Increased feed price volatility set to remain as the New Year starts*

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Length: 818 words; 4-5 minutes

Wheat lorry loading

Since the lows of early December, London wheat futures prices have risen around £6/t on the back of slow farmer selling and continued strong demand, to sit between £145-150/t at the time of writing. The increased competitiveness of UK wheat globally following the devaluation of Sterling has lifted exports and tightened supply, whilst minimal snow cover is parts of the US and Europe have increased the risk of damage from cold weather.

The first report of 2017 from the United States Department of Agriculture (USDA) will also have been issued by the time this article is published, and is due to contain the first official winter wheat crop acreage estimates. There are concerns that the figure could be noticeably smaller than normal – particularly for hard red wheat – and this could trigger a market reaction.

Global wheat supply

Price increases have not been limited to the UK, although the falling value of Sterling and rising Euro continue to be major factors. Both US and French wheat prices have also rallied, whilst Russia, Romania, Ukraine and Argentina have all secured additional export contracts.

In Argentina, rains have slowed the tail end of harvest and are generating some concerns around wheat quality. In contrast, the Australian crop is more than 90% harvested and looking to produce a record yield that could be as high as 33 million tonnes (mt), thanks to both a slight increase in acreage plus predicted yields of 2.54t/ha – almost 20% above the last record in 2011-12.

The impact of fluctuating oil prices also needs to be considered, with any drop tending to undermine all commodities, and particularly wheat. For example, devaluation of the Ruble following a fall in oil prices – Russia is a major oil exporter – increases the competitiveness of Russian wheat exports, boosting global supply and lowering cereal prices. With a record 70mt wheat crop, there’s considerable scope for Russian exports to increase, though the Ruble remains strong enough at present to prevent any major pressure emerging.

“…many of the alternative starch feeds look set to remain better value…”

Regardless of how prices move, however, many of the alternative starch feeds look set to remain better value than cereals. Moist feeds like Traffordgold and the confectionery and breakfast cereal blends offer great value, with SweetStarch or SugaRich Dairy, for example, currently available at around £145-155/t for delivery between March to October.

Value not price

As always, focussing on seeking out better value feeds is a more effective feed buying strategy than simply trying to judge the bottom of the commodity markets. The potential savings can be equivalent to a £10-30/t drop in commodity prices, whilst also avoiding the risk of getting caught out if prices rebound rapidly once the market bottoms out.

This year, there’s also a growing opportunity for those with home-grown cereals to sell rather than feed, then buy in better value alternatives. With upwards pressure on cereal prices, and factoring in the typical £10/t cost of on-farm processing, the financial benefits are worth considering.

“…Prototec…and ReguPro50…offer opportunities to reduce feed costs.”

Alternative protein feeds are also offering significant savings at present, despite soyabean meal futures prices still close to historic lows in US$ terms. British wheat distillers’ feed, Prototec heat-treated rapemeal and ReguPro50 high protein liquid all offer opportunities to reduce feed costs when incorporated into rations instead of sticking with traditional protein meals.

Protein market potential

UK soyabean meal prices have risen slightly with recent falls in the value of Sterling, but good weather in Brazil has seen soyabean plantings progress well and favourable conditions continue in most areas – the one exception has been lower than ideal rainfall in the north east. Argentine plantings are also reported to be around 90% complete, although with the window for planting rapidly closing, northern states are still waiting for the rain-hampered winter wheat harvest to clear fields prior to sowing.

ReguPro liquid feed image
ReguPro high-protein liquid feeds are an alternative to traditional proteins

If all goes well with remaining plantings and early crop establishment – markets are likely to remain volatile for the next couple of months as weather reports emerge – there is clearly some potential for soyabean meal prices to ease back. But with those prices already relatively low, there’s more scope for prices to rise than fall.

The good planting progress has eased concerns regarding a potential reduction in soyabean acreage in South America, adding to the likelihood that earlier predictions of a bumper crop area will prove to be correct. However, the South American weather remains the dominant factor in the protein markets for the time being.

If poor weather threatens crop yields or quality between now and when harvest starts, markets could react strongly and there’s plenty of room for prices to increase and the investment funds are likely to drive markets higher if there’s a significant rise. Ensuring a good level of cover going forward, plus keeping an eye open for opportunities to secure additional contracts during any market dips, is therefore likely to be the strategy of choice for those looking to minimise risk.

* 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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