The rapid increase in cereal prices in recent weeks signals a price warning for the local livestock sector and will inevitably be reflected in more expensive feedstuffs in the coming winter. It is expected that the impact on feed prices will be felt over the coming weeks but will be mitigated to some extent by forward purchase contracts particularly in the first half of the winter. Unfortunately the absence of any clarity around the application of tariffs after the end of the Brexit transition period has meant that many of these contracts do not extend beyond 31st December.

As always it is the international commodity markets which dictate the prices at a local level and the key driver for the current surge in feed materials has been the re-emergence of Chinese demand. Having suffered a major reduction in their pig herd due to African Swine Flu in the last couple of years, livestock numbers are now recovering rapidly - with new intensive and professionally managed pig units replacing the backyard herds and contributing to a dramatic rebound in feed demand.  Having effectively cleaned out the Brazilian soybean crop in the past year, China has switched its attention to North America and have been a relentless buyer in recent months driving record sales of combined US corn and soyabeans so far in the current crop year. This demand has contributed to a sharp tightening of the global supply and demand balance sheets while also straining US logistics.  Dockside handling capacity has been sold out in the US Gulf until March and there aren’t enough barges and rail cars available to move the volumes of feed materials to the ports.  Investment funds have responded to this activity in the market by correcting their short positions – buying up contracts for around 100 million tonnes of grain and proteins in anticipation of  continued high prices.

Modern intensive pig enterprises are replacing the back yard units as China rebuilds its pig herd
Modern intensive pig enterprises are replacing the back yard units as China rebuilds its pig herd

Europe was forecast to import 24 million tonnes of  maize to satisfy feed demand, however, with the current situation, exacerbated by a shortfall in the Ukrainian crop, importers are wondering where they will be able source this sort of volume. This has driven up  maize prices by  around £40 per tonne for local buyers and barley is now attracting more interest as the best value cereal for feed producers.  Demand rationing is becoming more and more likely – and that invariably means stronger prices.  Wheat is holding its position as the most expensive grain as the European crop has come up 20 million tonnes short of the 2019 harvest.  Sellers of feed wheat are hard to find causing our local traders to cast their net ever wider to find available supplies.

Protein supplies are also under pressure as the US reports reducing soya stocks following the sales to China. Traders are anxiously watching the growing crop in South America amid concerns about a La Nina weather event which could impact yields or delay harvest in that region. Argentina is the principal supplier of soya meal (as distinct from beans which have to be crushed to produce the meal used in animal feed) and the UK and Ireland are dependent on shipments from this region. The perilous state of the Argentinean economy has slowed down the movement of beans from the farms to the crushing plants. Recent reductions to the export taxes for meal and oil have not been enough to increase farmer selling as currency regulations and the plunging value of the peso combine to discourage sales and farmers are happier to hold their crop  on farm. The result is local Soyameal prices soaring by up to £70 per tonne in recent weeks.