Period of volatility for feed markets puts focus on risk management*

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Length: 669 words; 3-4 minutes

Soyabean crop harvest image

Feed buyers continue to face considerable volatility as protein markets react to any potential for adverse weather to affect the Argentinean soyabean crop, despite a Brazilian harvest that’s heading towards a record 104 million tonne (mt) yield, according to the United States Department of Agriculture (USDA).

“The potential is there for soyabean harvests in both Brazil and Argentina to be substantial, and if all goes well we could some price easing a few months from now,” explains KW senior trader Chris Davidson. “But there’s also a risk of prices rising if unexpected weather damage affects crop volumes or quality, or delays harvest.

“Guarding against that risk should be the main priority at this stage…”

“Guarding against that risk should be the main priority at this stage, particularly given that current soyabean meal futures prices remain close to historic lows in US$ terms. The weak Sterling is adding to UK costs, but contracts for May to October delivery are still currently available at £335-345/t.”

Manage volatility risks

Maintaining a good level of cover going forward will therefore be an important strategy for those looking to control risk and lock in at least a proportion of the summer’s protein costs. And Mr Davidson recommends keeping a close watch for the opportunity to secure additional contracts during any market dips.

“We’ve already seen how quickly the market can move, with summer soyabean contracts currently around £20-30/t above the price that was available in December,” he states. “Such rises are always exaggerated in a volatile market, as the investment funds are quick to jump in and drive prices higher for short term gains.

“It does create the opportunity for prices to drop back if the weather concerns prove unfounded, but if instead we get reports of actual crop damage, the markets can remain static or go even higher. For most farmers, that’s a risk that needs to be managed by booking at least some of what’s required for the summer now.”

Strong global demand

The spring and early summer period has also seen considerable hold-ups in Brazilian ports during the past couple of years, causing soyabean meal availability issues in the UK for those without contracts. As yet there have been no delays, but if rain continues to slow harvest it’s a possibility that needs to be considered – latest reports suggest there are nearly twice the number of vessels currently awaiting loading in Brazil than at the same time last year.

“It’s added to the already strong demand for alternative protein feeds…”

“Rapemeal prices have also risen to over $200/t as a result of production problems at UK crushers and firming prices in mainland Europe following disruption to logistics caused by frozen rivers,” adds Mr Davidson. “It’s added to the already strong demand for alternative protein feeds, such as British wheat distillers’ feed and the high protein liquid feeds like ReguPro 50, as buyers look for better value.”

Energy feed availability

The energy feed market also continues to tighten thanks to strong UK cereal exports following Sterling’s post-Brexit vote devaluation. The resulting lift in prices is creating an opportunity for both dairy and beef producers to sell home-grown wheat for a profit and buy in better value alternatives, such as the confectionery and breakfast cereal blends SweetStarch and SugaRich Dairy.

Soya hulls image
Soya hulls provide digestible fibre energy to help buffer the rumen.

“That pressure on starch feeds is likely to continue, with the latest report from the International Grains Council (IGC) predicting that world wheat production will drop again for the 2017-18 crop year, to 735 million tonnes (mt),” states Mr Davidson. “Although it will still be the third highest crop on record, it will also for the first time since 2012-13 be below predicted worldwide consumption, though record year-end stocks should easily cover the difference.

“For those looking to secure additional digestible fibre, soya hulls currently offer great value at £130-140/t for May to October delivery, whilst the opportunity to also lift ration palatability, boost intakes and supply protein continue to make Traffordgold wheat-gluten moist feed a popular choice in all areas of the country.”

* Prices correct at the time of writing and subject to change. Unless otherwise stated, all prices quoted are for 29t tipped bulk loads delivered on-farm within 50 miles of origin.

* Prices correct at the time of writing and subject to change. Unless otherwise stated, all prices quoted are for 29t tipped bulk loads delivered on-farm within 50 miles of origin.

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