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Digital Re-print November | December 2014

Global Feed Markets:
November - December 2014
Grain & Feed Milling Technology 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,
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54 |

&FEED MILLING TECHNOLOGY

COMMODITIES

GFMTs 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.

China remains a mildly bullish risk

factor in the maize market. Its own
crop has turned out about 4.5m
smaller than last seasons its first
drop for many years and below its
estimated consumption of 216m (+4m
on-year). However, large imports are
thought unlikely as China can draw
on its own massive reserve stocks
(which amounted to about 45% of the
world total at the start of this season).
And what import purchases China is
making are not from the US market
but from non-traditional suppliers
like Ukraine and Bulgaria

GRAIN

Still on track for record

raw material supplies

HE relentless decline in raw material prices was interrupted in the period since
our last review, despite the fact that global estimates of maize, wheat and oilseed
output have either remained or even risen above the previously forecast record
levels. A number of factors affected sentiment, including weather disruption
to the later stages of the Russian grain harvest, then extreme cold threatening potential
winterkill to Russian, Ukrainian and US winter wheat sown for harvest 2015. Along with
that was dryness affecting parts of the Australian wheat belt and delaying sowing and
development of maize and soyabeans in Brazil. Markets were also underpinned by renewed
tensions between Russia and Ukraine not that these have yet prevented either country
pouring their grain onto the world market in record quantities. Less than optimum quality
issues have also persisted in the wheat market, notably for France, the USA, Russia and
Ukraine. However this factor has not had much effect in raising overall wheat costs,
especially as some major buyers like Egypt have lowered their import quality specs enough
to accommodate suppliers shortfalls. As a measure of the relative price restraint in the
quality wheat sector, US spring bread wheat for export was actually quoted close to fouryear lows in November (see charts).
There have also been hints of fresh interest being shown in now cheap agricultural
commodities by the managed funds and other outside investors looking to spread their
bets wider than the global equity markets. As this issue goes to press, the bellwether
Chicago futures markets are recording gains for wheat of about 15.5%, maize almost 14%
and soyabeans about 11% from the lows all three commodities reached in late September.
Even so, prices of most grain and feed raw materials are still between 40% and 60% lower
than they were during the mid-2012 peaks of the last commodity boom cheap enough,
perhaps, to lead some investors into thinking potential for future profit outweighs the risk
in this sector.
Fortunately for consumers, the main deterrent to this outside money coming in to push up prices
remains intact: grain and feed supply is growing faster than demand. World wheat production is
still forecast at a record 720m tonnes (+5.5m on year), maize output has been raised by a further
3m to 990m tonnes (+1m on year), soyabeans increased by about 800,000 tonnes to 312m (+27m
on year). Carryover stocks of all three items into the 2015/16 season will still increase significantly,
especially those of maize (+18.5m tonnes) and soyabeans (+23m). Wheat stocks are also
seen rising by over 7m tonnes.
These stocks will provide a significant buffer against any potential weather/
crop issues arising in 2015. At the moment, the key concerns are what impact
unusually cold weather will have on US and Russian autumn-sown wheat. Russian
crops went in late after a dry autumn which was only par tially relieved by the
time winter dormancy began to set in. Some crops have not germinated properly
or at all and others that didnt harden off in time or lack adequate snow cover
may be burned off by the cold snap. The possibility of the next Russian wheat
crop dropping back by up to 10m tonnes, maybe more, is being bandied about
by Russian and overseas observers. Ukraine has sown more wheat this autumn
but almost a fifth of that had yet to germinate in late November and some of the

56 |

&FEED MILLING TECHNOLOGY

COMMODITIES

crops that were up and running were in less than peak condition.
US and European wheat crops could also decline next year on
a mix of slightly lower sown areas and/or the odds against the
past years unusually good EU yields being repeated.

Huge EU wheat crop

For the current market, though, the situation remains one of plentiful
supplies, not least in Europe itself. As we expected in our last review,
EU 2014 grain crop estimates have continued to swell with the counting
of later harvests. Wheat output is now seen at about 155.5m, tonnes
4.5m more than in September. This is an all-time record over 12m
tonnes higher than last years and a significant offset to some reductions
made recently to Australian, and Kazakhstan harvest estimates.
Even if Australias crop falls a couple of million tonnes further from
the current (23/24m tonnes) consensus, it will hardly be a failure in
the countrys historical context of harvesting 15/22m tonnes. (And
the current estimate is still predicted to allow exports to at least
reach the past seasons ample 18m tonnes).
Likewise, Canadas crop might be 10m tonnes lower this year than
last but that has really only returned it partway toward its long term
average. Its also offset by much higher starting stocks than last years,
actually allowing larger
than usual exports of
22.5m tonnes for this
season, if needed.
With a larger
crop (+2m tonnes)
and a more liberal
government
programme this season,
Argentina is meanwhile
expected to boost its
wheat expor ts from
just 1.6m tonnes last
year to as much as 6m. With Russian exports seen +4m and Ukraines
+1.5/2m tonnes, the world will have no shortage of wheat supplies
into mid-2015 and probably beyond. And against that, global import
demand is also seen about 7m tonnes lower this year.
This is the context within which EU grain will be priced in the season
ahead. Even looking to the more distant futures positions, prices are
not really that expensive versus the average seen in recent years.

Maize stocks head for multi-year high

Maize prices, while up in the Oct/Nov period, have been relatively
less bullish than wheat, largely due to the greater surplus stock growth
expected for this market during 2014/15 season (ending August 31).
The dominant US market has been fixated for most of the recent
period on likely changes to estimates of yield and acreage as this years
later than usual harvest continues to roll in. There is a widespread view
that the US Department of Agriculture will further reduce its harvest
area figure after trimming it by about 0.8% last month. It has also raised,
then lowered, its national average yield estimate. Although the latter
still stands about 1% higher than in September, the US production
estimate remains around the record 366m tonnes forecast in our last
issue. In a year of lower US exports
and moderate domestic consumption
growth (+7m tonnes), that suggests US
maize stocks will rise to a multi-year
high of 51m tonnes by September 2015
19m more than last year and 30m
over 2012/13.
Most of the gain in US corn
consumption this season is seen in
animal feeds although the food sector
may take about 1m more too and corn
bio-ethanol has been pepping up a
bit recently, achieving record weekly
output in Novemer. However, based
on size of the surplus, the overall
equation for US maize is does not

GRAIN

justify anything other than soft prices into 2015.

After a late start, the Latin American maize crops dont seem to
have any major weather problems although some dryness in Brazil
will need further monitoring.
Perhaps the most interesting change in the global maize supply
numbers since our last report is the European crop estimate, raised
by 5m to a record of over 73m tonnes versus last years 64.2m and
2012s 59m. French crop estimates coming in as we go to press suggest
even the latest EU figure may still be under-stated by as much as 1m
tonnes. This is a truly abundant supply which will be fighting for feed
outlets with the EUs huge wheat crop (especially as the latter has a
much larger than normal feed grade component this year expected
to boost demand for this grain by almost 10m tonnes).
The huge domestic maize crop should also help the EU to reduce
its dependence on non-EU maize imports from last seasons nearrecord 16m tonnes to as little as 6m, according to the USDA. That, of
course begs the question of where other supplier countries will send
all their maize exports. The USDA forecasts Ukraines foreign sales
will drop from last years 20m to 16.5m but some Ukrainian officials
think they can still get to 20m again. Argentina and Brazil meanwhile,
are jointly expected to ship similar quantities to last seasons near
35m tonnes total. Russia has a larger maize crop this year and could

also export 3m to 4m tonnes. Plenty of maize all-round then - and

this in a season when world trade in this grain is expected to drop
by as much as 14/15m tonnes.
China remains a mildly bullish risk factor in the maize market. Its
own crop has turned out about 4.5m smaller than last seasons its
first drop for many years and below its estimated consumption of
216m (+4m on-year). However, large imports are thought unlikely as
China can draw on its own massive reserve stocks (which amounted
to about 45% of the world total at the start of this season). And what
import purchases China is making are not from the US market but
from non-traditional suppliers like Ukraine and Bulgaria.

More barley too

As if record wheat and maize crops were not enough, world barley
output in 2014/15 also seems to be turning out larger than expected
back in September. The latest USDA estimate is up by 3.6m tonnes
from then although still down from the previous seasons massive
145m tonne harvest by about 5.5m tonnes.
Most of the latest increase is, yet again, down to a larger than
anticipated EU crop which, at 59.8m tonnes is 2.8m higher than forecast
in September and now more or less
equal to last years ample harvest. The
Russian crop estimate has also been
raised by a further 1m tonnes to 19.5m,
putting it over 4m tonnes above last
years. Finally, Ukraines crop has been
raised by a further 400,000 tonnes to
9.4m up 2.8m on the year.
Thats a lot of extra barley to find
homes for in a year when global
consumption of this grain is actually
expected to decline by at least 1m
tonnes under competitive pressure in
the feed industry from the huge wheat
and maize crops detailed above. In
the EU alone, barley use is expected

58 |

&FEED MILLING TECHNOLOGY

COMMODITIES

to drop by 2.2m tonnes although that will be offset to some extent

by Russia - expected to consume about 1.7m tonnes more than last
season.

Demand up for large protein supplies

Meal has been the market leader in a firmer soya/oilseed complex
recently, as US early season export bookings of both soyabeans and
meal have jumped to record levels. As usual, the top importer and
consumer, China has led the surge in demand for whole soyabeans
although strong meal sales have been noted to other Asian markets,
like Thailand, too.
Despite some recent qualms about Chinas supposedly flagging
economic performance, this voracious buyer is now expected to crush
a record 74.5m tonnes of soyabeans versus 73.5m forecast in our last
issue - and consume 57.4m tonnes of meal there-from (accounting
for almost 30% of world soyameal offtake).
With demand also rising in Europe, the US, South America and
many importing countries too, global consumption of soya meal is
now expected to exceed 195m tonnes about 10m more than
last year and accounting for most of the growth in global oilmeal
consumption in total.
For tunately for consumers, the supply continues to grow even
faster than demand. Over the past couple of months, the US
soyabean crop estimate has been boosted another 1.2m to 107.7m
(+16.3m on year). While rapeseed and sunflower crops were down
a bit this year, crushers are expected to draw on healthy stockpiles
carried over from last year to keep crush of these two oilseeds up
by enough to push their
meal output slightly ahead
of last seasons.
So,
amid
this
cornucopia, why have
soya prices been leading
oilmeals higher recently?
There are several
reasons, mostly a legacy
of last seasons tight finish.
Without a decent carryover from 2013/14, even with a record crop,
the US has found it difficult to keep up with the strong early-season
demand. However, that situation is now shifting as the bumper
US harvest continues to flow in and, no less important, the early
forecasts for record Latin American soyabean crops (harvested first
quarter 2015) start to look realistic. Halfway through our reporting
period, doubts had been raised, especially in Brazil, about the impact
of a long drought delaying and possibly downsizing this autumns
Lat-Am sowings. In the event, both the major producers (Argentina
too) are now getting better rains and planting is proceeding more
normally. USDA expects their combined output to rise by about
7.3m tonnes to 149m tonnes and forward export quotes from these
sources are now undercutting US prices. That should, before long,
bring some cheaper meal prices for overseas customers although
the benefit for European consumers will still be partially offset
by the renewed strength of the US dollar versus the euro (and
sterling too, recently).

KEY FACTORS AHEAD

- WHEAT
Russia has got off to a poor start with its next winter wheat crop
amid prolonged droughts and, latterly, a greater than usual threat
of winterkill from a sudden cold snap affecting plants that are less
developed than normal. Some analysts talk of losses ranging to 10m
tonnes.
Renewed tensions between Russia and Ukraine have contributed
to some of the upward blips in wheat prices recently but the key
factor may be both countries currency weakness. On the face of
things that should make their export prices more competitive but
these effective devaluations are also making many farmers more
inclined to hold their grain as a hedge against the resultant inflation.
That has led to frequent problems in sourcing grain for export deals.

GRAIN

Nonetheless, with a record early-season export campaign already

under their belts, both continue to have a big restraining impact on
global pricing.
What impact will currency weakness have on FSU use of imported
seed/agrochemical inputs next season? Will it lower yields?
The US winter wheat crop for harvest 2015 has also had some
severe cold weather problems recently, mainly affecting soft red
wheat, as traded on the bellwether CBOT exchange. Sowings not
yet completed may not meet target but so far, this has had relatively
limited impact on futures prices.
Australia has also had some dry weather problems but should still
get a decent/average crop. Thats now starting harvest and will
figure morer in export trade in coming months, again helping to
rein in wheat prices.
World stocks of wheat carried into 2015/16 (starts next July)
will not grow as fast as expected in September but they will still
be up on the year by about 7m tonnes to about 193m equal
to about 27% of consumption and a further potential block to
higher prices.
That said, wheat values have fallen this year close to or, for some
farmers below, cost of production. Consumers should perhaps be
prepared for markets to stabilize or move a little higher over time
to ensure adequate wheat area is planted next season and going
forward.
However, the near-term outlook is for price restraint as world
wheat trade is falls from last seasons record high level amid plenty
of suppliers competing for export custom.
Reasonable quality premiums will continue to be needed for milling/
bread wheats, especially if feed wheat prices come under further
downward pressure from this seasons huge and attractively-priced
coarse grain supply.
World wheat feed consumption is still expected to rise by about
10m tonnes this season but will not reach the high levels seen three
years ago.

COARSE GRAINS
The US maize crop estimate will be updated in January. Some
analysts expect it to be trimmed moderately to reflect final counts
of acres that went unplanted during a wet spring. But it will still be
ample to meet all foreseen demand and to build stocks to what
many think will be cumbersome levels.
Ample maize supplies from Latin America and the CIS countries will
continue to compete at discounts to US exports in Asia, Europe
and other markets, restraining CBOT maize futures prices and
global prices.
The EU has a huge maize crop to dispose of and looking at the
low cost of maize from Ukraine and others producers will be
under pressure to price competitively to their own feed customers.
Competition will also continue from larger than usual feed wheat
and adequate barley supplies. Livestock feeders margins should
benefit
Will China whose crop turned out smaller than expected use
its own large stocks or imports to fill this seasons deficit?

- OILMEALS/PROTEINS
Large US and Lat-Am soyabean crop surpluses may bring cheaper
global oilmeal costs into the New Year
Next years soya crop could be even bigger as key producers turn
some maize land over to oilseed production for better returns.
Lower oilmeal costs and huge supplies should spur greater demand
in countries developing their livestock production systems China,
India, Indonesia etc - as well as market leaders like the USA where
high meat prices are also adding to profitability.
Rapeseed and sunflower expansions have slowed down or reversed
in the past year but as oil-rich oilseeds these will have less impact
on the meal sector.
One result is that soya will raise its already dominant share of the
protein market. As the high-protein, reliable quality and most
voluminous product, its price trend will have to be followed across
the meal sector.

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November - December 2014

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