The global commodity market is no place for the faint hearted – as dramatic swings in the world financial indexes throw everything into a spin.  The economic miracle that was China seems to have been derailed and the fall in demand from this region is being felt across a range of commodities. Crude oil tumbled from 51$ to 40$/barrel last week (losing 1/4 of its value) before recovering the losses and moving higher within a few days.

NIGTA is supporting the campaign for a realistic intervention price for dairy products
NIGTA is supporting the campaign for a realistic intervention price for dairy products

On the grain and feed material front, record yields and an uncertain demand are giving a very weak feel to the markets. The world is harvesting another big grain crop – with projections of a 17 million tonne wheat crop in the UK on top of a 3 million carry over. Ukraine has another big crop of maize to sell but the continuing unrest in this region (overshadowed in the news by immigration issues) makes it a high risk origin. The French maize crop however has suffered heavily from heat and drought through the midsummer and could lose up to 30% of its forecast yield. The combination of growers more inclined to put their crops into store than sell at prices below cost of production and purchasers afraid to buy in the expectation of reduced demand from the livestock sector is creating a distinct lack of confidence with little business getting done.

On the protein side the global soya crop looks good with a good harvest in Argentina but farmers again reluctant to sell. Elections in this region are due in October and with the possibility of a new government cutting export taxes growers will hold on to their crops in hope of better returns. A strong US dollar and significant global demand for soya will mean that protein will be the more expensive element in rations this winter.

BIG ISSUES

 Locally feed materials are trading at the levels of 6 – 8 years ago and this is reflected in current feed prices with compounds around £50/tonne back on the peak in 2013. The big issues for the supply trade in Northern Ireland this winter is the level of demand which can be expected from a livestock sector which is clearly not profitable and the level of debt carried by the trade. Farmer debt to feed suppliers is currently running at around £150M with just under half of this figure owed by dairy farmers. 

 A week’s credit to the dairy sector is worth around £5M so any increase in the debtor days will create an increase in the working capital needed to fund the 50 or so feed businesses in N Ireland. Just like their farmer customers these businesses are in danger of running out of cash this winter. 

Trade projections would indicate that feed costs at around 8.5p/litre this winter could account for 50% – 60% of the milk cheque. Careful budgeting and cash flow projections to predict the peak requirements for credit and an open and honest communication between farmer and feed supplier will be vital to avoid the risk of business failures this winter.