High Contrast
October 2011
Comment from the Feed Mill – October 2011 – by Martin Humphrey
One of the regular challenges of living in the real world is being able to determine the difference between reality and perception. An example of this challenge can be witnessed in the simple issue of how much wheat does the UK have this year against the perception that much of it was killed in the drought? But it can become much more complicated than that as illustrated in the FT this week (Sep 20, p13). The perception is that the Euro is in trouble because of the debt problem, and that the PIGS are responsible. The reality is that national identities are stronger than a European identity – the impressive buildings on Euro notes are imaginary because selecting the Eiffel tower or the Acropolis would have been too controversial! People are loyal to a national identity, not an imaginary building on an imaginary currency; that is why the Euro is in trouble.
The world is still absorbed by the ramifications of the 2007-8 financial crisis, but are we heading for another bout now? Basic foods are being used to make fuel, with over 50% of US maize production being converted to bioethanol this year; and the subsidies used to promote US biofuels and the tariffs that deter imports may be dropped at the end of this year. Global agricultural stocks are low, supply and demand are finely balanced, and the funds are speculating on the price of food. Agricultural commodities have been hit by price spikes, one of which is still current. Perception eclipses the real data of yields, stocks, acreages and futures markets. Global warming (real or not?) appears to produce El Nino / La Nina weather which can ruin crops, and yes, we are being threatened with the prospect of another La Nina imminently. Against this chaotic background, it is impossible to be too specific about the price movements of wheat and soya.
Wheat. Despite the early predictions that the UK wheat crop would be 20% down on last year, it would seem that yields will be only 1.5% lower than last year at 13.8mt, although there is a significant variation in the yields across the UK. Our exporters are managing to export, but are wary of currency volatility. Ensus, unable to compete with imported US bioethanol, shutdown for 4 months in May. Vivergo are due to open in the spring, so will Ensus to run a spoiler operation? Each biofuel plant could use 1.2mt wheat per annum. There are reports that the EU wheat crop is of much better quality than last year, to the point where there may be a 5-10mt shortfall in feed wheat. November UK wheat is about £158 delivered to the mill (22 Sep 11).
On the global markets, the Black Sea has been the cheapest supplier since the Russian embargo was lifted in July, and is about $20/t cheaper than the French. The US has still managed to export some wheat, but is being trounced by the Russians. It would also appear that the South Americans have a good supply of maize, and will be competitive with US exporters in due course. It would appear that the Chinese demand for cereals is rising rapidly, fuelled by pork production; there are forecasts that they may need to import 10mt/annum of maize within a few years. Prices are volatile, but have fallen for three weeks in a row.
Soya. There are more questions than answers about soya. The Chinese have been relatively quiet. The US soya crop is still in the ground, and initial reports are that the crop is doing well, but La Nina weather is predicted. The soya acreage is debatable despite last week’s USDA report. Prices have been oscillating within a tight range for several months, but have fallen over the past three weeks are currently near the bottom of the range in $-terms, with GM soya at about £277 delivered to the mill, and GM-free another £40/t. The indications are that soya prices need to rise in order for US farmers to want to plant soya, rather than maize, for next year’s crop.