The European feed grain market is going to be a crowded place this season according to industry observers with both EU wheat and maize production revised higher by the International Grains Council last week. Big crops are putting pressure on prices and are being reflected in lower feed costs to the livestock sectors. Significant reductions have been delivered by feed suppliers over recent months but there is inevitably a time lag in reflecting these price changes due to the long term nature of feed material contracts.
With the NI livestock industry consuming around 50,000t of compound feeds every week – virtually all of which has to be brought in through the ports – the industry is totally dependent on a global supply base and on well planned and coordinated shipping programs to ensure the continuity of supply.
The industry cannot be sustained on a hand to mouth basis - but rather on supply contracts for purchase of material and shipping which have to be set up months in advance.
These long term arrangements are essential for the industry to ensure a regular and reliable supply to the NI farmer.
They also serve a very valuable role in protecting him from the worst effects of price volatility in the global market and will save £millions every year for the industry.
The weakness of global grain markets is being reflected in reducing feed prices and the full benefit of these reductions will continue to work through as current contracts unravel and new lower priced purchases work through the system.
On the protein side there is no doubt at this stage of the season that the US is going to harvest a record crop of soya. Near perfect growing conditions have led analysts to increase production estimates time and time again. This will certainly put pressure on prices and the effect is already obvious in the forward positions. Nearby prices remain stubbornly firm as harvest has not properly commenced yet and the US old crop stocks for this year have been the tightest in recent memory at 3.7% stocks/usage ratio.
It will take the safe arrival of the new crop to bring significant reductions and this involves a complex logistical process which takes several weeks to work through. The harvest will get into full swing around mid-October with the soybeans then delivered to the crushers for oil extraction. The meal is transferred by barge down to export terminals in the Gulf of Mexico where it will be loaded for shipment to meet the ever increasing global demand for soya. Pressure on the rail and river freight capacity is already building and prices are being pushed up due to the sheer volume of material to be transported.
The short term supply concerns are not helped by the ever worsening situation in Argentina which is the third biggest producer of soybeans in the world. Farmers here have simply refused to sell approximately half of their soybeans. This has been caused by the Argentinean government mishandling the economy, causing an artificial exchange rate which is very unfavourable to sellers of soybeans. With an inflation rate of over 30% farmers are very reluctant to sell their crops in such a weak currency – preferring to hold on in the hope of forcing prices higher.
