Local importers and feed manufacturers are facing a perfect storm with weather events and hedge fund activity combining to drive up global commodity prices - and now there is the additional impact of a 3 week long port strike in Argentina.

Soya loading at Rosario, Argentina.
Soya loading at Rosario, Argentina.

Argentina is the major supplier of soyabean meal and soya hulls to the European market and its principal port which normally handles around 5 million tonnes of grain and feed materials per month at this time of year has been at a standstill from 9th of December. A strike by port workers brought an end to all crushing and loading activity and it is estimated that there is now a backlog of 160 vessels in the queue waiting for a berth and racking up millions of dollars in demurrage charges every day. It took government intervention to resolve the dispute and loading has resumed in the past week. The result is a break in the supply chain for soya products and it will take several weeks to fully catch up with the backlog. The availability of both soymeal and soyhulls will be severely disrupted pending the arrival of delayed shipments to Ireland anticipated in early February.  Local feed compounders are managing their usage over this period and have looked to other origins for soyameal to bridge the gap, including European crushed material to ensure continuity of supply to their customers.  The demand for this and other replacement proteins is driving up the protein market and availability is now very tight on some materials. Sugar beet pulp is being widely used to eke out the diminishing supply of soya hulls and is also trading at a premium. 

Hopefully the supply related price spike will be short-term - the longer term fundamentals, however, look set to support firmer prices for the foreseeable future.

Grain markets have firmed in recent weeks as exporters attempt to step out of the world market either through price or policy.  The Russian government recently put restrictions on exports of wheat from the middle of February in an attempt to halt rising food inflation.  The Argentine government, with its failing economy and rampant inflation, has halted any new export licenses for corn until new crop.  These restrictions only serve to shift demand to the EU for wheat and the Black Sea for maize.  Both regions which have had extremely poor harvests in recent months and do not have the grain to satisfy further demand.

The La Nina weather effect in South America is reducing new crop expectations in terms of the maize and soya harvest in that region fuelling concerns of a tighter supply from the world’s principal exporters. These weather concerns combined with a very tight US soybean stock situation has attracted significant managed money inflow in recent weeks. Chicago trading is reflecting a new influx of fund buying across the main feed commodities - they are holding record long positions, probably on the basis that in turbulent financial markets grain and feed commodities are a safe place to invest. The markets continue to be supported by strong demand from China where the recovery in the pig herd is happening a lot faster than the market expected. This is keeping up the supply pressures across the main feed commodities and it will take time and rebuilding of global stocks before markets can relax.