Global Feed Markets: May - June 2012

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, the publishers accept no liability for any errors or omissions or for the consequences of action taken on the basis of information published. ©Copyright 2010 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

Digital Re-print - May | June 2012 Global Feed Markets: May - June 2012

www.gfmt.co.uk

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 inf luence your decision-making.

Global consumption

of wheat is

expected to fall

back too next

season, by about

8m tonnes, as

various countries

use more maize

(assuming the big

maize crop does

come through as

planned). However,

world wheat stocks

will decline by

about 9m tonnes to

188m

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

If all goes to plan, feed consumers could be cheering an 86m-tonne recovery in world coarse grain (mainly maize) production, two thirds of that coming from within the USA. That would be quite some rebound after the past season’s 45m tonne crop decline. It would not only leave plenty of room for expanding coarse grain consumption around the globe. It would also allow for some significant replenishment of rock-bottom stocks, removing much of justification for the past year’s record maize costs. Indeed some pundits are already talking of a possible return to the sort of maize prices markets grew used to over the last decade or two – perhaps 25% cheaper than present levels!

But will there be surprises on the demand side of the ledger too? Will China, for example, reveal a far larger than expected feed raw material deficit as many analysts have been forecasting, mopping up some of these extra supplies? Will cheaper maize prices also stir demand from other importers large and small? And just how much maize will be fed to livestock or used for ethanol fuel within the USA itself? In these uncertain economic times, opinions differ on these factors too, especially on the feeding prospects.

Wheat output, in contrast, is expected to drop next season by 17m tonnes on weather-reduced planted/harvested acreage. But with stocks of 197m tonnes to carry in from 2011/12 - and wheat feeding to livestock likely to decline too (as consumers switch back to maize) - does a crop fall of this size really matter that 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

in the absence of competition with very little overall supply growth expected for the alternative oilseeds that make up almost two thirds of world production.

Mother nature, as always, will have the final say on crop yields and production which, as last year showed, could look quite different to the forecasts once the last combines have come to rest. Right now, the biggest producer, the USA, is getting mostly favourable weather for possible record yields and earlier harvests. Europe has been severely challenged by winter frosts and droughts yet abundant rain might yet rescue decent crops in most member states. Further east there are dark mutterings about drought re-emerging in the former Soviet Union – not on the devastating 2010 scale but maybe enough to trim yields and current (already much lower than last year) wheat crop forecasts. China (the world largest wheat producer and consumer) also has some dyness issues while Argentine wheat farmers are cutting back sowings due to disappointing returns and government interference in their export market. Canada has sown 11% more, Australia maybe 4-5% less wheat but both might have better quality if they avoid last year’s untimely rains – which would be good news for millers..

Overall, if pundits like the US Agriculture Department are right, 2012/13 may well shape up as a much better supplied year for maize and soyabeans and an adequate one for wheat. That will certainly offer less justification for hiking feed costs – or even keeping them as high as they are now.

Taking into account the improving supply forecasts, the US grain markets have been dropping since our last review and have recently traded close to the

‘Between-crops,’ consumershope for big feed grain recovery

Grain&feed millinG technoloGy34 | may - June 2012

GFMT12.03.indd 34 22/06/2012 08:50

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 inf luence your decision-making.

Global consumption

of wheat is

expected to fall

back too next

season, by about

8m tonnes, as

various countries

use more maize

(assuming the big

maize crop does

come through as

planned). However,

world wheat stocks

will decline by

about 9m tonnes to

188m

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

If all goes to plan, feed consumers could be cheering an 86m-tonne recovery in world coarse grain (mainly maize) production, two thirds of that coming from within the USA. That would be quite some rebound after the past season’s 45m tonne crop decline. It would not only leave plenty of room for expanding coarse grain consumption around the globe. It would also allow for some significant replenishment of rock-bottom stocks, removing much of justification for the past year’s record maize costs. Indeed some pundits are already talking of a possible return to the sort of maize prices markets grew used to over the last decade or two – perhaps 25% cheaper than present levels!

But will there be surprises on the demand side of the ledger too? Will China, for example, reveal a far larger than expected feed raw material deficit as many analysts have been forecasting, mopping up some of these extra supplies? Will cheaper maize prices also stir demand from other importers large and small? And just how much maize will be fed to livestock or used for ethanol fuel within the USA itself? In these uncertain economic times, opinions differ on these factors too, especially on the feeding prospects.

Wheat output, in contrast, is expected to drop next season by 17m tonnes on weather-reduced planted/harvested acreage. But with stocks of 197m tonnes to carry in from 2011/12 - and wheat feeding to livestock likely to decline too (as consumers switch back to maize) - does a crop fall of this size really matter that 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

in the absence of competition with very little overall supply growth expected for the alternative oilseeds that make up almost two thirds of world production.

Mother nature, as always, will have the final say on crop yields and production which, as last year showed, could look quite different to the forecasts once the last combines have come to rest. Right now, the biggest producer, the USA, is getting mostly favourable weather for possible record yields and earlier harvests. Europe has been severely challenged by winter frosts and droughts yet abundant rain might yet rescue decent crops in most member states. Further east there are dark mutterings about drought re-emerging in the former Soviet Union – not on the devastating 2010 scale but maybe enough to trim yields and current (already much lower than last year) wheat crop forecasts. China (the world largest wheat producer and consumer) also has some dyness issues while Argentine wheat farmers are cutting back sowings due to disappointing returns and government interference in their export market. Canada has sown 11% more, Australia maybe 4-5% less wheat but both might have better quality if they avoid last year’s untimely rains – which would be good news for millers..

Overall, if pundits like the US Agriculture Department are right, 2012/13 may well shape up as a much better supplied year for maize and soyabeans and an adequate one for wheat. That will certainly offer less justification for hiking feed costs – or even keeping them as high as they are now.

Taking into account the improving supply forecasts, the US grain markets have been dropping since our last review and have recently traded close to the

‘Between-crops,’ consumershope for big feed grain recovery

Grain&feed millinG technoloGy34 | may - June 2012

GFMT12.03.indd 34 22/06/2012 08:50

COMMODITIES

lows of last December. Although wheat supplies are seen edging down (rather than up like maize and soyabeans) next season, Chicago wheat futures have actually seen the biggest dip, trading close to two year lows (with export prices for US hard wheats already down to those levels). Given the ongoing massive world wheat supply, this might seem a long overdue reaction with some distance yet to go.

Cheaper wheat has been hastened by a reversal in maize prices as traders start to believe that a massive, record US crop of the latter grain really is possible, given expanded sowing plans, early planting and currently ideal weather. As pointed our in earlier reviews, tight old crop markets have forced US maize prices to trade for many months at highly unusual premiums to wheat (even hard red winter wheat with its higher nutritional value). This phenomenon has sustained even the more abundantly supplied soft wheat markets at prices that would normally be considered out of synch with the loose fundamentals.

The notable exception to the latter has been Western Europe, where last year’s (and likely this year’s too) weather-reduced crop and lack of supplies from the Black Sea countries has kept wheat prices up on their own merits and above the world market (led by the US, Canada, Argentina, Australia). Indeed in some of the EU northern regions, especially Germany, feed wheat has been scare enough to sell at higher prices than milling wheat. Paradoxically, even

while this has been going on, some better supplied member states (notably the UK) have been able to sell feed wheat to the USA. This underlines the global nature of the 21st Century commodity market, albeit with some help from rock-bottom ocean freight costs earlier in the year.

The past couple of months have also seen a marked increase in pessimism over the Euro-zone’s debt crisis and its potential to spread contagion to broader global markets. As we go to press the burning issue has shifted from if to when Greece might be forced out of the EZ, to the impact on Italian, Spanish and Portuguese debt, Spanish bank solvency, global economic activity etc etc. Along with signs of faltering Chinese growth and wavering US economic data, this has been a tremendous drag on all the markets – stocks, financials, energy - even the supposedly more ‘fire-proof’ agricultural commodities with their assumed solid demand as food staples.

At this stage it is hard to divine which is having – or will have - the greater impact on grain and feed markets – the potential for lost physical demand for commodities, the decline in liquidity of banks and hedge funds who speculated in agric futures from 2008/09 onward and have lost money on reversals and their other numerous bad bets, or the sheer negativity of ’sentiment.’ Whichever combination of these, the picture

is one of uncertainty, nervousness and – despite the overall bias toward depressed raw material markets – a continuing outlook for price volatility across the grain and feed sector.

Main commodity highlights since our last reviewWheat supplies not quite so flush after all?

The past season saw the biggest world wheat crop ever as farmers responded to strong prices with larger sowings (+1.5%) and yields recovered from the series of weather events that slashed output around the globe in 2010. Most of that crop recovery was in the former Soviet Union although India the EU, Canada, Australia, China and several smaller producers grew larger crops too, offset only partially by a few declines in countries like Argentina and Iran. Consumption also expanded to record high levels, mainly because so much more wheat was used in animal feeds to replace tight and expensive maize – in Europe, the USA, Asia, China, the CIS and others. Just how much more has been hotly debated over the past year but it does now seem the feed total was much larger than originally thought. In its latest appraisal, the USDA estimates feeding reached 146.7m tonnes – a rise of 31.3m or 5%. That’s almost 10m tonnes more than forecast in April and results in total wheat demand matching

Grain&feed millinG technoloGy may - June 2012 | 35

The QUICK CONNECT® pull-ring makes the acclaimed Jacob modular pipe system even more economical

for installation. In new plants for animal feed, pharmaceuticals, chemicals, food, glass,

semi conductors or environmental techno logy as well as for upgrading existing layouts

user-friendly system installation becomes precise and easy due to the great versati-lity of mass-produced pipe components.

• Straight welded, lipped-end pipes and components.• ø 60 mm to ø 800 mm in a standard range.• Up to ø 400 mm normally dispatched immediately from stock.• Larger than ø 350 mm also available with fl ange connection.• Powder coated steel or hot-dipped galvanised steel as well as

stainless steel.• 1 - 3 mm wall thicknesses.• Larger diameters / special requirements upon request.• Shock-explosion certifi ed pipes and components available.

Original Quality to a Modular Design

... Follow the leader in bulk goods handling, dust-extraction and ventilation plants

EUROPE’S NO. 1 IN MODULAR PIPEWORK SYSTEMS – Used in all industrial sectors

Fr. Jacob Söhne GmbH & Co. KG Germany

Phone +49 (0)571 95580www.jacob-pipesystems.eu

Request a

catalogue!

Hotline

+49 (0)571 95580 or at

www.jacob-pipesystems.eu

512431Grain_Feed_190x58_gb_4c.indd 1 21.05.12 08:58

GFMT12.03.indd 35 22/06/2012 08:50

• To what extent will EU winter wheat crops affected by the Jan/Feb freeze and the March drought recover amid recent plentiful rain?

• Summer weather in the Northern Hemisphere where most of the world’s wheat is grown – yields nearly always affect crop size more than shifts in sown acreage.

• A big US crop with plenty of hard red winter variety and improving spring wheat prospects will help hold down breadwheat prices globally.

• How far will wheat consumption in feeds decline world-wide if the US, other major producers produce bumper maize crops?.

• India is likely to export far more wheat than expected earlier in the year, competition for more traditional exporters and helping to fill some of the ‘Black Sea’ supply gap.

• Progress of sowings in key quality bread wheat supplier Australia and pre-harvest weather there – will it improve after after two years of rain-damaged crops?

• The price of maize – it has been supporting wheat in the face of burdensome stocks for over a year.

Maize leads coarse grain comeback–but the crop isn’t grown yet

The USDA’s first 2012/13 supply/demand forecasts dealt a body blow to maize bulls, predicting the US crop would rocket by 62m tonnes to a new record 376m. Even with a 23m tonne jump in US domestic use (mainly in the feed sector) and a 4.5m tonne increase in exports, that would still raise carryover stocks to more than double this season’s tight ending level at about 48m tones. The US maize crop – which has gone in early on a massive 96m acres – possibly more – still needs to be proved. Weather has been mostly benign so far. As we go to press, there are some concerns about possible hotter drier forecasts as crops approach early pollination which works better under cooler, damper conditions but such talk is par for the course at this time of the year. World corn supplies will also be boosted by bigger crops in Argentina (+3.5m tonnes), Canada (+1.9m), former Soviet countries (+1.5m), South Africa (+1.5m) and China (+1.9m). In total, world corn output could increase by 75m tonnes, putting it about 25m tonnes ahead of world consumption (despite a 54m tonne increase in the latter).

What issues might interfere with this prognosis for ample supplies and, logically, lower corn costs? Apart from US and European weather in the coming summer months, we need to keep an eye on demand developments. After the USA, the main area of demand growth for maize in the coming year will be China, seen adding 12m tonnes to its consumption which at 200m tonnes would be 7m tonnes ahead of local output. China has already emerged as the main growth factor in 2011/12 demand, importing 5m tonnes compared with less than 1m in 2010/11 and very

of a reversal to higher levels as weather shifts begin the question some of the more liberal crop estimates. Chief areas of concern are Russia and Ukraine – possible drought losses on top of quite severe winterkill (mainly in Ukraine), the EU – worse than expected winterkill and an earlier drought, the effect of which might be partly reversed by a ‘Monsoon’ spring - and lastly the US southern/central Plains where the top might be shaved off hard red winter yields by a spell of hot dry weather.

At this stage, potential losses to the 678m world crop scenario are not necessarily large – maybe 5m or 10m tonnes – but enough to constrain the complacency that was emerging about 2012/13 supplies. The reaction from markets has been exaggerated partly by the fact that the bellwether Chicago wheat futures contract had been heavily sold by speculators who, suddenly realising their exposure to weather shifts, greater than expected old crop demand or rallies in maize

and soya, rushed to cover some of their ‘short’ position. This has recently recouped some of the losses in US prices and pushed European prices a little higher too. A weak euro has also played in to firmer EU milling wheat prices but that could reverse if the Euro-zone does get its act together.

Wheat is still plentiful as witnessed by the competition for ‘non-routine’ import orders from the big Middle East buyers and other milling wheat consumers. Not only are further countries like Canada and the US competing for Arab business; so are distant suppliers like

Argentina and Australia, able to take advantage of still unusually low ocean freight rates. Even the former Soviet countries, supposedly concerned about approaching crop setbacks and ‘over-selling’ their remaining 2011 supplies, seem to be keen to remain in the contest for ‘opportunity’ custom, rather than end up with too much old crop stock at harvest time. On top of that, India has record stocks – four times and more its target level for state reserves. With yet another bumper harvest on the way, it could easily add 10m tonnes or much more to the global export mix, without jeopardising its own food security/inflation containment plans.

Despite this apparent plenty, wheat prices will probably not drop much more until the Northern Hemisphere harvest picture clears – for both wheat and maize. Until the US and other big suppliers prove their forecast large corn crops, the risk remains that wheat could again be in more demand than usual for the feed industry.

KEY FACTORS IN THE MONTHS AHEAD• How far will ‘Black Sea’ regional wheat crops

decline this summer?

production. World carryover stocks this June 30 will not increase by 12.6m tonnes as expected earlier but remain about the same as last year. Yet at 197m tonnes, these are still huge by any measurement, equal to 28.4% of consumption or almost 15 weeks’ supplies.

The USDA has recently released its first take on 2012/13 world grain balances and they make interesting reading. As other analysts like the International Grains Council have been forecasting, the USDA expects 2012 wheat output to decline, by about 2.5% or 17m tonnes

to some 678m. This assumes a 22m tonne reversal for Russia, Ukraine and Kazkhstan combined and declines of 5.4m tonnes for the EU, 3.5m for Australia, 2m for Argentina, offset only partly by a 6.7m increase for the USA, plus 4.1m for India, 2.1m for China and 1.74m more for Canada.

Global consumption of wheat is expected to fall back too next season, by about 8m tonnes, as various countries use more maize (assuming the big maize crop does come through as planned). However, world wheat stocks will decline by about 9m tonnes to 188m.

Taking these preliminary figures at face value, there is nothing overtly bullish for prices. Exporters like the USA, Australia, Canada, India – even Russia – would still have relatively big crops. Some exporters – chiefly the US, Australia, India and the former Soviets also carry in comfortable or in some cases (India and the US) larger than normal stocks.

These early pointers to ongoing adequacy of supply combined with weakening maize prices (maize strength has been the main support for wheat this season) and negative events in the world economy to drive down wheat prices to their lowest levels of the year during May. However, as we go to press that trend is at risk

Grain&feed millinG technoloGy36 | may - June 2012

Uncoated Fine Paper Corrugated Bags & CoatingsEurope & International

Reap the Benefi ts!Customised industrial bags for quick fi lling and reliable protection of your fi lling goods.

www.mondigroup.com

SOLUTIONS.FOR YOUR SUCCESS.

AutomotiveIndustry

ChemicalIndustry

Farming &Agriculture

Industry

Food IndustryBuilding &Construction

Industry

Industrial Paper & Packaging

Industry

Office &Printing Paper

Industry

Pet Food Industry

Photographic & Graphic Industry

Toiletries &HygieneIndustry

OthersCreative Industry

Medical &Pharmaceutical

Industry

HouseholdIndustry

Hygienic

closure techniques

Window for presenting

the fi lling good attractively

and simple dosage

Compact

dimensionsSuitable for

food contactCompostable

bags with

biodegradable fi lm

Reliable

protection through

sealable valves

1

3

2

54

6

IB_Muehle_Mischfutter_297x210_+3mm_E.indd 1 21.04.11 18:07GFMT12.03.indd 36 22/06/2012 08:50

• To what extent will EU winter wheat crops affected by the Jan/Feb freeze and the March drought recover amid recent plentiful rain?

• Summer weather in the Northern Hemisphere where most of the world’s wheat is grown – yields nearly always affect crop size more than shifts in sown acreage.

• A big US crop with plenty of hard red winter variety and improving spring wheat prospects will help hold down breadwheat prices globally.

• How far will wheat consumption in feeds decline world-wide if the US, other major producers produce bumper maize crops?.

• India is likely to export far more wheat than expected earlier in the year, competition for more traditional exporters and helping to fill some of the ‘Black Sea’ supply gap.

• Progress of sowings in key quality bread wheat supplier Australia and pre-harvest weather there – will it improve after after two years of rain-damaged crops?

• The price of maize – it has been supporting wheat in the face of burdensome stocks for over a year.

Maize leads coarse grain comeback–but the crop isn’t grown yet

The USDA’s first 2012/13 supply/demand forecasts dealt a body blow to maize bulls, predicting the US crop would rocket by 62m tonnes to a new record 376m. Even with a 23m tonne jump in US domestic use (mainly in the feed sector) and a 4.5m tonne increase in exports, that would still raise carryover stocks to more than double this season’s tight ending level at about 48m tones. The US maize crop – which has gone in early on a massive 96m acres – possibly more – still needs to be proved. Weather has been mostly benign so far. As we go to press, there are some concerns about possible hotter drier forecasts as crops approach early pollination which works better under cooler, damper conditions but such talk is par for the course at this time of the year. World corn supplies will also be boosted by bigger crops in Argentina (+3.5m tonnes), Canada (+1.9m), former Soviet countries (+1.5m), South Africa (+1.5m) and China (+1.9m). In total, world corn output could increase by 75m tonnes, putting it about 25m tonnes ahead of world consumption (despite a 54m tonne increase in the latter).

What issues might interfere with this prognosis for ample supplies and, logically, lower corn costs? Apart from US and European weather in the coming summer months, we need to keep an eye on demand developments. After the USA, the main area of demand growth for maize in the coming year will be China, seen adding 12m tonnes to its consumption which at 200m tonnes would be 7m tonnes ahead of local output. China has already emerged as the main growth factor in 2011/12 demand, importing 5m tonnes compared with less than 1m in 2010/11 and very

of a reversal to higher levels as weather shifts begin the question some of the more liberal crop estimates. Chief areas of concern are Russia and Ukraine – possible drought losses on top of quite severe winterkill (mainly in Ukraine), the EU – worse than expected winterkill and an earlier drought, the effect of which might be partly reversed by a ‘Monsoon’ spring - and lastly the US southern/central Plains where the top might be shaved off hard red winter yields by a spell of hot dry weather.

At this stage, potential losses to the 678m world crop scenario are not necessarily large – maybe 5m or 10m tonnes – but enough to constrain the complacency that was emerging about 2012/13 supplies. The reaction from markets has been exaggerated partly by the fact that the bellwether Chicago wheat futures contract had been heavily sold by speculators who, suddenly realising their exposure to weather shifts, greater than expected old crop demand or rallies in maize

and soya, rushed to cover some of their ‘short’ position. This has recently recouped some of the losses in US prices and pushed European prices a little higher too. A weak euro has also played in to firmer EU milling wheat prices but that could reverse if the Euro-zone does get its act together.

Wheat is still plentiful as witnessed by the competition for ‘non-routine’ import orders from the big Middle East buyers and other milling wheat consumers. Not only are further countries like Canada and the US competing for Arab business; so are distant suppliers like

Argentina and Australia, able to take advantage of still unusually low ocean freight rates. Even the former Soviet countries, supposedly concerned about approaching crop setbacks and ‘over-selling’ their remaining 2011 supplies, seem to be keen to remain in the contest for ‘opportunity’ custom, rather than end up with too much old crop stock at harvest time. On top of that, India has record stocks – four times and more its target level for state reserves. With yet another bumper harvest on the way, it could easily add 10m tonnes or much more to the global export mix, without jeopardising its own food security/inflation containment plans.

Despite this apparent plenty, wheat prices will probably not drop much more until the Northern Hemisphere harvest picture clears – for both wheat and maize. Until the US and other big suppliers prove their forecast large corn crops, the risk remains that wheat could again be in more demand than usual for the feed industry.

KEY FACTORS IN THE MONTHS AHEAD• How far will ‘Black Sea’ regional wheat crops

decline this summer?

production. World carryover stocks this June 30 will not increase by 12.6m tonnes as expected earlier but remain about the same as last year. Yet at 197m tonnes, these are still huge by any measurement, equal to 28.4% of consumption or almost 15 weeks’ supplies.

The USDA has recently released its first take on 2012/13 world grain balances and they make interesting reading. As other analysts like the International Grains Council have been forecasting, the USDA expects 2012 wheat output to decline, by about 2.5% or 17m tonnes

to some 678m. This assumes a 22m tonne reversal for Russia, Ukraine and Kazkhstan combined and declines of 5.4m tonnes for the EU, 3.5m for Australia, 2m for Argentina, offset only partly by a 6.7m increase for the USA, plus 4.1m for India, 2.1m for China and 1.74m more for Canada.

Global consumption of wheat is expected to fall back too next season, by about 8m tonnes, as various countries use more maize (assuming the big maize crop does come through as planned). However, world wheat stocks will decline by about 9m tonnes to 188m.

Taking these preliminary figures at face value, there is nothing overtly bullish for prices. Exporters like the USA, Australia, Canada, India – even Russia – would still have relatively big crops. Some exporters – chiefly the US, Australia, India and the former Soviets also carry in comfortable or in some cases (India and the US) larger than normal stocks.

These early pointers to ongoing adequacy of supply combined with weakening maize prices (maize strength has been the main support for wheat this season) and negative events in the world economy to drive down wheat prices to their lowest levels of the year during May. However, as we go to press that trend is at risk

Grain&feed millinG technoloGy36 | may - June 2012

Uncoated Fine Paper Corrugated Bags & CoatingsEurope & International

Reap the Benefi ts!Customised industrial bags for quick fi lling and reliable protection of your fi lling goods.

www.mondigroup.com

SOLUTIONS.FOR YOUR SUCCESS.

AutomotiveIndustry

ChemicalIndustry

Farming &Agriculture

Industry

Food IndustryBuilding &Construction

Industry

Industrial Paper & Packaging

Industry

Office &Printing Paper

Industry

Pet Food Industry

Photographic & Graphic Industry

Toiletries &HygieneIndustry

OthersCreative Industry

Medical &Pharmaceutical

Industry

HouseholdIndustry

Hygienic

closure techniques

Window for presenting

the fi lling good attractively

and simple dosage

Compact

dimensionsSuitable for

food contactCompostable

bags with

biodegradable fi lm

Reliable

protection through

sealable valves

1

3

2

54

6

IB_Muehle_Mischfutter_297x210_+3mm_E.indd 1 21.04.11 18:07GFMT12.03.indd 36 22/06/2012 08:50

Uncoated Fine Paper Corrugated Bags & CoatingsEurope & International

Reap the Benefi ts!Customised industrial bags for quick fi lling and reliable protection of your fi lling goods.

www.mondigroup.com

SOLUTIONS.FOR YOUR SUCCESS.

AutomotiveIndustry

ChemicalIndustry

Farming &Agriculture

Industry

Food IndustryBuilding &Construction

Industry

Industrial Paper & Packaging

Industry

Office &Printing Paper

Industry

Pet Food Industry

Photographic & Graphic Industry

Toiletries &HygieneIndustry

OthersCreative Industry

Medical &Pharmaceutical

Industry

HouseholdIndustry

Hygienic

closure techniques

Window for presenting

the fi lling good attractively

and simple dosage

Compact

dimensionsSuitable for

food contactCompostable

bags with

biodegradable fi lm

Reliable

protection through

sealable valves

1

3

2

54

6

IB_Muehle_Mischfutter_297x210_+3mm_E.indd 1 21.04.11 18:07GFMT12.03.indd 37 22/06/2012 08:50

this has helped restrain soya prices on the world market, it is not good news for consumers who want to see buoyant demand for meat products and feedstuffs. Another factor is the chronically weak euro, robbing consumers of any benefit when dollar prices for soya products dip.

Tightening Latin American soya supply puts increasing onus on the US to produce a decent crop this summer. Current estimates suggests it has sown more than the USDA predicted in March and early planting raises the prospect of good yields. However, the US crop will only fiull a small part of the gap left by disappointing South American crops. This will show in the market price later in the season when Lat-Am crops start to run out and import demand focuses more heavily on the US crop around third or fourth quarter 2012. Soon after that, markets will also be closely watching what the South Americans will sow in the autumn. A good soya price will be needed to encourage maximum acreage and much better weather than the past

year’s to top up supplies in the spring of 2013. In the meantime, hopes of supplementing supplies rest on the East Europeans and the former Soviet countries pulling off better sunflowerseed crops and Canada producing a possible record rapeseed crop. However, even if these come to pass, world oilseed output is likely to fall well short of demand into 2013, drawing down stocks and keeping a fairly firm undertone under costs of protein meals.

KEY FACTORS IN THE MONTHS AHEAD • How much land will the US plant to soyabeans

this spring – 75m, 76m acres or more? Consumers will have no trouble disposing of a bigger crop.

• As they continue to shrink, how small will South America’s soyabean crops end up?

• Chinese consumption and timing of imports will drive global protein demand

• EU/CIS sunflowerseed plantings – to what extent might these start to compensate for disappointing rapeseed crops and global soya shortfalls in the meal sector?

season. With slightly higher rye crops and oats output more or less unchanged, global coarse grain supplies will be able to increase their share of world cereal feed consumption to about 84%, cutting wheat use in this sector by about 14m tonnes.

KEY FACTORS IN THE MONTHS AHEAD• Just how big will the US maize crop be this

year – big enough to double carryover stocks and maybe cut another 25% off international maize prices?

• Final size of Latin American crops• How much corn will West Europe & the

former Soviet countries sow on failed winter wheat lands?

• Possibly bigger than expected Chinese maize/feedgrain import requirements – currently seen anywhere between six and 20 million tonnes – enough to change the direction of US/European and international prices.

• Will global economic recession curb meat/consumption in some developing countries, cut cap feed grain demand and help hold down grain and oilseed costs?

• We continue to hear reports that speculators are taking money out of commodities – less fervent investment by this sector has contributed to lower grain and feed raw material costs in recent months.

OilmealsWorld oilseed crop estimates have shrunk

by another 8m tonnes since our last review to around 237m – a big drop from the previous season’s 265m tonnes. Most of the latest decline is in soyabean production in South America where

drought and heatwave damage earlier in the year turned out much worse than expected. Overall, soyabean output is expected to drop by the equivalent of about 22m tonnes of soya meal although the effect will be mitigated considerably by crushers drawing down relatively large carryover stocks from the previous crop. Despite this tightening of supplies, US soya meal prices have not risen much on domestic markets and soyabeans, after a brief rally to about $15/bushel in late April, have actually dropped to around $13.50 recently. This is a largely technical move, caused by speculators having overbought the futures markets and leaving themselves exposed

to ‘profit-taking’ corrections. It also reflects the highly negative sentiment on global financial markets in the wake of the Euro-zone crisis which many pundits think will spill over into the global economy, causing weak demand for commodities linked to meat production. While

little in previous years. Some sources put its feed grain deficit as high as 20m tonnes but that is probably far too high, given China’s ability to use quite a lot of its own lower grade wheat crops in animal feeds. (It has already used about 10m tonnes more wheat this season, avoiding the need to import the 10m tonnes of maize some US observers predicted a few months ago). Still, China’s regular purchasing forays on world markets will probably offer some support to US and world maize prices going forward.

Outside of China, the US and the big South American producing countries, demand for maize is expected to bounce back in a number of moderate/smaller importing countries in response to larger supplies and cheaper prices (perhaps not as low as the $3-4/bushel consumers got used to for most of the last ten years but still a lot cheaper than in the past season). The exception may be Mexico, a big US customer, which expects a better domestic crop.

Overall, the USDA expects this scenario to drive down the US seasonal average maize price to $4.20/$5 per bushel (with a mean of $4.60) compared with the past season’s $5.95/6.25 ($6.10). The futures markets meanwhile point to a drop from the current $6.35 to about $5.50 in a year’s time. One or two of our US trade sources are far bolder in predicting cheap maize prices back in the $4/bu area if these big supply forecasts come to pass. That would not be impossible but it would require wheat prices to backtrack too and both of these major grains would need a very favourable summer.

World barley production is also seen edging ahead in 2012/13, to 135.4m from the past season’s 133.7m. The increase is mainly in Europe and would have been significantly higher if not for the severe winterkill suffered across the EU earlier in the year and the subsequent stress from droughts. As the earlier harvested crop, barley

has had less time than wheat to recover amid the recent welcome return to wet weather but will probably have been stabilised at least.

World barley consumption is seen rising slightly, putting it just ahead of production and resulting in stocks staying fairly tight through the coming

Table 1: First 2012/13 balance = USDA

Main producers (000 tonnes)

2010/11 2011/12 2012/13

China 115.2 117.9 120

EU 135.7 137.4 132

FSU 81.1 114.4 97.8

Australia 27.9 29.5 26.0

Canada 23.2 25.3 27

Argentina 16.1 14.5 12

WORLD TOTAL 651.1 694.6 677.6

World end stocks 196.7 197.0 188.1

Grain&feed millinG technoloGy38 | may - June 2012

GFMT12.03.indd 38 22/06/2012 08:50 GFMT12.03.indd 2 22/06/2012 08:48

this has helped restrain soya prices on the world market, it is not good news for consumers who want to see buoyant demand for meat products and feedstuffs. Another factor is the chronically weak euro, robbing consumers of any benefit when dollar prices for soya products dip.

Tightening Latin American soya supply puts increasing onus on the US to produce a decent crop this summer. Current estimates suggests it has sown more than the USDA predicted in March and early planting raises the prospect of good yields. However, the US crop will only fiull a small part of the gap left by disappointing South American crops. This will show in the market price later in the season when Lat-Am crops start to run out and import demand focuses more heavily on the US crop around third or fourth quarter 2012. Soon after that, markets will also be closely watching what the South Americans will sow in the autumn. A good soya price will be needed to encourage maximum acreage and much better weather than the past

year’s to top up supplies in the spring of 2013. In the meantime, hopes of supplementing supplies rest on the East Europeans and the former Soviet countries pulling off better sunflowerseed crops and Canada producing a possible record rapeseed crop. However, even if these come to pass, world oilseed output is likely to fall well short of demand into 2013, drawing down stocks and keeping a fairly firm undertone under costs of protein meals.

KEY FACTORS IN THE MONTHS AHEAD • How much land will the US plant to soyabeans

this spring – 75m, 76m acres or more? Consumers will have no trouble disposing of a bigger crop.

• As they continue to shrink, how small will South America’s soyabean crops end up?

• Chinese consumption and timing of imports will drive global protein demand

• EU/CIS sunflowerseed plantings – to what extent might these start to compensate for disappointing rapeseed crops and global soya shortfalls in the meal sector?

season. With slightly higher rye crops and oats output more or less unchanged, global coarse grain supplies will be able to increase their share of world cereal feed consumption to about 84%, cutting wheat use in this sector by about 14m tonnes.

KEY FACTORS IN THE MONTHS AHEAD• Just how big will the US maize crop be this

year – big enough to double carryover stocks and maybe cut another 25% off international maize prices?

• Final size of Latin American crops• How much corn will West Europe & the

former Soviet countries sow on failed winter wheat lands?

• Possibly bigger than expected Chinese maize/feedgrain import requirements – currently seen anywhere between six and 20 million tonnes – enough to change the direction of US/European and international prices.

• Will global economic recession curb meat/consumption in some developing countries, cut cap feed grain demand and help hold down grain and oilseed costs?

• We continue to hear reports that speculators are taking money out of commodities – less fervent investment by this sector has contributed to lower grain and feed raw material costs in recent months.

OilmealsWorld oilseed crop estimates have shrunk

by another 8m tonnes since our last review to around 237m – a big drop from the previous season’s 265m tonnes. Most of the latest decline is in soyabean production in South America where

drought and heatwave damage earlier in the year turned out much worse than expected. Overall, soyabean output is expected to drop by the equivalent of about 22m tonnes of soya meal although the effect will be mitigated considerably by crushers drawing down relatively large carryover stocks from the previous crop. Despite this tightening of supplies, US soya meal prices have not risen much on domestic markets and soyabeans, after a brief rally to about $15/bushel in late April, have actually dropped to around $13.50 recently. This is a largely technical move, caused by speculators having overbought the futures markets and leaving themselves exposed

to ‘profit-taking’ corrections. It also reflects the highly negative sentiment on global financial markets in the wake of the Euro-zone crisis which many pundits think will spill over into the global economy, causing weak demand for commodities linked to meat production. While

little in previous years. Some sources put its feed grain deficit as high as 20m tonnes but that is probably far too high, given China’s ability to use quite a lot of its own lower grade wheat crops in animal feeds. (It has already used about 10m tonnes more wheat this season, avoiding the need to import the 10m tonnes of maize some US observers predicted a few months ago). Still, China’s regular purchasing forays on world markets will probably offer some support to US and world maize prices going forward.

Outside of China, the US and the big South American producing countries, demand for maize is expected to bounce back in a number of moderate/smaller importing countries in response to larger supplies and cheaper prices (perhaps not as low as the $3-4/bushel consumers got used to for most of the last ten years but still a lot cheaper than in the past season). The exception may be Mexico, a big US customer, which expects a better domestic crop.

Overall, the USDA expects this scenario to drive down the US seasonal average maize price to $4.20/$5 per bushel (with a mean of $4.60) compared with the past season’s $5.95/6.25 ($6.10). The futures markets meanwhile point to a drop from the current $6.35 to about $5.50 in a year’s time. One or two of our US trade sources are far bolder in predicting cheap maize prices back in the $4/bu area if these big supply forecasts come to pass. That would not be impossible but it would require wheat prices to backtrack too and both of these major grains would need a very favourable summer.

World barley production is also seen edging ahead in 2012/13, to 135.4m from the past season’s 133.7m. The increase is mainly in Europe and would have been significantly higher if not for the severe winterkill suffered across the EU earlier in the year and the subsequent stress from droughts. As the earlier harvested crop, barley

has had less time than wheat to recover amid the recent welcome return to wet weather but will probably have been stabilised at least.

World barley consumption is seen rising slightly, putting it just ahead of production and resulting in stocks staying fairly tight through the coming

Table 1: First 2012/13 balance = USDA

Main producers (000 tonnes)

2010/11 2011/12 2012/13

China 115.2 117.9 120

EU 135.7 137.4 132

FSU 81.1 114.4 97.8

Australia 27.9 29.5 26.0

Canada 23.2 25.3 27

Argentina 16.1 14.5 12

WORLD TOTAL 651.1 694.6 677.6

World end stocks 196.7 197.0 188.1

Grain&feed millinG technoloGy38 | may - June 2012

GFMT12.03.indd 38 22/06/2012 08:50 GFMT12.03.indd 2 22/06/2012 08:48

www.gfmt.co.uk

LINKS• Seethefullissue• VisittheGFMTwebsite

• ContacttheGFMTTeam

• SubscribetoGFMT

A subscription magazine for the global flour & feed milling industries - first published in 1891

In this issue:

• NIR in practice

• Rice and contract terms

• New weighing software for UK co-operative

May - June 2012

• LC-MS/MS:The New Reference Method for Mycotoxin Analysis

• Fast, reliable and flexible:

the world of modern bulk weighing

• Mould controlin grain and feed preservation

GFMT12.03.indd 1 22/06/2012 08:48

ThisdigitalRe-printispartoftheMay|June2012editionofGrain&FeedMillingTechnologymagazine.Contentfromthemagazineisavailabletoviewfree-of-charge,bothasafullonlinemagazineonourwebsite,andasanarchiveofindividualfeaturesonthedocstocwebsite.Pleaseclickheretoviewourotherpublicationsonwww.docstoc.com.

Topurchaseapapercopyofthemagazine,ortosubscribetothepaperedi-tionpleasecontactourCirculationandSubscriptionsManageronthelinkadove.

INFORMATIONFORADVERTISERS-CLICKHERE

Article reprintsAll 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: [email protected] or visit www.gfmt.co.uk/reprints