September 07, 2016

07/09/2016: World Grain & Feed Market Review Cereal prices on the floor

by John Buckley

Constantly rising wheat crop estimates, record large global stocks of cereals in total and mostly ‘yield-friendly’ weather in the Northern hemisphere have continued to erode grain prices over the past month, resulting in US wheat trading near 10-year lows.
John Buckley

Markets seem to have adjusted with remarkable speed to the loss of millions of tonnes of Brazilian maize exports to drought, confident that large US stocks will tide consumers over comfortably until the promised next round of better US, CIS, European and South American corn harvests.

Neither have some significant quality threats to rain-interrupted wheat harvests in the US, Europe and the CIS countries offered much help to die-hard bulls. Breadwheat premiums over ordinary, biscuit and feed wheats might be up quite sharply but the price base from which they apply is well down.

That traditional benchmark, the Chicago soft red winter wheat futures contract, for example, has been trading almost 23 percent below its recent highs. CBOT maize dropped too, by as much as 24 percent in the past month, setting its own near two-year lows and sharpening the competition between the two grains for US feed outlets.

A similar story is emerging in Europe where the usual rivalry is expected to build between a larger feedwheat crop, a resurgent corn harvest and plentiful barley supplies. ‘Macro markets’ – equities, crude oil and other economic indicators have also remained bearish, especially since the shock outcome of the Brexit referendum.

Despite the brave face put on things by the Brexiteers, analysts around the globe are nervous about the potential negative fallout – psychological and actual - on a still febrile world economy. As well as the Euro-zone’s problems, markets are also concerned that China is still slowing down, dragging with it emerging economies around the globe - which can’t be good for expanding demand for key food and feed ingredients.

The reversal in crude oil markets after their short-lived rally, is another negative for crop markets to deal with, signalling a less encouraging climate for bio-fuels made from grains and oilseed products. Among all this gloom and doom (for the suppliers), the odd man out has been the soyabean complex, which has risen by almost 40 percent over the second quarter of the year to reach its highest level in almost two years.

The accompanying increase in soya meal prices has been even bigger as flood losses to Argentina’s bean crop curbed supplies from this, the largest meal exporter. That too may be ‘topping out’ now, however, as traders take a more sanguine view of Latin American crop losses and the consequent surge in demand for US beans behind this unexpected rally.

Cheaper grain and feed raw materials are, of course, good news for the consumer (soya meal aside). But with forward grain futures markets pointing to relatively modest potential for price recovery, the question is still posed, how long can cereal producers put up with the collapse of farmgate prices?
European soya meal prices

The Latin Americans, Russia and Ukraine have been shielded to a large extent by their weak currencies, bringing in good returns from their dollar-traded commodity exports. But even amid the weak euro, European grain producers are disappointed with current returns, likewise their US, Australian and Canadian counterparts.

While the large stocks will provide a buffer for one or two years going forward, growing markets will need a larger supply down the road. But the direction in which prices are pointing suggests that production gains will be increasingly coming from the weaker currency areas – Lat-Am and CIS countries while the US and other Northern hemisphere suppliers may have to think about reducing their contributions.

Read the full article HERE.

The Global Miller
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