High Contrast
September 2011
Comment from the Feed Mill – September 2011 – by Martin Humphrey
It has been a strange time since the last report. Normally, harvest would be finished by now, but it is dragging on due to the cool August weather and intermittent September dampness. The fields yet to be harvested across the country are not looking very good, and certainly if the wheat was planted as milling quality, it has certainly been downgraded to feed quality. Possibly more worrying, the colour of the standing crop is turning darker, a sure sign of reducing quality and increasing mycotoxins risk.
Whilst the trade is beginning to make predictions about the size of the UK crop, the key assessment (from the HGCA) will not be available for another month. However, they all agree that the crop is considerably better than was feared 3 months ago when the NFU was predicting a crop size of 12 mln tonne, and 15 mln tonne now appears to be the average of trade estimates.
So if there was more wheat about, you would expect prices to be lower? Wrong – prices for the key November position are £10 higher than the anticipated price for November was back at the end of June. So what else is happening? The Funds have been dabbling in commodities again. World financial markets appear to be having another bout of the jitters, with recurrent fears of a US double dip recession, so speculators have been trying to find a safe haven for the funds. They have dipped out of equities and silver, and gone for Gold (lifting it to 6 times the price Gordon Brown sold it for from UK reserves over 10 years ago) and soft commodities.
Another factor affecting the rise in wheat prices is the state of the US maize crop. The price of maize guides the price of wheat, and US maize drives the world price. The US has experienced a drier summer than usual, and all pundits; farmers and the trade, have reduced their yield expectations by approximately 10%, pushing end of season stocks to their lowest levels since 1996. Maize prices are close to 40 year highs. The excitement from the Corn trading pit on the Chicago Board of Trade has spilled over to the Soya pits, and lifted their markets. There is no getting away from it we are in a `weather market’ – which is always over-hyped and alarming whilst it is going on.
Wheat prices have dipped this week (w/e 9-9) a little off their top. However, due to the relatively good UK crop size, coupled with the projected size of the world wheat crop, we would expect/hope that wheat prices will slip from these levels – and so do much of the rest of the trade who have limited forward cover.
Soya prices have firmed, with Non GM now back up to over £330 delivered into the mill (GM is circa £35 cheaper). It has lifted on the over-flowed concern from the tightening maize supply, as well as fears of reducing yields in the yet to be harvested crop. In a sense, soyameal prices are held lower than the price of the soya beans would suggest, as the South Americans have been keen sellers of their soya meal. As a result, the price of soya oil is particularly firm, at well over £900/tonne delivered, it only seems 5 years ago that soya oil never rose higher than £400/tonne.
Now for a small amount of good news; Sunflower looks relatively good value as it is less than half the price of soya. The same applies to wheatfeed prices – one of the few good news stories from the `wheat to bio-fuels’ fiasco. Usually the price rises over winter as demand from ruminant feeds draws in supplies, but the availability of bi-products from bio-fuel production which find their way into ruminant diets means that there is more wheatfeed available. Flour mills cannot afford to be hampered by the lack of space in their mills caused by the feed sector not using their wheatfeed, so they need to price to ensure the by-product moves on. So wheatfeed is cheap over winter for the first time in my memory. Cheap sunflower and wheatfeed will be used more in layers diets and you will see fibre levels rise slightly on the declarations in your feed.