Despite tight supply, feed prices drop as trade war escalates*

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Length: 778 words; 4-5 minutes

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The headline issue affecting feed prices currently is the escalating trade war between the US and China. The imposition of an import tariff on US soyabeans in particular has introduced a new level of uncertainty into the protein feed market.

With commodity investors effectively pulling out of the soyabean market as a result, Chicago soyabean futures prices have dropped significantly. The knock-on effect for soyabean meal has been a price drop of around US$50/t since May (figure 1).

Chicago Board of Trade soyabean futures graph since May 2018
Figure 1 – Change in Chicago Board of Trade soyabean futures prices since May 2018 (Click to enlarge)

This downward move has been helped by ideal conditions for the new US soyabean crop, potentially resulting in the best start on record. Estimates for the area planted are also expected to rise from 89.0 million acres (ma) to 89.7ma (close to last year’s 90.7ma), leading to growing expectations of a record US soyabean crop this autumn.

Potential extra volume

That extra supply would certainly be welcome following the 20 million tonne (mt) reduction in Argentinean output. July and August are the critical months in terms of weather conditions, so the markets will be watching closely as progress reports emerge from the US during the coming weeks.

“…an already unpredictable market has become even more unpredictable…!”

The big challenge is that an already unpredictable market (due to potential weather effects) has become even more unpredictable thanks to political intervention! When the factors involved are neither technical nor fundamental, forecasting what comes next is near impossible. However, the extent of the price drop does appear overdone in the context of current soyabean demand and expected supply.

Argentinean soyabean crush volumes have been significantly reduced, and there’s a real chance that soyabean meal availability for export may run out at some point. The fact that China is now going to have to look to Brazil for more of its requirements is also going to skew demand on South American output, and may end up pushing soyabean meal prices higher.

Implications for buyers

Fundamentally, the current prices for soyabean meal (as well as the other protein feeds that have followed the market down) looks to be below where it should be. Politics aside, although the US crop has had a good start, any weather scare will quickly see prices strengthen on the back of a global supply that is reliant on a substantial US crop to meet demand.

And with large sums of investment money now waiting in the wings, any indication that there’s a price rise to be ridden will bring considerable demand back into the market. The resulting rebound is therefore likely to be faster and extend further than supply changes alone would support.

Risk management is key, and securing contracts on a good proportion of any remaining summer and winter proteins looks to be a sensible move at present. The price may go lower, but the bottom of the market will be extremely difficult to spot until it’s too late. Soyabean meal alternatives have followed the markets down, with feeds like the heat-treated rapemeal ProtoTec maintaining a cost saving against soyabean meal for rumen-bypass protein.

For rumen degradable protein, the tight supply of rapemeal continues to generate interest in alternatives, such as the distillery syrups (Spey Syrup) and high-urea molasses-based liquids like ReguPro 50.

Energy feed markets

Cereal markets have also been affected by the trade war escalation, with corn in particular being subject to the imposition of tariffs. The changing dynamics within the sector have produced a roller coaster ride for UK wheat futures, initially rising towards recent highs on the back of dry weather concerns in Germany, Russian, Australia and the Black Sea region before falling back as the market reacted to political intervention. The United States Department of Agriculture (USDA) has downgraded it’s estimate for the Russian wheat crop to 68.5mt – still a ‘good’ crop despite being nearly 20mt less than last year’s record harvest.

UK cereal supply remains tight, and this year has shown that if both bioethanol plants are running, any shortfall in crop output versus expectations will see wheat supply effectively running out. It’s difficult to see how this won’t be repeated next year, and with energy feed prices also currently lower than the fundamentals would suggest, now could be a good time to take a good level of cover.

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Processed bread is a popular alternative to the starch traditionally supplied by cereals.

Of the alternative feeds, wheatfeed availability is varied across the country, but worth considering at £155-165-t, whilst soya hulls remains the main dry source of digestible fibre still on offer. Supplies of processed bread and the breakfast and confectionery blends such as SugaRich Dairy and Formula One are also tightening as buyers seek out the best value alternatives to cereals. Contracts are available right through to next summer for those looking to take advantage of current prices.

* 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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