Digital Re-print November | December 2013

Global Feed Markets: November - December 2013

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GLOBAL
GRAIN & FEED MARKETS
Every issue 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.
Recovering Black Sea (former Soviet country) crops may now live up to, even exceed, their early promise in terms of tonnages but there may be some quality issues after wet harvests for the latter stages of Russia, Ukrainian and Kazakh harvests. The latersown spring wheat and corn crops will be most at risk.

Huge corn supplies will anchor feed costs

ORE good news this month for feed raw material consumers costs: The world supply outlook for maize seems to be getting looser by the month, pushing prices down to yet more historical (33month) lows as we go to press. Not only has the US crop turned out even bigger than expected in our last review; the second largest consumer of maize, China, now appears to be using considerably less than estimated earlier. Top outlet for maize, the USA might also need less than expected as we move into 2014 after proposals to roll back targets for renewable fuel use. Markets had been bracing for a bigger US crop number after consistently stellar yield reports from the gathering harvest during October and the latest figure didnt disappoint 355m tonnes will be 81.5m bigger than last years crop and even that might not be the end of this story. The Chinese news, on the other hand, came more or less out of the blue for a market that has grown used to ever-expanding estimates of this countys feed demand. The lower than expected forecast was made in the latest global supply/demand estimates from the US Department of Agriculture which cut 5m off its demand in 2012/13 season (ended Sep 30) and a further 6m from 2013/14t. The net effect was to raise the USDAs forecast for Chinas end-season stocks from 54.8m to 67.5m tonnes equal to about 40% of the world total carryover. As a result, world corn stocks next September are seen rising to about 17.6% of global consumption

needs compared with around 15% over the previous three seasons. China will be the largest stockholder (compared with an estimated 48m tonnes in the US, no mean total either!). However, these large Chinese supplies are seen mostly off-market, held in the vast strategic reserves that the government there likes to hold for lean crop years. Some western analysts even doubt that Chinas stocks can really be that high, or, if they are, whether much of is still in a useable conditions, some carried over from several crop years past. Nonetheless, this evident loosening in its internal supply could indicate that Chinas import needs may not be quite as large - or as urgent - as markets had assumed during the summer months when it was first tipped to jump from joint tenth place (with Indonesia) to number 5 in the world import league. Caution towards bullish Chinese maize import forecast was also demanded by two further developments. One was its rejection in November of an arriving US cargo that contained an unauthorized variety of genetically modified maize, sparking fears that this could happen again (not many years back, readers may recollect, there was a lengthy break in trade caused when unauthorised Starlink GM maize was found in US cargoes). As we went to press, China had bought almost 4.85m tonnes of US maize but shipped less than 1.5m tonnes of that. Another factor was a higher Chinese crop estimate from forecasting body Lanworth - 220m tonnes compared with the USDA figure of 211m. Russias maize crop has also been increased, from 9m to 11.5m tonnes which some observers see releasing maybe as much as 3.5m tonnes of exports (against 2m in recent years and very little before that). However, the much bigger factor in that region remains Ukraine whose record 29/30m tonne crop is expected to allow exports of at least 18m, compared with 12.7m last season and its normal average 5m tonnes in recent years. Ukraine has already exported around 5m tonnes

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from a crop that has barely finished harvest and during November, shipped its highest weekly total ever at 969,500 tonnes. Like the Latin American countries throughout the past few months, Ukraine has set the price bar low for other feedgrain exporters. However, the drop in US futures prices has now made the traditional largest supplier of corn competitive on fob terms with most of its rivals for first quarter 2014 shipments onward. As noted in our last issue, the corn crop bounty has extended to the EU too, where production is expected to expand by about 6.5m tonnes to over 65m. So far this has had less effect than might have been expected in bringing down EU corn prices, mainly because the French harvest has been slowed by excessive rain. Even in mid-November, this had reached just 58% completion versus 88% at the same time last year. Once the harvest is done and attention turns fully on the Ukrainian competition, prices here may well come under further downward pressure.. At this stage, EU corn consumption in 2013/14 is seen more or less level with last seasons around 70m tonne. Imports again with a heavy emphasis on Ukrainian supplies are expected to drop by about 3m tonnes but will remain relatively high compared with recent years at some 8m. Like other consumers, Europe will remain tempted by corn prices that have recently undercut feed grade wheat on world import markets by as much as $60 per tonne. The gap between wheat and maize prices is even wider on the US futures markets over $2.20 per bushel or about $72/tonne on the spot months compared with just $20 this time last year. US maize prices have been pushed down by the large domestic crop, the foreign export competition and a past season of lower demand in its own feed and ethanol sectors. Both were expected to show some revival

in 2014 in response to the halving of corn costs and higher renewable fuel use mandates set some years back. During November, the US government confirmed it was proposing to lower these, including a cut in next years RF mandate. Although the breakdown in cuts for fuel types is not yet clear, some trade houses offered initial calculations that this could put US maize consumption for ethanol 7.5/15m tonnes below what the market assumed from the earlier targets. However, others have played down the impact, suggesting the changes will have greater impact on so-called advanced biofuels like soya diesel, rather than corn ethanol. Better profitability in the bio-ethanol sector after the drop in the corn price (and a rise in ethanol values to five-month highs) may also continue to support production that has been buoyant recently by these factors, along with the industrys ambitions to export more. In summary, the outlook for corn ethanol use is a bit of a grey area, if a potentially bearish influence. Latin Americas contribution to global corn exports is seen smaller in the coming year by the USDA which pitches the Argentine crop 500,000 tonnes lower at 26m but Brazils 11m smaller at 70m on the assumption that producers have sown/will sow more soyabeans and that Brazil is unlikely to get the unusually high yields it had from its Safrinhas (second-sowing) crop maize. Despite that, the Brazilian figure is probably too cautious. Local analyst Safras e Mercado, for example, recently put the crop at 75.2m. It might also be remembered that the USDA started out estimating last seasons crop at 70m too. It ended up at 81m. Either way, though, there will be no shortage of maize in the season ahead, when world export trade is expected to reach a record 109m tonnes, (up 10m) even as the global carryover stock piles up. The tail end of the maize supply outlook might be a little less bearish. Many analysts

are currently predicting US farmers will cut plantings next spring in response to the price drop and consequent better returns from soyabeans (which will move into this empty land). Weather will, as always, also play a part in that sowing campaign, good conditions favouring early sowings and larger maize areas, weather delays favouring more soyabeans, which can be planted later. On the other hand, Russia and Ukraine have land left vacant by unfulfilled winter wheat planting intentions, the bulk of which is expected to go to maize. That suggests an even bigger contribution from the CIS countries next year, weather permitting. In the meantime, futures markets are not pre-empting any shortages arising from lower US or South American plantings. As far out as December 2014, the maize price is trading around $4.60/bu or about $180/tonne. Thats less than 8% over the current very low spot price. It has been an odd couple of months for the wheat market which, despite a surge in October to four-month highs of near $7/bu ($257/t) on the CBOT futures market has also been frequently tempted to test the low side, ranging down to the $6.30s ($235/t). On the supply side of the market, the main changes in recent weeks have centred on the expected trimming of CIS crops after rain delays to their harvests. Russias is now assumed to be down by about 2.5m from earlier forecasts at 51.5m while Kazakhstans has been cut by 1.5m to 15.5m. However, these, in combination with Ukraines, are still good crops compared with last years very disappointing results (the three in total at 89m tonnes are up by about 16m allowing exports of 34m compared with last years 25.5m tonnes. Their combined wheat stocks carried into next season are also expected to rise by about 2m tonnes to around

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Other notable developments since our last review include a big uprating of the Canadian crop, now seen at a record 33.2m tonnes versus last seasons 27.2m. This makes the USDAs forecast of a 3m tonne increase to 21.5m in this seasons Canadian exports look a little conservative. The EU crop has also outdone all the early forecasts and is now rated by the USDA at 143m tonnes versus last years 133.6m although some 16.5m. Thats still way under the 27m carried in private forecasts for 2013 are several million from the bumper 2011 harvests but welcome tonnes larger still. nonetheless to the bear camp. However, the rise in prices that the wheat Russia does seem to be running low on market saw in October was less of a response to old crop news than to delays in sowing the adequate export quality wheat now and has embarked on a state purchasing programme next batch of CIS wheat crops for harvest 2014. to rebuild its depleted stocks. This has allowed At one stage, things looked pretty grim amid its export prices to creep up in recent weeks talk of major cutbacks to sowings across the to around $285/tonne Black Sea14:26 ports region and late sowings at greater risk of poor FIAAPisland:Layout 1 for 30/8/13 or non-germination and high winterkill. However, planting estimates have improved with drier weather in the last few weeks and will not be as far under the 2013 totals as earlier expected. Also a spell of unusually mild weather after all the rain has got sown crops off to a rapid start across the CIS region. The longer this continues, the better chance of reasonable survival rates into the spring although the lack of snow cover was beginning to make a few observers fret as we went to press. 8 10 April 2014 . Bangkok International Trade & Exhibition Centre (BITEC), Bangkok, Thailand If the CIS countries are to make a smaller contribution to next years wheat supplies, there will be some mitigating factors. In the USA, the largest exporting country, winter wheat sowings are estimated to have risen by about 3-4%, while crops are in far better condition than at this time last year, when large areas of the wheat belt were suffering droughts (at one stage recently, almost twice as much wheat was rated good/excellent'). If the weather stays favourable over the next six months that could mean big yields and a bumper US crop. EU winter wheat sowings are also estimated to have increased for harvest 2014 and are similarly blessed with largely favourable weather certainly no lack of rain in the main western European grain belt and a relatively late start to cold weather, promoting good growth pre-dormancy. FIAAP Asia 2014 is the only dedicated trade show and conference organised specifically for feed ingredients, additives and formulation within the dynamic and growing region of South and South East Asia. Southern hemisphere crops have presented a slightly more bullish story. New for 2014 Supported by A combination of low sowings (blamed Now including the first The Thailand Convention on government export controls) and ASEAN Feed Summit and Exhibition Bureau unfavourable weather is expected Specialist conferences Co-located with to prevent Argentina once one of The exhibition will be supported VICTAM Asia 2014 by its own specialist conferences. www.victam.com the Big five regular wheat exports They will include: improving much on last years unusually Contact details The FIAAP Conference 2014 For visitor, exhibition stand poor 9.5m tonne crop. Some estimates Petfood Forum Asia 2014 space and conference are even under 9m, a few still around Aquafeed Horizons Asia 2014 information please visit: 11m but most expect exports to drop The Thai Feed Conference 2014 www.fiaap.com

compared with as low as $245/250 back in the late summer months. Ukraine has also been getting well sold, its export offers also moved up with Russian wheat, allowing EU, US and other exporters to grab a larger share of the going import business (see below). However, India has a huge exportable surplus this year, poor storage and another probable record crop on the way. With world prices now coming within its reach (its domestic prices had been too high to export without subsidy), it has begun to release more wheat and will likely prove a formidable competitor in the months ahead, probably filling any Russian or Ukrainian gaps and helping to slow the Page 1 ascent in international prices.

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to as little as 3.5m. from last years 7.5m and the year). previous seasons near 12m tonnes. This rapid rate This gap in southern hemisphere supply of disappearance has already turned Argentinas customers is one of the main especially Brazil, the worlds second largest factors holding up wheat importer to North America for prices on both the supplies, with supportive effect on US/Canadian US and EU markets, hard wheat export prices. especially the latter. Australias harvest results to date (around Even so, the relative 20-30% complete) have also been a bit adequacy of overall disappointing, achieving lower than expected supply and the lack of a major weather threat to 88.66m. Planting of the next Latin American proteins (one forecast saw two thirds of yet to 2014 global output is at this stage allowing crops, for harvested first quarter 2014 has the harvest grading 11.5% or lower). Some the distant futures price of wheat to run at only progressed under favourable conditions. Australian sources also expect more of this a small premium to the spot market the EUs Record large areas are being sown there and seasons surplus to go to rebuilding stocks that even portraying slightly cheaper prices into 2015. ideal weather has got things off to a flying were used last year to maintain strong exports Finally onto oilmeal markets, where all the start. The USDA sees regional output rising in a year of lower production. Crop estimates supply news so far is no less encouraging for to 156m tonnes from last years 146m (and have ranged from as much as 28m (probably consumers. The US soyabean crop estimate just 112m in 2011/12) while some local analysts far too high now) to 23.5m tonnes. Yet even has recently been raised almost 3m tonnes expect1the total to exceed 160m. With the VICTAMisland:Layout 1 by30/8/13 14:22 Page the lowest figure would, be bigger than last years and large enough to maintain a full export programme. Overall, there should be no shortage of wheat supplies going forward which is just as well in a season when global trade is expected to expand by about 4-5m tonnes to 152m its second highest level ever. The main factor, as outlined in our earlier reviews, has been the explosion in Chinese import needs from less than 3m over the past two years (little more 8 10 April 2014 . Bangkok International Trade & Exhibition Centre (BITEC), Bangkok, Thailand than 1m before that) to a forecast 8-9m tonnes this season. Demand has also been forecast higher into the top importer Egypt (9.5m vs last years 8.3m tonnes and a more normal 10/5/11m before its political/economic crisis). Iran may also take more wheat with the easing of trade sanctions in the wake of its recent nuclear nonproliferation agreement. Aside of these seasonal forecasts, there has recently been a lot of evidence that international buyers are already finding wheat better value since it forsook the $350/450 (soft & hard wheat respectively) levels of this time last year for prices closer to $280/340 (see charts). The past month or so especially has Visit us at Phytate is compromising your feed performance IPPE seen strong demand from the Middle Phytate anti-nutrient effects could be costing you $7 per tonne in lost performance. Hall A East especially, but no lack of suppliers Stand 2239 Quantum Blue is the proven solution keen to get this business. For the US Optimised for maximum phytate destruction, Quantum Blue unlocks more and Europe, this demand surge has VICTAM Asia 2014 is the largest trade show within South and South East Asia for displaying the latest value for your business than any other phytase. equipment and technology used in the production of animal feeds, aquafeeds and dry petfoods. propelled exports far ahead of the Quantum Blue offers a revolution in phytase performance needed pace. The EU in total has Newfor 2014 Supported by Greater phosphorus release Unrivalled intrinsic thermostability Proven additional feed efciency value already sold 10.6m tonnes of soft wheat Now including the first The Thailand Convention compared with 6.8m this time last year ASEAN Feed Summit and Exhibition Bureau Find out more: E: quantumblue@abvista.com T: +44 (0)1672 517664 W: abvista.com a 56% increase compared with the Specialist conferences Co-located with seasonal forecasts of a less than 10% The exhibition will be supported FIAAP Asia 2014 and by its own specialist conferences: GRAPAS Asia 2014 rise. The US has meanwhile sold 37% www.fiaap.com / www.grapas.eu The FIAAP Conference 2014 more than last year (forecast plus 8%) Petfood Forum Asia 2014 Contact details which is almost three quarters of its Aquafeed Horizons Asia 2014 For visitor, exhibition stand space and seasonal projection with six months The Thai Feed Conference 2014 conference information please visit: performance beyond phytase still to go (seven for the EU marketing www.victam.com Biomass Pelleting Asia 2014

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bigger US crop that puts world soyabean supply up by 16-20m tonnes, equal to an additional 12.5/16m tonnes of soya meal if all were crushed. The USDA currently sees meal output up by a more conservative 11m tonnes, the rest of the extra soyabean supply going to build global stocks carried into 2014/15. At a record 70m tonnes these will be more than Brazil has produced in some recent years. This surplus may not yet been fully factored into soyabean prices at $12/13 per bushel. But either way, if consumers need more meal

How much more of their 2013 crops will Black sea countries want to export? A brisk early season sales campaign, some emergent quality deficiencies in Russia, Moscows plan to rebuild reserve stocks - plus some unease in government circles about next years crop after late, downsized plantings - might all conspire to encourage a cautious export policy from now on. That would mean less price discounting to win foreign deals. But if the CIS countries do go into export retreat, India should be able to fill a lot of any

trade sanctions but top buyer Egypts demand is uncertain amid its financial problems. Quality remains a potentially live issue. Canadian, Australian and French proteins may be below average in a year when Argentine wheat availability is halved. But so far, benchmarks like the North American hard wheats are holding prices steady at levels considerably cheaper than at this time last year.

COARSE GRAINS
The US maize crop is much larger than expected and this will loosen both US and world carryover stocks considerably over the coming year but there are some wild cards on the consumption side. US exports are running ahead of USDA forecasts. If that pace continues, stocks may not be quite so large but may still be burdensome enough to depress US and world prices. US feed use of maize is expected to recover somewhat in the year ahead. January quarterly stock figures will shed some light on the extent of this trend. US ethanol demand for maize (40% of consumption) was expected to rise 5.4% this season before the government proposed curbing bio-fuel blending. Strong exporter competition will continue for maize import trade from Ukraine and Russia initially and, into first quarter 2014, from South American crops whose potential might be under-rated but weather there needs to be watched in the months ahead. The US is expected by many observers to sow significantly less maize in 2014 in response to this seasons surplus, the near halving of prices and the relatively better returns to be had from soy beans. But CIS countries could sow more in the spring on failed winter wheat lands, raising export supplies to new rercord levels. Will China remain a key maize importer, helping to soak up some of the world surplus? The biggest crops opf barley and sorghum for four and five years respectively add to this seasons abundant feed grain supply.

than currently estimated, the supplies should be there to crush. Other oilseed crops have also turned out higher than expected. The world sunflowerseed output estimate has been raised by 1m to 42.8m tonnes, rapeseed by 1.5m to almost 68m, putting total world oilseed production at 280m tonnes or about 25.5m over last years. Not surprisingly, the forward futures markets point to lower prices in this sector with both beans and meal seen about 13% cheaper next autumn

than now. Soyabeans are already 25-30% cheaper than the record peak prices they reached in the autumn of 2012 (just under $18/bu).

KEY FACTORS AHEAD

WHEAT
Will Black Sea (former Soviet countries) crops have a normal, mild or harsh winter? Planted areas are down and a lot of the crop went in late but it has been mild so far and there is no lack of soil moisture unlike some recent years. Provided they get some snow protection, production may not be so far under this years adequate level.

gaps resulting in world supplies. It may not have top quality but it does have an awful lot of surplus wheat much of it in risky poor storage and another probable record crop on the way. So Indian exports could help cap rallies in international wheat prices. Europes breakneck early-season export campaign shows no sign of letting up as we go to press. But at this stage, there seems no danger of the domestic market running out of wheat. Plantings for next years crop are up, weather so far promising. Cheap corn competition from Ukraine especially, $60/80 per tonne under feedwheat, should also help cap the low quality end of the wheat market. A record world maize crop will keep wheat use in feeds below the peak level of two years ago. But food, bio-fuel and other outlets will still add about 3.5%, or 24m tonnes to world total wheat consumption in 2013/14. That continues to mean only modest stock growth but the global wheat inventory will still be more than adequate as a percent of consumption. The USA, Canada, Australia, even Argentina, with its weather problems, all still have wheat to export going into the second half of the 2013/14 season. So importers do have choices. Markets could get excited again about Chinese imports taking more of the world export supply. Chinas own crop needs more rain and its domestic prices are at record highs, way above the world price of wheat. Iran could import a lot more with the easing of

OILMEALS/PROTEINS
Latin American soya crop weather will be the main focus in the months ahead. If it stays as favourable as recently, crops will be record large and should pressure prices lower for soya meal and the entire oilmeal complex. China will remain top factor on the demand side of the soya/oilmeal equation but its purchases are likely to switch soon from US to cheaper Latin American new crop supplies. Big EU and CIS rapeseed and sunflowerseed and Canadian canola crops are adding to the abundance of oil meals implied by record soyabean production. But will these producers grow less in 2014?

50 | November - December 2013

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