Feed choice and forward cover guard against feed price rises*

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Length: 773 words; 4-5 minutes

Wheat in hands image

As the focus on-farm moves more firmly onto winter feed buying, news of significant upswings in wheat futures prices has been far from welcome. It’s also adding pressure to secure forward cover on energy feeds sooner rather than later to guard against further price increases, particularly if the current hot weather continues.

As it is, November UK wheat futures took substantial leap higher in late June, rising around £10/t to stand well clear of October’s peak of £142/t, and even beating recent highs in early May (figure 1). The main reason is that despite substantial global cereal stocks, weather concerns in a number of the key growing regions continue to build.

Graph 1
Figure 1 – London wheat futures prices ex-port for November delivery (Source: Reuters)

 

Dry weather impact

In the United States (US), a lack of rain has resulted in the quality of the spring wheat crop being downgraded to record lows (now just 40% good-to-excellent), whilst very dry conditions in Australia may yet see some winter wheat crops abandoned. Combined with a smaller acreage, the result is a US wheat harvest predicted to be 13.2mt (21%) lower this year. Australian production could be 10mt below last year’s record highs.

“…total European production could end up even lower than currently predicted.”

Closer to home, wheat yields in Russia and Ukraine are also expected to be down (by 3.5mt and 5.3mt, respectively), whilst 40*C temperatures in France have the potential to cause premature ripening and yield loss. UK crops are being affected by building soil moisture deficits, and total European production could end up even lower than currently predicted.

Although the latest report from the US Department of Agriculture (USDA) in June lifted its estimate for global wheat production by 1.7mt to 739.5mt versus 754.1mt last year, it will be interesting to see if the figures are adjusted over the coming months.

Record cereal stocks

Against that negative pressure, however, it’s important to remember that worldwide cereal stocks are at record levels. This buffer should limit the extent of any further rise in prices, though US weather patterns will continue to dominate the energy feed markets for the next 2-3 months.

SugaRich Dairy image
Confectionery blends like SugaRich Dairy supply more balanced energy than in cereals

Alternatives also continue to offer better value. Those booking rolled wheat for this winter instead of a breakfast cereal blend like SugaRich Dairy, for example, would currently be paying 10-12% more than need to for energy (per MJ ME), and missing out on the reduced acidosis risk that comes from a more a balanced energy supply that includes sugars and oil as well as starch.

For those still requiring palatable high energy feeds to boost summer buffer ration intakes and help capture the excess rumen degradable protein (RDP) in grazed grass, there’s good availability of both high sugar liquid feeds and moist feeds. The sugars in cane molasses blends like Molale also drive forage fibre digestion, increasing both utilisation of grazed grass and milk-from-forage.

Moist feeds such as Traffordgold wheat-gluten moist feed are another staple of summer buffer rations, being both highly palatable and a good source of the digestible fibre lacking in grazed grass. Currently £85-90/t at 50% dry matter, switching from rolled cereals to Traffordgold could reduce costs on an energy basis alone.

Taking protein cover

For proteins, the greatest risk to prices comes from investment fund buying. At the time of writing, US soyabean plantings were 98% complete, but with the weather outlook turning warmer and drier any reports of crop progress being affected over the next few months will cause prices to lift.

If that does happen, the investment funds will quickly buy into the rising market, substantially increasing price volatility. Given that uncertainty, those who haven’t already finalised summer protein buying should seriously consider doing so now, and look to cover at least a portion of the winter requirements – current prices have already factored in high global soyabean stocks and potentially strong supply.

In South America, the Argentinean harvest is all but complete, and at 57.5mt is close to the latest USDA estimate. However, farmer selling is being discouraged by devaluation of both the Argentinean Peso (at an all-time low) and Brazilian Real (following May’s corruption scandal),

Some disruption may yet occur as Chinese authorities investigating supply chain irregularities cause port congestion, and Paraguayan farmers protest the recent passing of a 15% export tax. However, the overall impact is expected to be relatively small.

“British wheat distillers’ feed is proving to be a popular alternative…”

Finally, seasonal reductions in supply have pushed rapemeal further out of line with other mid-protein feeds, and British wheat distillers’ feed is proving to be a popular alternative at £170-180/t through to the end of September. A higher energy content and better quality protein than rapemeal means that similar prices for winter contracts have also been competitive enough to attract buyers, despite the reduction in price for post-harvest rapemeal contracts.

* 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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