Digital Re-print - March | April 2009

Feature title: Global feed markets - March | April 2009

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 COMMODITIES
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.

The markets face

huge uncertainties
Demand fears keep unlikely to reach the past
year’s highs. On the other
hand, there may be some
farmers’ strikes and another blockade
on Argentine exports. This is important
for European and other soya importers

at this point of

the year, both in

prices in check compensating increases
from South America in latter
2009/10 if South America
gets better weather for its
as this country is the largest exporter
by far of soyabean meal (about 24m
tonnes last season of world total trade
of 55m). It probably also explains, along

G
next crops. Either way, with with worries about South American final
terms of new crop LOOM about the state of grain and feed commodities will see less of this demand for maize a very crop numbers, why the Chinese have
the US /global economy ‘outside interference’ in their markets. grey area for 2009/10, the been such heavy buyers of US soyabeans
supply – much of emerged as the dominant Grain markets are also turning their attention world may not need such a big crop and risk of exploitation by ’outside’ speculators in 2009 to date.
force affecting raw material to the medium/longer term factors – especially prices need not necessarily experience a and, hopefully, less prone to price volatility Turning to US 2009 crop prospects,
it not even planted prices in first quarter 2009. the outlook for crops in the coming season which, lot of upward pressure. too, once the crop and usage numbers start markets were surprised in late February to
Analysts fear stagnating or inverse economic as we go to press is only four months away for Soya supply has also succumbed to to harden. hear from the US Agriculture Department’s
till Apr/May – and growth will have a textbook impact on demand for wheat in Europe. South American droughts but a huge Annual Outlook Forum that US farmers
meats – ergo animal feeds – and other foodstuffs World wheat production will almost certainly range of estimates is currently circulating SOYA supplies hit by droughts were likely to plant only 1.3m more acres
in terms of likely traditionally sensitive to the consumer confidence/ fall significantly as producers around the world on the markets – largely depending on this year than last. Earlier estimates put the
spending power. The collapse in crude oil prices, respond to weaker prices and higher costs. Even weather in the month or so beyond our South American soyabean crop forecasts gain at 3m or more. Some traders dismiss the
demand. However, perhaps the clearest marker for the weakness of before drought problems threatened crops in press deadline for this issue. At this stage, have fallen sharply from last October, Outlook figures as a guess by economists and
the world economy, is having a two-fold effect on North and South America, China and parts of losses of 5-10m tonnes, possibly more, when crops began planting. Then the likely prefer to wait for a more reliable, survey-
for the reasons the grain and feed raw material markets. On the eastern Europe, world average yields had been for the region as a whole are possible. scenario was for around 60m tonnes from based figure. That will come out at the end
one hand it continues to undermine confidence expected to have a tough time approaching last What happens in South America will have Brazil and a redord 50m for Argentina as of March when the prospective plantings
stated above this in the grain ethanol industry – implying more year’s unusually high levels. Even so, demand for considerable impact on how much soya is well as another 7m for the new regional report is issued (based on early March
feedgrain, especially maize, for traditional users, wheat in feeds could ease from this season’s high sown in the top producing country, the supplier, Paraguay. Over the last two months, farmer planting intentions which could also
situation may more land to plant other crops, more downward levels while large stocks will be carried forward to USA, where lower maize plantings and though, droughts and heatwaves have seen change considerably before planting finishes
pressure on maize and other feedgrain prices. No supplement the coming crop. As always, weather cheaper soya production costs versus estimates tumble, for Brazil to around 57m in May).
be less at risk of less important, crude oil was the cheerleader for will be the key – both to yields and in determining maize (its main competitor) are likely to and Argentina anywhere between 40m and If farmers plant that many acres and
last year’s mad excess of speculative investment the adequacy of wheat quality for millers. favour a significantly larger oilseed area. 45m tonnes (some recently put the crop in harvest the normal ratio, a repeat of last
exploitation by in all commodity markets, much of it ignoring World maize output is already turning out Like maize, soya is seeing some ‘demand the mid-30m’s but that now seems too low!). year’s yields would provide an 82m tonne
fundamentals of supply and demand. Now prices lower than expected for the second half of the destruction’ as a result of economic Paraguay’s crop is meanwhile seen around soya crop versus last year’s 80.5m. With US
’outside’ speculators of crude are on the floor, perhaps the real, 2008/09 season as a savage drought takes big recession – some in the US itself, some in 3.5/4m. With rain alleviating the droughts ending stocks for 2008/09 about the same
physical producers, consumers and traders of bites out of South American crops – although Asia but, significantly, not yet in the biggest recently, supply could yet confound the as last year’s that’s not much of an increase
and, hopefully, this has been partly offset soya market of all, the People’s Republic of pessimists. However, it seems wise at this in supply to offset the South American soya
by the big increase in the China. So far, soya prices have resisted the stage to assume a regional loss of perhaps crop losses,
less prone to price 2008 crops in the European urge to rise sharply with South America’s 10m tonnes from the early forecasts – say If, on the other hand, US farmers got higher
Union and the former Soviet crop problems, mindful that this crop too about 8m to 9m tonnes less production yields at the 2007 or 2006 levels, the crop
volatility too, once countries. World 2009/10 might not need to expand much, if at all, than last year. Offsetting this is a large stock could easily gain 6m to 8m tonnes, making
maize crops may also decline to meet flatter demand in 2009/10. carried forward in Argentina, accumulated supplies far more ample for 2009/10 season
the crop and usage if the US cuts area sharply Summing up, the markets face huge during months of supply disruption caused by starting in September.
amid cost increases and uncertainties at this point of the year, both farmer strikes against the country’s 35% soya Recent estimates by the US Department
numbers start to disappointing grain prices. in terms of new crop supply – much of it not export tax. Some sources put this around of Agriculture suggest world soya meal
European 2009 output – even planted till Apr/May – and in terms of 5m tonnes. However, the tax issue remains consumption will drop by about 3m tonnes
harden both the EU & FSU countries likely demand. However, for the reasons live and – whatever the final crop outcome or almost 2% in 2008/09 to about 154.5m
– is also uncertain, probably stated above this situation may be less at - could yet erupt again in the form of fresh tonnes, requiring less soyabeans to be

28 | march-april 2009 Grain &feed millinG technoloGy Grain &feed millinG technoloGy PREVIOUS PAGE NEXT PAGE march-april 2009 | 29

crushed. Demand for soya is still growing in
China – forecast up from 35.2m to 32.8m - but
is expected to drop in the EU by 2.3m and in
the USA by 2.2m. Whether Chinese demand
for soya will continue to grow or whether
the US and EU declines will have stabilised
by 2009/10 depends largely on the impact of
the global economic squeeze. US demand for
meal has fallen with lower poultry flocks, cattle
and pig numbers, partly due to declines in US
meat exports, but also due to lower domestic
consumption of livestock products.
The fall in this season’s world consumption
of soya meal also reflects better supplies of
alternative oilseed meals. World rapeseed
meal consumption is expected to increase
from 27.5m to 30.4m tonnes and sunflower
meal from 10.1m to 12.2m tonnes. The swing
to sun and rapemeal has been particularly
marked in the EU, where bigger crops of
both have been supplemented by bigger
supplies of sunseed from the former Soviet
countries. Early forecasts suggest the EU
may have sown a similar area to last year in
some key member states but may expect
some reduction from last year’s higher than
normal yields. Sunflower production is an
open book, sown in the spring and subject to
price relationships against spring-sown grains.
Former Soviet countries – which produced
record crops last year - expect to keep spring
cereal and oilseed sowings in total at last
year’s levels. With grain prices disappointing,
sunflowers could be favoured and, given
normal yields, supplies from could again be
ample from this source – though former
top supplier Argentina’s crop has been cut
sharply by drought. World consumption of
palm kernel meal and groundnut meal is also
edging up this season with improved supplies
and lower prices. Reasonable supplies of
oilseeds in total and little if any upward
pressure on protein meal supplies should
help anchor prices. However, until a clearer
picture emerges of Latin American crops and
30 | march-april 2009
US planted area, a further descent in meal
costs also looks less likely now.
Maize prices could rise
longer term
Maize supplies look more than adequate as
the market moves into the second half of the
2008/09 season. The
final US crop estimate
has been revised up to
over 307m tonnes, only
24m less than the 2007
record and more than
adequate to meet this
season’s slightly lower
US domestic demand
and much smaller
exports. As a result,
next season’s starting
stocks will be about 4m tonnes higher than last
year’s already ample 41m tonnes.
The figure for US maize use in ethanol
production continues to shrink and is now
seen at 91m to tonnes, the 14m gain on last
year offset by a similar fall in US feed use.
Questions continue to be raised over future
expansion potential for ethanol as big players
continue to go bankrupt amid collapsing
ethanol prices. These have not fallen as
steeply as crude oil but new plants that have
borrowed heavily cannot maintain adequate
cash flow to justify their investments and
there is a definite feeling of retrenchment,
if not yet outright rationalisation in the US
industry. President Obama is promising
increases in the
renewable fuel mandate,
the amount of ethanol
and bio-diesel etc that
must be mixed with
fossil fuels but some of
this could come from
other sources and
this demand cannot
be fed by unprofitable
industries. A probably
outcome is an increasing
dependence on imported ethanol made
from sugar cane in Brazil which could tide
the US over until ‘second generation’ bio-
fuels made from other feedstocks – plant
and timber waste, algae etc move off out of
the laboratories and into the mainstream –
probably some years from now.
Amid weakening demand, US farmers are in
a quandary whether to maintain maize acreage
next year or switch more land to soyabeans.
The arguments against cutting back are that
grain production worldwide may decline in
the coming year, leading to higher prices in
2010 – as portrayed on the futures markets.
Fertiliser, which maize uses far more of than
soya, is also getting cheaper, largely due to
weaker crude oil, from which many inputs
are made. Although soya was offering much
better returns, these have shrunk recently
as soyabean prices have fallen more sharply
than those of maize price – so corn acreage
may not fall as much as the 3m acres some
analysts recently forecast (USDA currently
sees it about the same as last year’s).
Among the other big maize suppliers,
Argentine and Brazilian crops have been
cut sharply in the last few weeks by a long
drought. Although this now seems to be over,
rains came too late to be of much benefit in
Artgentina, where the crop is now seen at
around 12.5/13.5m tonnes compared with
last year’s 20.9m – the worst result for many
years and expected to cut exports from
15.6m to just 7m tonnes.
Brazil’s crop has also been trimmed, from
about 52/53m to less than 50m tonnes but
with very large stocks carried in from the
past season, it can still expand exports by
about 2m tonnes to 10m – which would be
a record high and put it in second place in
the world maize supply league.
Former Soviet countries expanded their
maize crops by about 7.5m tonnes this season
but their own demand has only risen by
about 2m tonnes and much of the balance is
belatedly moving into export markets at cut
prices. Along with all the cheap feedwheat still
swilling around in the market, this is keeping US
exporters on their toes and helping to restrain
prices in the absence of exports by the former
number two supplier, China.
China’s own crop has actually turned out
much bigger than expected this season at a
new record 165.5m tonnes (versus last year’s
Grain &feed millinG technoloGy
152m) – about 7m more than China consumes
itself. However, after last year’s record rise in
world grain prices, the Chinese government
has decided to put the surplus into stocks
rather than export – which may also help
boost its production by raising internal prices.
In total, world maize output is down about
5m tonnes this season but still ahead of
demand by about 9m tonnes, enabling stocks
to increase (mainly in China and the USA).
Europe’s own maize demand is expected to
finish about 3m tonnes lower this season
due to the huge domestic feed wheat crop
competing for maize markets. More is being
exported this year and some will go to stocks
but whether farmers will want to sow as
much this year is uncertain.
Overall maize prices have been steadier
in first quarter 2009 than in last quarter
2008 when they briefly hit 27-month lows.
However, they could move lower if the US
sows more than expected or if world demand
weakens further with recession.
Barley prices had also steadied up in the
Jan/Feb period, following maize, but have
recently eased back again. World supply is up
20m tonnes this season, of which 9m tonnes
is in the EU, the rest largely in Russia and
Ukraine which have been easer exporters at
keen prices for much of the season but will
still hold significantly larger stocks to start
2009/10. The IGC expects world barley area
to expand marginally in 2009/10, to 57m ha,
mainly in Canada, Ukraine, Turkey and N
Africa with reductions in Australia, the EU
& USA. Within the EU, more winter barley
sowings have been estimated for Germany,
Denmark and Poland but less in Italy and the
UK but 3% less spring sown area is seen with
cuts mostly in Denmark and Sweden.
Wheat prices down despite
forecast smaller crop
After their late 2008 revival, world wheat
values have eased steadily in the past two
months, led mainly by the weaker Chicago
futures market which has weighed on
European prices too.
On the face of things, there are some
bullish factors emerging in this market,
including a lot of trade talk this month that
world sown area will drop by more than
the 1% or less indicated by the IGC in its
last report – some analysts predicting as
much as 2-3%.
The IGC estimate includes a 6% drop in US
Grain &feed millinG technoloGy
COMMODITIES
area, falls of 5.5% in former Soviet countries were expected to run out of adequate quality
and 6% in Canada, offset only partially by old crop breadwheat by now. Along with this
gains in North Africa and the Near east and, season’s larger Canadian and EU supplies,
later in the coming season, in Argentina, this has more than compensated for the loss
where drought reduced
sowings sharply last year.
The IGC currently sees
EU wheat area down by
1.1%, close to the European
Commission’s recent 1.3%
forecast. However, some
member states indicate
bigger drops for the main
soft wheat crop – Spain
down 11.7%, France 2.1%,
Italy 10% , England 14% .
German area is seen little
changed.
Weather has so far been
fairly favourable in Europe and reasonably of Argentine exports to a drought-reduced
good in the former Soviet countries although crop. The export pricing situation has been
yields in both regions are still expected to complicated slightly in the last few months
decline from last year’s unusually good levels. by port and transport problems snarling up
US traders were meanwhile growing Australian shipments. However, there has
concerned over worsening drought in the been no lack of alternative suppliers and
Southern Plains where two key hard red winter whatever Australian doesn’t shift now will
wheat states, Texas and Kansas, have crops in still be there to market later in the season,
considerably worse shape than last year and or carried forward to boost overall supplies
still deteriorating as we went to press. With for 2009/10 – much of it, of course, higher
the USDA forecasting a 5.1m acre decline in quality breadwheat.
total 2009/10 sowings, the US wheat crop Futures markets suggest wheat prices by
could easily fall by 10m tonnes or more. the end of the year will be about 14% more
There was also concern that China, the expensive than now as world production
world’s top wheat producer could lose up declines.. The IGC is currently expecting
to 10% of its winter wheat crop to a long a possible 38.5m tonne drop in the total
drought but recent rains and emergency crop while the Canadian Wheat Board
irrigation measures appear
to have staved off a steep
fall. A lot of wheat has
accumulated in India, where
crops have outweighed
demand for two or three
years, leading to massive
government stocks of 33m
tonnes - the largest since the
record 41.3m of 2002. The
Indian government is actively
considering e x por t ing
some of this surplus to take pressure off suggests the decline could be between 30m
its domestic prices although world prices and 50m tonnes. The IGC also indicates
may need to increase to allow sales without that stocks carried forward from the past
subsidies. season’s record crop into 2009/10 will rise
India’s surplus underlines the still by 42m tonnes while the USDA expects a
competitive nature of the international 30m tonne rise. Depending on the weather
wheat export market, led by unexpectedly and the size of the next crop, this could
large surpluses still being marketed at cut be adequate to cover consumption, even
prices by Russia and Ukraine – both of whom at the past year’s higher level.
march-april 2009 | 31
This digital Re-print is part of the March | April 2009 edition of Grain & Feed Milling Technology magazine.
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