Where will wheat prices be in six months time? Will the bellwether CBOT market be lingering in its recent range of $6.50/7.00/bushel - or down to the mid $5’s as some investment bank analysts have recently suggested? Will European milling wheat prices stick with the E200/205/tonne indicated by Paris futures – or reflect the US trend with a 20% decline by end-year?

1. Digital Re-print -
May | June 2014
Global Feed Markets: May - June 2014
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3. GFMT’s market analyst
John Buckley reviews world
trading conditions which are
impacting the full range of
commodities used in food
and feed production. His
observations will influence
your decision-making.
The USDA expects world
barley output to drop
by about 12.6m tonnes
in 2014/15, offset only
partially by higher starting
stocks (up by about 3.6m
tonnes). Main declines
are seen within the EU
(minus 4m tonens), where
less spring barley will
be sown, reversing last
year’s trend when a lot of
spare land was left over
from failed winter wheat
plantings.
W
here will wheat prices be in six months time? Will the bellwether CBOT
market be lingering in its recent range of $6.50/7.00/bushel - or down to
the mid $5’s as some investment bank analysts have recently suggested? Will
European milling wheat prices stick with the E200/205/tonne indicated by
Paris futures – or reflect the US trend with a 20% decline by end-year?
Much depends on the fruition of recent favourable outlooks for the next world crop. The
USDA’s first take on this is for 697m tonnes – 17m less than last year’s, yet still just over estimated
consumption (seen down by 6.6m tonnes). FAO/AMIS meanwhile suggests something in the
order of 700m-plus while others are even prepared to countenance the possibility of crop
close to last year’s record 714m.
It’s early days yet to be too complacent about crops that, apart from India’s, are not yet
ripe, let alone ‘in the bins.’ Comfortingly for consumers, though, we might remember that last
year’s first forecast from the USDA was about 701m tonnes – 13m lower than it turned out.
The International Grains Council was initially even more pessimistic about 2013 prospects,
looking for 680/682 in its early forecasts.
The biggest surprise last year was probably the extent of Canada’s crop increase as amazing
yields delivered a record 37.5m tonnes – over 10m more than the previous year. Canada will
also be the main component in this year’s anticipated decline. Though much of its predominantly
spring-planted crop isn’t even sown yet due to wet, cold weather, the USDA is looking for
a drop in production back to the 28.5m tonnes level – accounting for more than half the
anticipated decline in the world crop. Lower crops are also expected in Turkey (-3m), Ukraine
(-2.3m) and Australia (-1.5m) and smaller producers (a combined 4.5m tonnes). Outside of
Canada, though, the biggest fall is in the USA where drought is expected to slash production
of its most important export class, hard red winter wheat, and total wheat production is seen
dropping by 4.5m tonnes to a ten-year low of just 53.4m.. The US, long the world’s leading
wheat exporter (but probably ceding that place to the EU this season), also starts with its
Season of plenty beckons
GRAIN&FEED MILLING TECHNOLOGY52 | COMMODITIES

4. lowest carryover stocks in many years – about 12m less than it began
with at the start of this decade.
On the plus side, Argentina – one one of the top 5 exporters - is
expected to produce 2m more this year and, provided the government
doesn’t interfere too much with export policy, could ship 6.5m tonnes
after managing only 1.8m this past season. Apart from Australia (+1m)
and Russia (+800,000 tonnes), most of the other year-on-year changes
to prospective export market shares are on the debit side. However,
against that, import demand will not reach last year’s record 158.4m
tonnes (plus 12m on the previous year) and may instead retreat by
about 7m, largely due to smaller requirements from China, Iran and
Brazil. Also, we should not forget India’s potential to export an awful
lot of low/middling quality wheat. It has probably produced a record/
near record crop for the third year running – about ten million tonnes
more than usual, holds enormous stocks and needs only a moderate
rise in world prices (and a bit more pro-active approach from the
Indian government) to start pouring this into export channels.
The markets have had a fairly volatile two months since our last
review. A fairly strong supportive undercurrent has emanated largely
from two factors – the poor state of the US hard winter wheat crop
and fears that a political meltdown in Ukraine will spark a Russian
invasion, disrupt shipping schedules and amid western sanctions and
Russian retaliations, create a hole in the assumed supply of wheat
and maize exports from this region.
As pointed out in our last review, markets have probably been
over-reacting somewhat to this issue. Russia and Ukraine have set a
low benchmark for world wheat and maize export prices over recent
seasons, diverted much demand away from traditional exporters,
especially from the more contested markets of the MENA (middle
east/North Africa) region and effectively allowed the EU to have its
cake and eat it – i.e. to export record amounts of milling wheat while
keeping its own feed consumers satisfied with cheap maize and, to
a lesser extent, feed wheat imports. But CIS export campaigns for
this season are already on the home stretch and, so far, both have
continued to ship out huge amounts of both wheat and maize without
disruption (even from the key Ukrainian export port of Odessa when
hostilities recently flared there).
While business as usual has continued from the two main CIS
suppliers, Europe has also sold off its wheat surpluses freely, benefitting
from the relatively firmer wheat prices that have ensued on US and
global markets. Canada, as mentioned above, still has a lot of its
record crop to sell with March stocks about double last year’s levels
with a heavy emphasis of these being held on-farm, rather than in
commercial hands.
So far most of the pointers towards 2014 world wheat production
are fairly favourable. Even if yields don’t quite match last year’s levels,
Russia and Ukraine combined may come close to last year’s bumper
74.4m tonne crop. EU output is expected to rise by at least 1.5m –
though, with an early start, plenty of rain and a decent summer, it
could gain even more.
Late planting of the US and Canadian spring wheat crops – key
components of the global top-quality hard bread wheat supply – does
not seem to be over-exercising the trade at the moment. The current
view is that most of this grain will get sown to plan while Canada has
still has those large stocks from last year’s crop. Australia’s wheat
crop, another key quality contributor, is being sown under mostly
normal conditions and could be another large one.
Wheat prices as we go to press are at similar levels to this time
last year in Chicago and Europe, whereas maize is about 20% cheaper
than it was then. Does that mean wheat is over-valued, in feed
markets at least, by 20% (as the bank forecasts above seem to imply?).
Perhaps the fact that banks, who have pulled a lot of money out of
commodities, especially the ‘agrics’ over the past year are talking
grain prices down rather than up – as they so often have in recent
years – is an encouraging sign for consumers.
MAIZE surplus on the way
It has been a choppy couple of months for maize prices on the
leading US market, driven by unhelpful US planting weather and fears
that political meltdown in Ukraine might disrupt export shipments
from what has recently been the world’s fastest-growing corn supplier.
Yet the US crop is now going in according to plan and the Ukrainian
situation – while apparently far from resolution – has not had any
significant impact on trade - just as we expected in our last issue.
Further forward, of course, the possibility of political issues turning
to military conflict has not gone away. And there remains the nagging
question of how a collapsing Ukrainian currency and other factors
reducing its use of expensive, largely imported, yield-boosting agro-
chemicals may deplete yields. Yet sowing of Ukraine’s 2014 crop
(and Russia’s) has been going at a rapid clip, much earlier than last
year’s crops, which were delayed by a late spring. Planted area will
probably be close to last year’s in both countries (maybe even up a
bit in Russia, where some spare land was available after wet weather
delayed and downsized its winter wheat plantings). The generally
favourable outlook was underlined by the first global crop estimates
for the coming season from the USDA, suggesting Ukraine at 26m
and Russia at 12.5m tonnes. That’s a drop of 4.9m for Ukraine from
last year’s record harvest but still far more than it normally produces
(10-20m) and it also has an unusually large carryover stock of 3.4m
May - June 2014 | 53GRAIN&FEED MILLING TECHNOLOGY

5. tonnes to supplement its exportable supplies. Russia’s crop forecast,
meanwhile, is almost 1m tonnes bigger than last year’s. USDA has the
two countries’ combined export potential at 19.5m tonnes – only 3m
less than last year’s peak and compared with only 6-10m normally.
It could even go higher if yields have been under-estimated – which
they may be, given the favourable weather both are currently enjoying.
Overall the USDA’s first take on the 2014/15 season for maize
(starting September 1) promises abundant global supplies, well in
excess of demand, leading to steep growth in global and, especially
US, carryout stocks by September 2015.
The all-important US crop is currently forecast almost unchanged
from last year’s at around 354m tonnes. That figure could go higher
still if the US plants more than the 91.7m acres that USDA forecasts
(down from 2013’s 95.4m due to lower prices) which some think
possible given the amount of land that went unsown after a wet spring.
The rationale is that the US actually has far more acres to divide up
this year, allowing it to expand soyabeans, as it plans, without taking so
much away from maize, their main rival for land. The main obstacle to
maize sowing has been wet, cold weather which has been overcome
in the main Corn Belt but left some northern states lagging. Farmers
running up against last planting dates for crop insurance may turn to
soyabeans, which can be sown later but our sources suggest that, at
most that would affect about 1m acres. As we went to press, though
about 88% of the crop was in the ground and amid plentiful moisture
and rapidly warming weather, has a good shot at achieving the USDA’s
fairly high ‘trendline’ yield forecast of 165.3bu/acre.
The past season’s demand for US maize, export and domestic, is
estimated to finish at 346m tonnes while next season’s total offtake is
forecast at 340m. That should allow carryover stocks (at September
2015) to rise from an already comfortable 29m to 44m tonnes or
more. Other main crop changes for maize (versus last season’s) include
2m more for Argentina offset by 1m less for Brazil. Both will carry in
large stocks so their exports are actually seen higher at a combined
38.5m tonnes versus last year’s 31m. That would significantly outweigh
the expected smaller Ukrainian crop.
The world’s second largest maize producer and consumer, China,
is also expected to make its usual annual increment to production,
though, so far, this is estimated at only about 2.3m tonnes versus
the 12-14m jumps that characterized the past few years. Overall,
world output – like the USA’s – is seen identical to the past season’s
979m tonnes.
A forecast rise of 17m tonnes in maize consumption is spread
over a large number of nations on the basis that corn - which is still
20% cheaper than it was this time last year – will continue to expand
custom at the expensive of relatively less attractively-priced feed
wheat. The outstanding growth factor, though is China, seen boosting
its consumption by 10m tonnes to a new record 222m. That’s broadly
in line with China’s average annual growth trends over the past few
years but importantly, most of this is coming out of China’s own
domestic crop. Moreover, China will continue to hold massive reserve
stocks of corn – USDA sees these around 79m tonnes – slightly
larger than this year’s carry-in stocks, 11m more than in 2012/13 and
a staggering 27m more than it was estimated to hold five years ago.
China is currently auctioning these off – which seems to put the lid on
last year’s theories that China would provide a bonanza 10m tonnes
or more of import custom for US and other exporters. In fact, the
USDA sees China’s imports from all sources dropping to 3m tonnes
and has also revised down this season’s total to 4.5m.
The other key factor for maize is Europe’s own import demand,
revised up this season to a record 13m tonnes and seen repeating
that in 2014/15. It’s interesting to note that, at the start of this
season, EU maize imports were expected to drop from 2011/12’s
11.4m to just 7m tonnes. Overall, though, global corn import
trade is seen slightly lower next season, another restraint on
prices.
Despite China using more, foreseen global consumption of corn at
966m tonnes still lags forecast total fresh supplies, leading to stocks
rising by over 13m tonnes globally and by almost 15m in the US. These
figures will also work against higher corn prices and if the wheat market
starts to lose its current large price premium to maize, that could put
the latter grain under further downward pressure. The current futures
market projection for corn a year hence is similar to spot prices – just
under $5/bu or about $185-190/tonne. With recent new crop offers
by the CIS countries and by Brazil and Argentina undercutting the
US, corn could get cheaper than this before 2014 is over.
Other feedgrains
The USDA expects world barley output to drop by about 12.6m
tonnes in 2014/15, offset only partially by higher starting stocks
(up by about 3.6m tonnes). Main declines are seen within the EU
(minus 4m tonens), where less spring barley will be sown, reversing
last year’s trend when a lot of spare land was left over from failed
winter wheat plantings. Among the other big traditional suppliers
of barley, lower plantings and a retreat from last year’s above trend
yields are also expected to reduce Canada’s crop by 3m tonnes
and Australia’s by 1m although Russia’s crop is seen about 700,000
tonnes higher.
Barley consumption is expected top drop by about 3m tonnes,
two-thirds of that fall within the EU, where it loses out to plentiful
maize and feed wheat, the rest mainly in Canada and Australia. Given
the much smaller crop, that will not prevent stocks declining by about
6m tonnes to their lowest for some years. Whether that will generate
any independent strength in barley prices is uncertain as the main
consumption outlet in the livestock sector remains vulnerable to
competition from other, probably cheaper feed grains. Also global
barley import trade is seen remaining flat at around 20m tonnes.
Sorghum area is seen similar to last year’s but yields could improve
with better weather in several regions, adding about 2m tonnes to the
world total. Demand is expected to grow to absorb that, especially
in China, where it has been replacing US GM maize but not much
change is expected in world carryover stocks and the price outlook,
tied to cheaper corn is seen lower overall.
GRAIN&FEED MILLING TECHNOLOGY54 | COMMODITIES

6. Oilmeal outlook
Oilmeal/protein supplies are looking fantastic for the year ahead
as the top soyabean producers again head for record crops (chart).
Overall world production is seen advancing by about 16m tonnes to
nudge 300m for the first time ever, largely due to the US (+9.4m)
and Brazil (+3.5m). Together with Argentina, these countries will
have expanded their contribution by a staggering 30m tonnes over
just two years.
Global crush on the other hand is only expected to advance by
about 9.5m tonnes for the second year running, resulting in carryout
stocks piling up for a third year to a new record 82m tonnes by
September 2015. The lion’s share of stock accumulation will be in the
USA, in sharp contrast to the past two years of extremely tight end-
season stocks after heavy export campaigns. The carryover should
provide a formidable anchor on CBOT soyabean futures prices and
the world market. So should the record crops in South America as
it undercuts US prices. Most of the demand growth is again in China
(crush +4.1m tonnes).
With Canadian rapeseed, Ukrainian sunflowerseed and the global
cottonseed crop expected to contract slightly, soya will effectively
enlarge its share of the world oilmeal market to about 68%, allowing
it exert its downward price pressures across the board. That’s already
reflected in forward soya meal prices that are already quoted nearly
20% cheaper than spot. Of course, we still have to see what the
northern hemisphere summer and Latin America’s later planting
weather brings before counting these crops in the silos. But it is
certainly an encouraging start.
KEY FACTORS AHEAD - WHEAT
• World wheat stocks will grow, despite a lower crop as consumption
falls too
• World wheat trade is seen declining from this season’s record high
• India may step up its exports – it certainly has plenty of wheat to spare
• Canada has large unsold, old crop stocks
• Wheat feeding levels and wheat value will be under further pressure
from new crop maize, especially within the EU.
• Political instability in Ukraine might yet affect its new crop marketing
• Will an El Nino bring dry weather to Australia?
COARSE GRAINS
• The maize market expects another season of plenty, led by stock
growth within the USA – still far and away the world’s largest
supplier of this grain
• Large Brazilian and CIS crops for a third year running will make
for continuing brisk export competition, keeping prices under
downward pressure
• The EU will probably see its third season of massive maize imports,
weighing on internal feedgrain prices – not least feed wheat
• China – as warned in our last issue – is releasing some of its own
huge stocks, cutting its import needs.
OILMEALS/PROTEINS
• Big US and LatAm crop surpluses will continue to set the backdrop
for cheapening meal supplies – even as production of competing
oilseeds retreats slightly
May - June 2014 | 55GRAIN&FEED MILLING TECHNOLOGY
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INCORPORATING PORTS, DISTRIBUTION AND FORMULATION
In this issue:
• Role of
extruders
in Halal food
production
• Fortification
Fortification in
rice and flour
• IAOM
118th Annual
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May-June2014
• GM soybeans
The on-farm facts
• Harvest
conditions:
wheat quality
and addressing
issues
• The Mills Archive
GFMT becomes a
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