Weak outlook for commodities

Feed materials are sharing in the general torpor of the global commodity markets as plentiful supply meets limited demand from consumers.

By The Newsroom
Sunday, 3rd April 2016, 8:19 am
Plentiful global grain supplies are keeping markets in the doldrums.
Plentiful global grain supplies are keeping markets in the doldrums.

The bumper crops of the last couple of years are weighing on the market for cereal grains – prices are on the floor and while it’s too soon to make any forecast on the 2016 harvest a substantial stock carry over is inevitable. With spot prices so low, the London futures November wheat price looks attractive and new crop grain is set at a considerable premium to the spot market – this may tempt sellers to hold their grain.

At this stage with strong plantings in the ground and no serious weather events anywhere in the world it’s hard to see that grain will be scarce in the foreseeable future and as buyers are reluctant to cover forward, it is very much a hand to mouth market.

The weakening of sterling driven by the uncertainty around the outcome of the Brexit vote is preventing UK buyers reaping the full benefit of these cheap grains.

Currency is also a major factor in the maize market with the big exporters such as Russia and Ukraine selling in a weak currency and marketing very competitively against the other origins. The removal of export taxes on corn by the new regime in Argentina is giving an advantage to growers in this region and they are currently the cheapest sellers on the world market. For local feed compounders maize continues to compete very successfully against wheat in ration formulations and is likely to be the first choice cereal for many diets for the foreseeable future.

On the protein side the soya harvest is underway in South America with Brazil about 2/3rd through its expected 100 million ton crop while Argentina is just getting underway with a 60 million ton harvest expected and a record line-up of vessels awaiting its arrival at the ports.

These big crops will continue to pressurise the global markets and the US will be keen to recover some of the export tonnage lost to the South Americans. The gradual slide in soya prices which started with the big US harvest last year has taken nearly $100/ton of meal prices over the winter months and offers the best hope for any further feed price reductions for local farmers.

Other commodities are reflecting global demand as market opportunities arise. Soya Hulls have enjoyed a surge in price as drought in South Africa has created a substantial demand for high fibre feeds in that region. With Argentina the only source of this material they have made good use of a new customer prepared to pay considerably more than the Europeans. In contrast the Palm Kernel market has weakened as the New Zealand drought has eased and the dairy industry there has suffered heavily from the collapse in global milk prices.

One commodity which has maintained a relatively strong price is fertiliser with the reductions so far failing to reflect the major fall in energy costs. Local blenders and distributors have shared farmers’ frustrations as the major manufacturing companies have enjoyed a firm global demand for their product and the protection of the EU tariffs on imported material. The local merchant trade have the difficult and thankless job of distributing and financing the supply of this essential input to local farms.