HUGE, record crops of wheat, maize and soyabean are on their way according to the keenly awaited first view of the new 2013/14 season from the US Department of Agriculture.
3. GLOBALGRAIN & 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.
So why have
prices – which
are still relatively
high compared
with their past ten
or twenty year
averages – stayed
more or less ‘range-
bound’ rather than
collapsed since
these ample supply
outlooks were
touted in mid-May?
H
UGE, record crops of wheat, maize
and soyabean are on their way
according to the keenly awaited first
view of the new 2013/14 season from
the US Department of Agriculture.
USDA’s big supply numbers have surprised many
in the trade, implying more than enough of all
the major grain and feed raw materials to meet
considerable growth in world demand during the
year ahead.
Moreover, if USDA is right, the low coarse grain
and oilseed stocks that have characterized the
world market for the past season can be rebuilt
to more comfortable levels while already adequate
wheat stocks will also get a useful top-up.
So why have prices – which are still relatively
high compared with their past ten or twenty year
averages – stayed more or less ‘range-bound’ rather
than collapsed since these ample supply outlooks
were touted in mid-May? The answer may be, ‘give
it time – and favourable weather.’
Certainly at this early stage there are various
reasons to be cautious toward these bearish supply
numbers. Wheat output, for example, has been
forecast to rebound from last year’s disappointing
655.6m to 701m tonnes – 21m more than the
International Grains Council’s preliminary forecast
issued in late April and 6m more than the UN
Food & Agriculture Organization predicted two
days before the USDA forecasts.
Of the latter’s
45.5m tonne global
year-on year increase,
a full 30m tonnes is
down to expected
wheat crop recoveries
in the former Soviet
Union, where yields
were devastated in
some regions last year
by prolonged drought
and heatwaves. Yet
Russian and Ukrainian
crops have had
numerous problems
during the winter and
spring from frosts to
lack of rain and it remains quite feasible that their
combined output could be over rated by USDA
by as much as 6m to 8m tonnes.
Some analysts also have their reservations
toward USDA’s EU crop forecast of 138.8m
tonnes (+6.7m on year) amid too much rain in
northwestern member states and some heat and
dryness issues already being reported in some
eastern/southern countries. Australia (seen
+2.5m) has also had some problems with lack
of rain in key states and could yet end up with a
similar or smaller crop that last year’s.The USA
also continues to suffer problems with drought in
its key hard red winter wheat belt, normally the
largest source of wheat for this the world’s largest
exporter - although the USDA’s 56m tonne total
US wheat crop forecast has probably already been
fully factored in by the market in recent months.
On the other hand, Canada and Argentina should
have bigger crops on larger sown areas while India
seems to be heading for at least its second largest
crop ever.
Even if world wheat output only rises by, say,
30m tonnes, the concentration of extra supplies in
exporting countries suggests a more competitive
market ahead in the search for import custom.
Wheat trade may decline slightly in 2013/14 due to
bigger domestic crops in some importing countries
like Turkey and Morocco and ‘swing’ importers of
feedwheat turning back to more abundant maize.
New crop forecasts keep on growing
Grain&feed millinG technoloGy52 | may - June 2013
5. 16.5% of consumption or just over 8½-week’s
supply.
Among the other coarse grains, consumers
are promised a better balanced barley market
if crops increase as expected by 8m to a total
138m tonnes, mainly in Russia (up almost
4m and the EU (plus 1m). Although barley
starting stocks for the new season will be
lower, a limited increase in demand (mainly
within Russia) is expected to allow these to
recover somewhat during 2013/14. Along with
the bigger competing supplies of wheat and
maize this should held keep prices down for
feed barley users.
Sorghum supplies are also seen substantially
higher in 2013/14 – plus about 5m, largely
due to much bigger sowings in the USA.
Although a lot of this will go to its domestic
feed consumption, there will be more available
for export too.
A big jump in world soyabean output in the
coming season is expected to result in much
cheaper prices for oilmeal proteins across
the board. This year has already seen record
crops in South America, where production
has increased by 32m tonnes or almost 29%.
The new season is expected to see more
beans sown in the USA which could also
produce its biggest ever crop. USDA’s first
forecast is 92.3m tonnes – up 10m on the
year, if normal weather allows trend yields.
USDA also expects Brazil and Argentina to
keep increasing output, resulting in world
production increasing by another 16.4m
tonnes. This would put world supply in surplus
for two successive seasons and, on current
estimates, add about 20m tonnes to the stock
carried over from one season to the next –
also a record level.
Currently, USDA is forecasting new season’s
US producer prices of soyabeans will average in
a range of $9.50/10.50 per bushel – the mean
being about 26.5% below the average for the
past season. Soya meal ex-US crushing mill is
seen averaging in a range of $280/320 per
short tonne (2,000 lb), the mean representing
a drop of 29% on the current season. The
Chicago soya meal futures market also sees
prices dropping by about 26% from current
levels by the end of the year.
next year. It
may well be
too pessimistic,
bearing in mind
t h a t U S DA
forecast Brazil’s
2012/13 crop
at 67m and has
now raised that
to 76m (whereas
Brazil’s government and at least one private
estimate suggests 78m tonnes.
Consumption of maize is expected to
increase in 2013/14 by almost 73m tonnes
of which 31.4m will be within the US itself
as the feed and ethanol industries (+23.5m
and 6.4m tonnes usage respectively) respond
to much looser supplies and much cheaper
prices. USDA forecasts a seasonal ex-farm
price range of $4.30/5.10 per bushel compared
with this season’s $6.70/7.15, the median point
down by almost 32% (new crop Chicago maize
futures suggest
prices about
25% cheaper
than current old
crop deliveries).
Following the
pattern of recent
years, the next
biggest increase
in global maize
consumption is
expected within
China where
demand goes up
by 17m tonnes,
mainly in its feed industry to a new record
224m.
Other country increases in maize use are
mainly one million tonnes or less.
European maize consumption is not
expected to rise because of the bigger wheat
crop taking more feed demand. This situation
should also allow Europe to reduce maize
imports from this season’s record 10.5m to
7m tonnes. A bigger
Mexican crop will also
reduce that country’s
import needs by 1m
tonnes but USDA
still expects overall
world maize trade
to increase by about
4m tonnes as China
increases imports
by that amount and
some other maize
importers, largely in Asia, avail themselves of
cheaper export supplies.
The bottom line for maize – if USDA’s crop
estimates hold good – is for substantial surplus,
pushing US seasonal ending stocks back to
a nine-year high of 50.9m tonnes and world
carryover to a 13-year peak of 154.6m – about
One concern, especially for the UK, remains
the adequacy of quality wheat supplies. If this
year’s UK crop drops again as feared after a
tough winter (USDA says 13% down at 11.55m
but some in the trade have been talking 20%
losses) then clearly more imports will be
needed.
How costly that may be depends on
European and other crop weather in coming
weeks and months. If Germany and France get
enough sunshine to generate good proteins,
Hagbergs etc in their wheat and if Canadian
and Australian crops perform as planned, this
need not necessarily add up to soaring bread
prices ahead.
For maize, USDA has taken a fairly
optimistic view of US 2013 crop prospects
which it puts at 359m tonnes, near the top
end of the range within which most trade
forecasts fall (340/360m with a few 370 out-
riders). Some caution is required for this
figure as rains and cold weather have put
sowing weeks behind normal across the US
Corn Belt. That may result in some designated
maize land being sown to soybeans instead
and it may also – if these delays continue into
June – start to have a significant impact in
lower yield potential. No-one wants to take
a 360m tonne or higher crop for granted after
what happened last year when drought cut
over 100m tonnes off USDA’s early 376m
tonnes prediction.
The US forecast accounts for no less
than 78.5% of USDA’s foreseen increase in
global production (+109m to a new record
966m tonnes). The remaining increases are
mainly down to the EU crop recovering by
7.1m tonnes, CIS crops up by a combined
7m tonnes, China’s rising 4m and Serbia’s by
3.5m tonnes. Interestingly, USDA has Brazil’s
crop retreating from this year’s record 76m
to 72m tonnes – the only major decline. This
supposes more Brazilian emphasis on soybeans
Grain&feed millinG technoloGy54 | may - June 2013
6. COMMODITIES
food supply (rice as well as grains and oilseeds)
and stubbornly weak crude oil and metal
prices ensuing from macro-economic issues
including sluggish economic growth in the US,
China and the Euro zone. That all suggests
lower raw material costs on the way, especially
for the feed industry.
KEY FACTORS AHEAD –
WHEAT
• Those big Black Sea crop estimates are
looking more likely by the week, implying a
surge in export competition during the next
few months. It is hard not to see this helping
to bring down wheat prices on world and
EU markets.
US crop. Much of that
extra demand for US
soya came from the
top importer China
although this pressure is
slackening as, like other
buyers, it starts to focus
instead on cheaper new
crop offers.
Soya will get cheaper
as the year rolls on,
demanding prices of
other less-valuable oilmeals like rape and
sunflower meal follow suit.
This glowing picture for forward supply
must of course be hedged with the obvious
caveat. It is only May as this review goes to
press and the weather could yet spoil things
by the time northern hemisphere wheat and
barley is harvested in Jun, July and August and
maize and soybeans from late August onward.
However, at this stage, the ‘outside’
interests that have helped exaggerate price
strength in recent years don’t appear to be
interested in weather risk and seem to be
taking USDA’s vaunted season of plenty at
face value. Hedge funds, pension funds, banks
and other investors are also reported to be
taking a fairly negative view of commodities
in general amid the better outlook for world
World oilseed production is also expected
to get a top up from larger sunflower and
rapeseed crops, adding about 5.5m tonnes
more to total supplies and expanding total
world oilseed carryover stocks to a record
82.6m tonnes. The EU should see a modest
uptick in its rapeseed crop but may be able
to avail itself of more imports from larger
crops in Ukraine, Russia and Australia. The
CIS countries also expect a big hike in their
sunflower seed crops.
Soya markets have actually been stronger
over the past two months for several reasons.
Brazil’s harvest has been delayed by weather
and transport/port infrastructure problems
handling record crops, not only of soybeas
but of maize and sugarcane too. Argentine
suppliers have also been slower to move
their crop than the markets expected due
to high inflation encouraging hoarding and a
poor exchange rate reducing the real income
from exports sold in dollars. Although South
American exports of both beans and meal
have now begun to pick up, the earlier delays
drive a lot of unexpected import demand to
US shores and the resultant strong exports
of both beans and meal resulted in crushers
and shippers competing for a supply that
had already fallen short of expectations
after last year’s somewhat disappointing
Grain&feed millinG technoloGy may - June 2013 | 55
Grain&feed millinG technoloGy may - June 2013 | 39
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7. • Plenty of sunny days are now needed to
bring late European, US, Canadian and
CIS crops on and good harvest weather
to maintain breadmaking quality. There
are some qualms about late sowing of
spring wheat in the USA – one of the
major sources of these high quality
breadwheats. However, Canada, a much
larger supplier, does now seem to be
getting its sowing done under adequate
moisture conditions on a much larger area
and will probably have one of its largest
crops ever. Australia – with its important
‘prime hard’ wheat production – is also
getting some much needed rains to plant
after some nail-biting dry days in recent
weeks.
• India faces storage problems as another near
record crop nears with warehouses already
overflowing. The solution – to drop export
price ambitions rather than watch quality spoil
under open storage – could mean downward
pressure on world wheat export prices –
just as the traditional cheap sellers – the CIS
countries - gear up to sell their large crops
abroad
• World wheat trade might be depressed by
larger than usual crops in Morocco, Turkey,
Egypt and other North African/Middle
eastern countries. Also, Iran now seems
to have completed a massive stockbuilding
programme and may import 5m tonnes less
next season. This is all likely to weigh further
on prices.
• The extent to which wheat use in feeds is
reduced if maize crops recover as planned.
That also depends on price. Wheat cannot
possibly sustain the big price premiums
over maize signaled on the forward CBOT
futures markets and still compete with
maize in feeds – either in the US or in
global markets.
MAIZE
• Will the US manage to plant all its planned
area on time to avoid ceding land to later-
sown soybeans or some yield penalty?
Current pointers suggest it could fall 1m to
1.5m acres short. Yet all the moisture holding
up sowing of the last 25% is a wonderful
start for the young crop, an early pointer to
bumper yields.
• Will US farmers get a ‘normal’ summer? The
first, possibly most important hurdle is mild/
warm rather than hot weather during the
key pollination period. With later sowings,
the ‘reproductive’ phase may be a few weeks
later in many areas, deeper into the period of
summer heat risk.
• Delayed marketing of Latin American maize
crops means these will be competing with
the US into the latter’s new season, starting
September 1 – later than usual.
• CIS countries have a much larger maize crop
on the way and will be cheap sellers. Whatever
crop the US ends up with, there will be less
need for US maize exports than usual.
• India may continue to contribute more to
world export supplies of maize
• If Europe’s own maize crop rebounds as
expected, import requirements will decline
• US corn consumption for ethanol is forecast
higher in 2013/14 but that can be comfortably
accommodated if the forecast US crop comes
through. US maize ethanol use may also be
restrained by larger imports of cheap ethanol
from a record Brazilian sugarcane crop
• China continues manage its constantly
growing feed demand with larger crops of
its own but it is expected to import more
in 2013/14. It has been buying recently and
larger than expected amounts going in this
direction could make US markets frisky as
purchases are anounced
• Speculators’ enthusiasm to buy into any crop
weather problems. This is becoming less of
a factor as the big crop numbers mentioned
above start to look attainable while the
‘managed money' community becomes
increasingly disillusioned with diminishing
returns from commodity investments in
general – from gold to oil. As we go to press
the regular report of US fund investments in
the top 11 commodity futures markets there
shows a 15% drop to its lowest level in six
weeks.
OILMEALS/PROTEINS
• Will the US get its soyabean crop planted
on time and may it pick up some extra
acreage from delayed maize planting? If
it does, soya prices will be under further
downward pressure into the last quarter
of 2013
• Planting and growing weather in the USA. A
later sown crop has plenty of moisture at this
stage. It looks likely to be a big one
• South America’s delayed marketing of record
crops means more competition well into the
USA’s peak, post-harvest marketing period.
That suggests more downward pressure on
soya costs.
• Chinese demand for soya meal is expected
to grow below its long term trend in
2013/14 but its demand for beans could
rocket as its domestic crop continues to
shrink. It remains far and away the largest
destination for US and global soyabean
exports
• Final EU/CIS rapeseed & sunflower seed
and Canadian canola plantings - and their
crop weather. After a delayed start,
Canada’s rapeseed crop could go either
way while Australia’s may decline after
rapid growth in recent years. The EU’s
crop may be slightly bigger. At the end of
the day, though, rapeseed, sunseed and
other oilmeal costs will have to follow
market leader soya’s probable downward
path.
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