A PARADOX presents itself since our last review. Global grain and feed supplies have, as we feared then, have continued to tighten with smaller than expected 2012 crops. Yet prices have actually dropped well off their peaks – from all-time record highs in the case of maize and soyabeans.

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2. GLOBAL
GRAIN & FEED MARKETS
Every issue GFMT’s market analyst John Buckley reviews
world trading conditions which are impacting the full range of
commodities used in food and feed production. His observations
will influence your decision-making.
Canada was Relative calm as supplies tighten
expecting a bigger
A
PARADOX presents itself since our to press after losing as much as 10.7% of its late
rapeseed crop last review. Global grain and feed July peak ($9.45/bu or about $347/tonne) at
supplies have, as we feared then, have one stage. Maize has shed almost 11% of its all-
of 15.4m tonnes continued to tighten with smaller time record price ($8.34/bu = $329/t) while
than expected 2012 crops. Yet prices have soyabeans – supposedly tightest off all now - are
versus last year’s actually dropped well off their peaks – from down by more than 10% from their own record
all-time record highs in the case of maize and peak (just under $17.95/bu = $659.50/t). So
14.5m. Latest soyabeans. what is going on?
The global wheat output estimate has shrunk There are several reasons why neither
official figures by at least another 6m to 7m tonnes, largely due commercials nor speculators are prepared to
to the further cuts we (and most of the trade) get as carried away with the crop figures or
suggest heatwaves, expected in the drought-plagued former Soviet the accompanying revival in talk of world food
Union, especially Russia (down 4m alone in the and feed shortages as they were during the last
disease and gales past month). The world wheat crop total (around widespread global crop failure year of 2008/09.
658m tonnes versus last year’s 695m) may yet Firstly, demand for grain is falling in response to
have cut that back go lower still as Australia’s crop runs into dry high prices in this time of global economic malaise.
weather problems (another 4m to 6m lower?). This is no small development - the first drop in
to just 13.4m. World maize production estimates have fallen global offtake since the mid-nineties. While there
by another 8m tonnes since August and now were a few tight/expensive seasons in the eighties
Although Europe’s aggregate a 64m tonne fall since July, mainly due and early nineties when global cereal demand was
to dismal yields in the USA but also reflecting either steady or fell slightly, the overall history of
crop now seems under-estimated drought and heat impacts in grain consumption in the past 30 or 40 years has
Central & Eastern Europe – (both in the EU and been one of almost relentless growth, fuelled by
slightly bigger than the former Soviet ‘CIS’
countries).
last year’s, the Wo r l d o i l s e e d
output estimates have
global rapeseed also been cut sharply
and are now at least
supply is well under 11m tonnes below
nitial forecasts, thanks
expectations. to a drought-afflicted
US soyabean crop,
3m tonnes taken off
South/east European
sunflowerseed output
(again in both the EU
and the CIS) and a
sur pr ise cut of 2m
tonnes in Canada’s
rapeseed crop estimate.
Despite all that, on
the benchmar k US
futures markets, wheat
is down 5.7% as we go
32 | September - october 2012 Grain &feed millinG technoloGy

3. COMMODITIES
all the well-known these is expected to go
factors - growing up by a mere 2.3mtonnes
populations, in 2012/13.
rising developing De ma nd , t he n , is
country incomes, adjusting to this series
new outlets in of unusually severe crop
bio-fuels etc etc). shortfalls and high prices,
This 22m tonne albeit still not fast enough
drop in 2012/13 grain consumption (so far, it slightly more coarse grain use). The rest of to cope with an estimated 75m tonne drop
may end up more!) reflects a 13.7m tonne the cutback will come mainly off industrial in cereal output and a shortfall of almost
fall for wheat and 8.5m tonnes for coarse outlets (notably, 12.7m less corn going into 20m tonnes in global oilseed production. The
grains (the latter entirely due to less use of US bio-ethanol). bottom line that will supposedly determine
maize). Breaking that down further, almost Consumption of oilseed meals is doing only forward grain and feed costs is the impact
half of the total cut in grains use will be slightly better. Previously growing steadfastly on stocks. To meet even these levels of
for animal feeds (12.7m less wheat versus at 10/12m tonnes a year, global demand for consumption, global carryover stocks of
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5. grain will be reduced by almost 42m tonnes could suffer lost demand during a sustained the mid-eighties to the nineties).
– about 11% - to a five year low, oilseed stocks economic slowdown, especially if the prices of If yields returned to the 2011/12 high of 3.5
by 20/22m tonnes or 27% (though oilseed raw materials are driven up by fund investment. tonnes/ha, even stable acreage would increase
inventories are at least declining from the Those fears are persistently diverting managed world grain output by almost 100m tonnes.
previous year’s record high). money back into dollars, driving commodity Even an average 3.4tph would add 45m tonnes.
That markets are not getting too excited prices down and making even these ‘masters In theory, global cereal acreage could go much
about these bullish ‘fundamentals’ – especially of the universe’ far more cautious than during higher – it was regularly in the 540’s (mn acres)
the unusually tight stock/use ratios - is an issue the last commodity boom. in the 1990’s and exceeded 570m in the mid-
giving much food for thought to commodity Another factor restraining ‘outside’ investors eighties. True, other crops, especially oilseeds,
market analysts. and speculators in general is the relatively other land uses and conservation programmes
On the one hand it is argued that funds weaker distant futures price of the two tightest have taken a big bite out of that potential
are already heavily invested in maize and commodities – maize and soyabeans. Both cereal base since then. However, it does not
soyabeans and aware that market volatility markets are effectively displaying the futures seem beyond the bounds of possibility that
and risk of losses increases at peak, especially trade’s faith that next year’s crops will revive acreage could climb toward, say, the past
record-high, levels – but that alone would and redress the balance. decade’s higher end (just under 537m acres).
A combination of higher acreage and a return
to more normal weather – which may be
too much to ask) could clearly turn the past
year’s bull market on its head.
That said, low stocks of maize and
soyabeans need replenishing and until that
happens, markets will remain highly sensitive
to weather risks. So much depends, in the
next few months, on South America getting
normal planting and growing weather for
its maize and soyabean crops, Russia and
Ukraine avoiding ‘winterkill’, the US Plains
coming out of long term drought, Australia
getting enough rain to prevent further crop
losses from lack of rain but a drier harvest
than during the last two years to improve
milling quality. After two unusually hard
not stop them betting on rising prices if these Crop recovery in 2013 is not only about winters, West Europe needs a milder one,
seemed a ‘dead cert. ’ record high grain and oilseed prices ‘buying’ a wetter spring/warmer summer, Southeast
The bulls’ reticence might be better adequate additional acreage. It is even more Europe more rain in this year’s drought-
explained by two or three other factors. One about the weather returning to normal. This affected regions, Northwest Europe more
co-operative harvest weather, India a better
Monsoon. Until some of these potential crop
revivals are up and running, let alone ‘in the
silo,’ the threat of more price volatility to the
upside, and speculators exaggerating price
rises, cannot be ruled out. Yet if all does go
well with the weather we could well be seeing
cheaper feed ingredient prices next summer,
just as the raw material futures markets
suggest.
Main commodity highlights
since our last review
Wheat trading up on Russian
withdrawal, Australian crop
is the still febrile mood on global financial year’s planted area to cereals, for example, threat
markets in the wake of the 2008/09 banking actually rose 0.3% to a relatively high 534.4m
meltdown underlined by the seemingly endless acres but that small increase was wiped out Wheat markets went through two stages
crises in the Euro-zone, China’s economy, by a 5.7% drop in the global average yield in the last two months. Initially prices headed
supposedly the engine of Asian and global amid this year’s climate disturbances (although ‘south’ under the leadership of the Chicago
growth, slowing faster than for some years, it might also be noted that this year’s world futures market, losing over 10% of their July
the USA’s naggingly slow emergence from average yield of 3.3 tonne/ha was hardly small peak at one point. Prices came under pressure
recession – in shor t a general mood of by historical standards either. It was actually from a similar decline in maize values – which
pessimism. The fear persists that commodities, the third highest ever and 30-40% more than had propped up wheat for the past year
once seen as the safe haven for hot money, markets were used to in, say, the period from through the two cereals’ feed connection –
34 | September - october 2012 Grain &feed millinG technoloGy

7. COMMODITIES
and from ideas that the US was out-pricing versus last year’s 25.6m while the Continental to replace shortfalls in maize supplies?
itself on world export markets. The US – and West European crops appear to have fared • Where will the Australian crop settle
European markets – also came under selling better than expected on quality after all the volume – and quality - wise?
pressure from Russia’s unexpectedly strong rainy harvest problems in July and August.
export sales performance in the early months
of the new season. Despite that country’s
Germany in particular is a big relief as the
EU’s top producer of the higher quality hard
Maize hopes pinned on 2013
crop eroding by another 4m to 5m tonens to wheats. The notable exception is the UK, crop revival too
just 38/39m tonnes (versus last year’s 56.2m) where poor harvest weather has reduced
and exports tipped to drop from 21.6m to quality significantly, pushed prices higher than Maize pr ices have come dow n in
just 8m or 9m tonnes, Russia was making all they should be versus Continental European recent weeks as the long slide in US crop
the running in export tenders, discounting wheat and will likely continue to require more estimates appears to be bottoming out, not
Europe, Canada, Australia and the USA by imports to make some of this grain useable far off our previous review’s idea of around
$30, $40 even $50 per tonne and more. Why, (in both milling and feed sectors). 270m tonnes. Some US pundits had put
one might wonder, would Russia be so eager EU wheat consumption in total is seen falling it as low as 250m (a few even lower) in
to get rid of its 2012/13 exportable surplus by about 2m tonnes to 124.5m, entirely in the September but harvest yields have often
so quickly in a year when its own tightening feed sector. The drop will not be made up been better than expected. There has
stocks are driving up its internal prices and by other grains with the EU total for cereals also been talk of planted/harvest acreage
food price inflation? In the first place, the early into feeds expected to decline by almost 6m being under-rated - which could mean the
sales probably pre-dated the lowest Russian tonnes.. crop is actually closer to 275/280m but
crop estimates – so it probably thought it An expanded EU export programme of that may be wishful thinking on the par t
had more to sell. There was probably also 17.5m tonnes (16.5m last year) will leave of the bears. Several other factors have
an element of cashing in on the high wheat stocks unusually low at just 9.4m in July influenced recent cheaper prices. One is
prices while they lasted (US and EU wheat (13.5m last year, as much as 19m in 2009). a dramatic slowdown in US expor t trade
futures have stopped pointing ‘north’ and In that exposed position and encouraged by as impor ters have either cut coarse grain
are now starting to offer distant 2013 crop prices as much as 30-40% higher than at this use, turned to other cheaper suppliers,
discounts). Also, Russia was probably eager to time last year, it is hard not to see farmers like Brazil, Argentina and the Ukraine, or
get its image back, to reassure its customers across Europe sowing more wheat for the bought more feedwheat. Australia’s two
that it was still a major exporter – and a 2013 harvest. The same will apply to many weather damaged milling wheat crops,
reliable one. Ukraine and Kazakhstan were other producers. US winter wheat area could leaving a large stockpile of lower quality
also selling more freely than expected, given rise by about 3% this autumn, according to wheat, have been a key source for Pacific
their own disappointing 2012 wheat crops, some of GFMT’s sources but planting has Rim compounders. So, to a lesser extent,
similarly undercutting the more traditional been slow amid dry weather in the Western has India’s record, relatively low quality
wheat exporters. There was also talk of Russia Plains. Hopefully that will not prevent the wheat crop (and its inadequate storage
taking in a lot of Kazak wheat to offset its hoped-for bigger crop. capacity – an imperative to expor t rather
heavy export programme. Although wheat is better stocked than maize than watch huge stocks spoil.
Although the last two months have seen and soyabeans, the inventory is tighter than Another factor holding back US maize
some very active import trade, especially usual and in relation to consumption needs prices has been a slowing down in the US
from Egypt and other Mid-eastern countries which, as we warned in our last review, do corn ethanol sector as high corn costs
(stocking up amid the renewed political seem to have been under-rated as it replaces cut deep into ref iners’ prof its. US feed
turmoil in the region), the net appearance, US and European maize crop losses in the feed demand for corn is also down this season,
until recently, was of a fairly competitive sector. That means markets over the next all helping to take some of the pressure
export market. That began to change in recent few months will be closely tracking northern off unusually low ending stocks. However,
weeks as Russia finally started to look like hemisphere planting estimates, winter and on the more bullish side, the USDA did
running out of exportable supplies – at least spring weather. With the withdrawal of cheap chop about 5m tonnes off its estimate of
within affordable reach of export ports. As ‘Black Sea’ or CIS wheat offers, EU and world 2011/12 end-season stocks (at September
its prices have risen with each new tender, its wheat prices could remain well supported 1), suggesting feed use was not down quite
withdrawal from the market after Oct/Nov near or above current, still relatively expensive as much as expected and giving corn prices
has been more or less taken for granted by levels and, even if the next crop does start to a bit of a lift as we went to press.
the trade, leaving the field open for other shape up a large one, wheat will not be able Outside the US, the main adjustment
suppliers to squeeze out a better deal from to divorce itself too far from what happens on the supply side has been a 4.4m tonne
their customers. That enabled US wheat in the maize market. cut in this year’s EU maize crop estimate,
futures to cut their losses, helping to stabilise now seen around 57m tonnes compared
and slightly firm up the EU market, especially
new crop months. Europe is seen as a prime
KEY FACTORS IN THE MONTHS with last year’s 65.4m. Some of this will
be replaced by a better barley crop but,
contender to fill much of the Russian/CIS AHEAD as in the EU wheat market, this loss will be
vacuum but there will be competition from met by lower overall demand for cereals
others too – the US, Canada, South America. • Winter weather for the ‘Black Sea’ (CIS), in feeds.
Russia’s smaller crop has taken USDA’s European and North American crops Also wor th mentioning is the forecast
estimate of the 2012/13 world wheat crop • Estimates of sown areas for Northern from respec ted analys t Infor ma of a
down to around 659m tonnes. It assumes Hemisphere winter wheat possible increase in next year’s US maize
26m tonnes of Australian wheat, a figure some • Will the Arab countries continue their crop acreage from this year’s 96.4m to
think could slide to 20/22m after lack of rain buying spree, stocking up in politically 97.5m ha. With a more normal trend yield
in the country’s southeast. On the plus side, unstable times? . of around 162 bu/acre that would produce
Canada’s crop has edged up to around 28m • Will wheat consumption in feeds rise further a record crop of almost 372m tonnes
Grain &feed millinG technoloGy September - october 2012 | 35

8. this year, down
about 4.3m
tonnes from last
year’s ver y high
level, fur ther
reducing the
ove r a ll su p pl y
base for oilmeals.
H ow e v e r, s u n
and rapemeal, as
the by-products
of cr ush for
oil, will still
h ave to p r i ce
competitively
with higher
value soya and if
which could send corn prices tumbling demand and anchor grain and oilseed supplies of the market leader do improve,
(by next autumn !) costs? that should help keep meal costs overall
A f inal fac tor to note is the relatively • Speculators’ perceptions of whether the under control.
high level of af latoxin being repor ted bull market is over or has another leg to As well as a forecas t larger South
in t his year ’s U S cor n pr oduc tion , a climb American crop (from second quarter 2013)
f r e q u e n t i s s u e w i t h d r o u g h t / h e a t- the US is expected to sow more soyabeans
a f f e c t e d c r o p s . T h a t d o e s n’ t o n l y Oilmeals – soya less tight than nex t spring (Informa sees the autumn-
af fec t the feed sec tor through direc t 2013-harvested crop possibly recovering
maize use. It can also have implications
thought? to around 94m tonnes from this year’s
for ethanol producer s who sell their Soya traders are rapidly re-calculating 72/74m). However, that all depends on
by - p r o d u c t , d r i e d d i s t i l l e r s’ g r a i n s their supply/demand sums as we go to the weather cooperating.
( DDG ) into the feed sec tor for par t pr ess following a sur pr ising upward
of their prof it and whose produc tion
processes, some sources sugges t, may
revision to last year’s US crop of just
over 1m tonnes. A spate of encouraging
KEY FACTORS IN THE
ac tually concentr ate the mould in the early har vest yield repor ts meanwhile MONTHS AHEAD
end-produc t. US DDG’s are a big sell suggests the 2012 crop may have been
into Asian mar kets including China so even more severely under-rated. This • At what price will soyabean demand be
this is a possible issue to watch. could mean that total US soya supplies rationed? It didn’t happening at almost $17/
are anywhere between three million and bu and prices are now well below that level
KEY FACTORS IN THE six million tonnes higher than assumed –
the equivalent of finding an extra 2.5m to
• Chinese consumption and timing of imports
will continue a key influence on soya and
MONTHS AHEAD 5m tonnes of soya meal. Along with rising other oilmeal costs
estimates for the next Brazilian soyabean • How will next year’s EU/CIS rapeseed and
• Has the US 2012 maize crop been under- crop – and hopes that Argentina will also sunflowerseed crops fare? Some help from
rated and what are farmers likely to sow sow and produce a much larger harvest in alternative oilseeds/meals may be needed
next year? This factor will probably continue 2013, this puts a much more bearish slant to ease the burden on soya suppliers.
to over-ride most others, influence grain on the soya market – indeed the entire • How much will Latin American producers
costs right through to the 2013 coarse grain oilmeal complex – than consumers could expand soya planting this autumn? The
harvest in 3rd quarter 2013, maybe delaying have hoped a few weeks earlier. markets want to see these mooted ‘record
price reversals Soyabean prices have already plummeted large’ 2013 crops up and running and it will
• Competition from Latin America, former by about 14% from their all-time record be a long, nail-biting wait until harvests
Soviet countr ies and India has cut highs in the US, dragging US meal down actually arrive on the markets in Q2 2013.
demand for US maize, so has availability with them. The effect has been slower to
of Australian feedwheat pass on to Europe, however, as Brazilian
• Will the US government respond to calls and Argentine old crop soyabean and meal
to trim the renewable fuel mandate/corn supplies have begun to run out after last
ethanol use – probably not yet if corn year’s shor tfall in the South American
prices really are stabilizing, capable of crops.
falling fur ther without that help – watch Canada was expecting a bigger rapeseed
those pipeline stocks for clues. crop of 15.4m tonnes versus last year’s
• Will China need more or less maize 14. 5m. Lates t of f icial f igures sug ges t ADVERTISE
impor ts nex t year and will non-US heatwaves, disease and gales have cut
suppliers like South America and Ukraine that back to just 13.4m. Although Europe’s For information about great
benefit more from this demand? crop now seems slightly bigger than last promotional opportunities with
• Will global economic recession continue year’s, the global rapeseed supply is well GFMT please visit:
to cu r b t h e e x pa ns io n i n m e a t / under expectations. Global sunflowerseed www.gfmt.co.uk
consumption, help to cap feed grain crops have also been a disappointment
36 | September - october 2012 Grain &feed millinG technoloGy

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