundits like the US Agriculture
about 9m tonnes to uncertain economic times, opinions differ on these Department are right, 2012/13 may well shape up as
factors too, especially on the feeding prospects. a much better supplied year for maize and soyabeans
188m Wheat output, in contrast, is expected to drop next and an adequate one for wheat. That will certainly
season by 17m tonnes on weather-reduced planted/ offer less justification for hiking feed costs – or even
harvested acreage. But with stocks of 197m tonnes to keeping them as high as they are now.
carry in from 2011/12 - and wheat feeding to livestock Taking into account the improving supply forecasts,
likely to decline too (as consumers switch back to the US grain markets have been dropping since our
maize) - does a crop fall of this size really matter that last review and have recently traded close to the
much in the grand scheme of things?
Further forward in 2012/13 consumers are
also promised perhaps 35m tonnes more
soyabean production after this season’s 19m
tonne drop, the bulk coming from Latin America
where drought robbed farmers of a similar
amount this year. Will that increase (if it comes
off), mean lower soya costs eventually, as distant
futures markets suggest? Or will the world’s
mega-buyer, China, step in on a larger scale
in this market too, keeping soya prices frisky?
Either way, soya costs will be freer to stay firm
34 | may - June 2012 Grain &feed millinG technoloGy

3. COMMODITIES
lows of last December. Although is one of uncertainty, nervousness and –
wheat supplies are seen edging despite the overall bias toward depressed
down (rather than up like maize and raw material markets – a continuing outlook
soyabeans) next season, Chicago for price volatility across the grain and feed
wheat futures have actually seen sector.
the biggest dip, trading close to
two year lows (with export prices for US hard
wheats already down to those levels). Given
while this has been going on, some better supplied
member states (notably the UK) have been able
Main commodity highlights since
the ongoing massive world wheat supply, this to sell feed wheat to the USA. This underlines our last review
might seem a long overdue reaction with some the global nature of the 21st Century commodity
distance yet to go. market, albeit with some help from rock-bottom Wheat supplies not quite so
Cheaper wheat has been hastened by a ocean freight costs earlier in the year.
reversal in maize prices as traders start to believe The past couple of months have also seen a
flush after all?
that a massive, record US crop of the latter grain marked increase in pessimism over the Euro- The past season saw the biggest world wheat
really is possible, given expanded sowing plans, zone’s debt crisis and its potential to spread crop ever as farmers responded to strong
early planting and currently ideal weather. As contagion to broader global markets. As we go to prices with larger sowings (+1.5%) and yields
pointed our in earlier reviews, tight old crop press the burning issue has shifted from if to when recovered from the series of weather events
markets have forced US maize prices to trade Greece might be forced out of the EZ, to the that slashed output around the globe in 2010.
for many months at highly unusual premiums impact on Italian, Spanish and Portuguese debt, Most of that crop recovery was in the former
to wheat (even hard red winter wheat with its Spanish bank solvency, global economic activity Soviet Union although India the EU, Canada,
higher nutritional value). This phenomenon has etc etc. Along with signs of faltering Chinese Australia, China and several smaller producers
sustained even the more abundantly supplied growth and wavering US economic data, this grew larger crops too, offset only partially by a
soft wheat markets at prices that would normally has been a tremendous drag on all the markets few declines in countries like Argentina and Iran.
be considered out of synch with the loose – stocks, financials, energy - even the supposedly Consumption also expanded to record high
fundamentals. more ‘fire-proof’ agricultural commodities with levels, mainly because so much more wheat
The notable exception to the latter has been their assumed solid demand as food staples. was used in animal feeds to replace tight and
Western Europe, where last year’s (and likely At this stage it is hard to divine which is having expensive maize – in Europe, the USA, Asia,
this year’s too) weather-reduced crop and lack – or will have - the greater impact on grain and China, the CIS and others. Just how much
of supplies from the Black Sea countries has feed markets – the potential for lost physical more has been hotly debated over the past
kept wheat prices up on their own merits and demand for commodities, the decline in liquidity year but it does now seem the feed total was
above the world market (led by the US, Canada, of banks and hedge funds who speculated in much larger than originally thought. In its latest
Argentina, Australia). Indeed in some of the agric futures from 2008/09 onward and have lost appraisal, the USDA estimates feeding reached
EU northern regions, especially Germany, feed money on reversals and their other numerous 146.7m tonnes – a rise of 31.3m or 5%. That’s
wheat has been scare enough to sell at higher bad bets, or the sheer negativity of ’sentiment.’ almost 10m tonnes more than forecast in April
prices than milling wheat. Paradoxically, even Whichever combination of these, the picture and results in total wheat demand matching
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21.05.12

4. production. World carryover stocks this June 30 of a reversal to higher levels as weather shifts • To what extent will EU winter wheat crops
will not increase by 12.6m tonnes as expected begin the question some of the more liberal affected by the Jan/Feb freeze and the March
earlier but remain about the same as last year. crop estimates. Chief areas of concern are Russia drought recover amid recent plentiful rain?
Yet at 197m tonnes, these are still huge by any and Ukraine – possible drought losses on top • Summer weather in the Northern Hemisphere
measurement, equal to 28.4% of consumption of quite severe winterkill (mainly in Ukraine), where most of the world’s wheat is grown –
or almost 15 weeks’ supplies. the EU – worse than expected winterkill and yields nearly always affect crop size more than
The USDA has recently released its first an earlier drought, the effect of which might shifts in sown acreage.
take on 2012/13 world grain balances and they be partly reversed by a ‘Monsoon’ spring - and • A big US crop with plenty of hard red winter
make interesting reading. As other analysts like lastly the US southern/central Plains where the variety and improving spring wheat prospects
Automotive Building & Chemical Crea
the International Grains Council have been top might be shaved off hard red winter yields
Industry will help hold down breadwheat prices globally.
Construction Industry Indu
forecasting, the USDA expects 2012 wheat by a spell of hot dry weather. • How far will wheat consumption in feeds
Industry
output to decline, by about 2.5% or 17m tonnes At this stage, potential losses to the 678m world decline world-wide if the US, other major
crop scenario are not necessarily producers produce bumper maize crops?.
large – maybe 5m or 10m tonnes • India is likely to export far more wheat than
– but enough to constrain the expected earlier in the year, competition for
complacency that was emerging more traditional exporters and helping to fill
about 2012/13 supplies. The some of the ‘Black Sea’ supply gap.
reaction from markets has been • Progress of sowings in key quality bread wheat
exaggerated partly by the fact that supplier Australia and pre-harvest weather
the bellwether Chicago wheat there – will it improve after after two years
futures contract had been heavily of rain-damaged crops?
sold by speculators who, suddenly • The price of maize – it has been supporting
realising their exposure to weather wheat in the face of burdensome stocks for
shifts, greater than expected old over a year.
crop demand or rallies in maize
and soya, rushed to cover some of their ‘short’
position. This has recently recouped some of
Maize leads coarse grain
the losses in US prices and pushed European comeback–
prices a little higher too. A weak euro has also
played in to firmer EU milling wheat prices but but the crop isn’t grown yet
that could reverse if the Euro-zone does get The USDA’s first 2012/13 supply/demand
its act together. forecasts dealt a body blow to maize bulls,
Wheat is still plentiful as witnessed by the predicting the US crop would rocket by 62m
competition for ‘non-routine’ import orders tonnes to a new record 376m. Even with a
from the big Middle East buyers and other 23m tonne jump in US domestic use (mainly in
milling wheat consumers. Not only are further the feed sector) and a 4.5m tonne increase in
countries like Canada and the US competing exports, that would still raise carryover stocks
for Arab business; so are distant suppliers like to more than double this season’s tight ending
to some 678m. This assumes a 22m tonne Argentina and Australia, able to take advantage level at about 48m tones. The US maize crop
reversal for Russia, Ukraine and Kazkhstan of still unusually low ocean freight rates. Even the – which has gone in early on a massive 96m
combined and declines of 5.4m tonnes for the former Soviet countries, supposedly concerned acres – possibly more – still needs to be proved.
EU, 3.5m for Australia, 2m for Argentina, offset about approaching crop setbacks and ‘over-selling’ Weather has been mostly benign so far. As we go
only partly by a 6.7m increase for the USA, plus their remaining 2011 supplies, seem to be keen to to press, there are some concerns about possible
4.1m for India, 2.1m for China and 1.74m more remain in the contest for ‘opportunity’ custom, hotter drier forecasts as crops approach early
for Canada. rather than end up with too much old crop stock pollination which works better under cooler,
Global consumption of wheat is expected to at harvest time. On top of that, India has record damper conditions but such talk is par for the
fall back too next season, by about 8m tonnes, as stocks – four times and more its target level for course at this time of the year. World corn
various countries use more maize (assuming the state reserves. With yet another bumper harvest supplies will also be boosted by bigger crops
big maize crop does come through as planned). on the way, it could easily add 10m tonnes or in Argentina (+3.5m tonnes), Canada (+1.9m),
However, world wheat stocks will decline by much more to the global export mix, without former Soviet countries (+1.5m), South Africa
about 9m tonnes to 188m. jeopardising its own food security/inflation (+1.5m) and China (+1.9m). In total, world corn
Taking these preliminary figures at face containment plans. output could increase by 75m tonnes, putting it
value, there is nothing overtly bullish for prices. Despite this apparent plenty, wheat prices will about 25m tonnes ahead of world consumption
Exporters like the USA, Australia, Canada, India – probably not drop much more until the Northern (despite a 54m tonne increase in the latter).
even Russia – would still have relatively big crops. Hemisphere harvest picture clears – for both What issues might interfere with this prognosis
Some exporters – chiefly the US, Australia, India wheat and maize. Until the US and other big for ample supplies and, logically, lower corn costs?
and the former Soviets also carry in comfortable suppliers prove their forecast large corn crops, Apart from US and European weather in the
or in some cases (India and the US) larger than the risk remains that wheat could again be in coming summer months, we need to keep an
normal stocks. more demand than usual for the feed industry. eye on demand developments. After the USA,
These early pointers to ongoing adequacy of the main area of demand growth for maize in
supply combined with weakening maize prices
(maize strength has been the main support for
KEY FACTORS IN THE MONTHS the coming year will be China, seen adding 12m
tonnes to its consumption which at 200m tonnes
wheat this season) and negative events in the AHEAD would be 7m tonnes ahead of local output.
world economy to drive down wheat prices China has already emerged as the main growth
to their lowest levels of the year during May. • How far will ‘Black Sea’ regional wheat crops factor in 2011/12 demand, importing 5m tonnes
However, as we go to press that trend is at risk decline this summer? compared with less than 1m in 2010/11 and very
36 | may - June 2012 Grain &feed millinG technoloGy

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6. little in previous years. Some sources put its feed season. With slightly higher rye crops and oats this has helped restrain soya prices on the world
grain deficit as high as 20m tonnes but that is output more or less unchanged, global coarse market, it is not good news for consumers who
probably far too high, given China’s ability to grain supplies will be able to increase their share want to see buoyant demand for meat products
use quite a lot of its own lower grade wheat of world cereal feed consumption to about 84%, and feedstuffs. Another factor is the chronically
crops in animal feeds. (It has already used about cutting wheat use in this sector by about 14m weak euro, robbing consumers of any benefit
10m tonnes more wheat this season, avoiding tonnes. when dollar prices for soya products dip.
the need to import the 10m tonnes of maize Tightening Latin American soya supply puts
some US observers predicted a few months ago).
Still, China’s regular purchasing forays on world
KEY FACTORS IN THE MONTHS increasing onus on the US to produce a decent
crop this summer. Current estimates suggests
markets will probably offer some support to US AHEAD it has sown more than the USDA predicted in
and world maize prices going forward. March and early planting raises the prospect of
Outside of China, the US and the big South • Just how big will the US maize crop be this good yields. However, the US crop will only fiull
American producing countries, demand for year – big enough to double carryover stocks a small part of the gap left by disappointing South
maize is expected to bounce back in a number and maybe cut another 25% off international American crops. This will show in the market
of moderate/smaller importing countries maize prices? price later in the season when Lat-Am crops
in response to larger supplies and cheaper • Final size of Latin American crops start to run out and import demand focuses
prices (perhaps not as low as the $3-4/bushel • How much corn will West Europe & the more heavily on the US crop around third or
consumers got used to for most of the last ten former Soviet countries sow on failed winter fourth quarter 2012. Soon after that, markets
years but still a lot cheaper than in the past wheat lands? will also be closely watching what the South
season). The exception may be Mexico, a big US • Possibly bigger than expected Chinese maize/ Americans will sow in the autumn. A good soya
customer, which expects a better domestic crop. feedgrain import requirements – currently price will be needed to encourage maximum
Overall, the USDA expects this scenario to seen anywhere between six and 20 million acreage and much better weather than the past
drive down the US seasonal average maize price tonnes – enough to change the direction of
to $4.20/$5 per bushel (with a mean of $4.60) US/European and international prices.
compared with the past season’s $5.95/6.25 • Will global economic recession curb meat/ Table 1: First 2012/13 balance = USDA
($6.10). The futures markets meanwhile point to consumption in some developing countries, cut Main producers (000 tonnes)
a drop from the current $6.35 to about $5.50 in cap feed grain demand and help hold down
2010/11 2011/12 2012/13
a year’s time. One or two of our US trade sources grain and oilseed costs?
are far bolder in predicting cheap maize prices • We continue to hear reports that speculators
back in the $4/bu area if these big supply forecasts are taking money out of commodities – China 115.2 117.9 120
come to pass. That would not be impossible but less fervent investment by this sector has EU 135.7 137.4 132
it would require wheat prices to backtrack too contributed to lower grain and feed raw FSU 81.1 114.4 97.8
and both of these major grains would need a material costs in recent months. Australia 27.9 29.5 26.0
very favourable summer. Canada 23.2 25.3 27
World barley production is also seen edging
ahead in 2012/13, to 135.4m from the past
Oilmeals Argentina
WORLD TOTAL
16.1
651.1
14.5
694.6
12
677.6
season’s 133.7m. The increase is mainly in Europe World oilseed crop estimates have shrunk World end stocks 196.7 197.0 188.1
and would have been significantly higher if not by another 8m tonnes since our last review to
for the severe winterkill suffered across the EU around 237m – a big drop from the previous
earlier in the year and the subsequent stress from season’s 265m tonnes. Most of the latest decline is year’s to top up supplies in the spring of 2013. In
droughts. As the earlier harvested crop, barley in soyabean production in South America where the meantime, hopes of supplementing supplies
drought and heatwave damage rest on the East Europeans and the former
earlier in the year turned out much Soviet countries pulling off better sunflowerseed
worse than expected. Overall, crops and Canada producing a possible record
soyabean output is expected to rapeseed crop. However, even if these come
drop by the equivalent of about 22m to pass, world oilseed output is likely to fall well
tonnes of soya meal although the short of demand into 2013, drawing down stocks
effect will be mitigated considerably and keeping a fairly firm undertone under costs
by crushers drawing down relatively of protein meals.
large carryover stocks from the
previous crop. Despite this tightening
of supplies, US soya meal prices have
KEY FACTORS IN THE MONTHS
not risen much on domestic markets AHEAD
and soyabeans, after a brief rally to
about $15/bushel in late April, have • How much land will the US plant to soyabeans
actually dropped to around $13.50 this spring – 75m, 76m acres or more?
recently. This is a largely technical Consumers will have no trouble disposing of
move, caused by speculators having a bigger crop.
overbought the futures markets • As they continue to shrink, how small will South
and leaving themselves exposed America’s soyabean crops end up?
has had less time than wheat to recover amid the to ‘profit-taking’ corrections. It also reflects the • Chinese consumption and timing of imports
recent welcome return to wet weather but will highly negative sentiment on global financial will drive global protein demand
probably have been stabilised at least. markets in the wake of the Euro-zone crisis • EU/CIS sunflowerseed plantings – to what
World barley consumption is seen rising slightly, which many pundits think will spill over into extent might these start to compensate for
putting it just ahead of production and resulting the global economy, causing weak demand for disappointing rapeseed crops and global soya
in stocks staying fairly tight through the coming commodities linked to meat production. While shortfalls in the meal sector?
38 | may - June 2012 Grain &feed millinG technoloGy

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