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Grain & Feed Milling Technology is published six times a year by Perendale Publishers Ltd of the United Kingdom.All data is published in good faith, based on information received, and while every care is taken to prevent inaccuracies, the publishers accept no liability for any errors or omissions or for the consequences of action taken on the basis of information published. ©Copyright 2010 Perendale Publishers Ltd. All rights reserved. No part of this publication may be reproduced in any form or by any means without prior permission of the copyright owner. Printed by Perendale Publishers Ltd. ISSN: 1466-3872

Digital Re-print - January| February 2011 Globalfeed markets - January | February 2011

www.gfmt.co.uk

GLOBAL GRAIN & FEED MARKETS

Every issue 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 inf luence your decision-making.

A wet harvest in

Eastern Australia

reignited bullish

sentiment as 2010

drew to a close

and has remained

a supportive

factor in January.

Early forecasts

that 40/60% of

the (eastern, not

total) crop might

be downgraded

from milling to feed

were not what the

markets wanted to

hear in the wake of

earlier crop quality

problems caused

by wet harvests

in Canada and

Germany

LAST ISSUE we noted 2010 had been an unlucky year for crop weather. Now 2011seems to be starting in the same vein with record floods spoiling east

Australian wheat harvest quality and a ‘La Nina’-linked drought threatening Argentine maize and soya output.

US 2011 crop prospects may also have been compromised by a persistent drought since sowing time affecting much of its hard red winter wheat – the main export component for this, the world’s largest wheat exporter. A much-needed Russian crop recovery from last year’s devastating heatwaves and droughts is still fraught with uncertainty after a shaky start amid lingering dryness. Europe east and west has meanwhile seen one of the coldest winters for decades, if with surprisingly few reports of frost damage so far.

Capping these events, the US Department of Agriculture has just issued its final domestic crop estimates for 2010, cutting production for maize and soyabeans and lowering US stocks for the major grains and oilseeds.

Just for good measure, bio-fuel looks likely to compete harder still for food raw material supplies amid rising crude oil prices and the New Year passage of US legislation renewing/extending subsidies for maize ethanol and soyabean bio-diesel.

If all that were not enough to get the bulls excited, strong demand for downstream grain and oilseed products seems to be undeterred

by these cost increases – especially in the fastest growth markets like China. Indeed food demand for some commodities, like vegetable oils, seems to be growing even faster now than fuel consumption.

In the past month the UN Food & Agriculture Organisation has also reported its food price index at record levels - back in what it terms “danger territory.” The index, which tracks a basket of cereal, oilseed, dairy, meat & sugar prices, has risen for six months running. The FAO thinks the situation is not yet as bad as in 2008 when rocketing food costs, led by cereals, caused riots in many developing countries. Wheat prices, in particular, are still lower than then and production in poorer countries is stronger, it points out. Yet, with the latest set of weather problems, the FAO warns of “room for prices to go much higher.” Expensive cereals have, of course, already fed through to higher bread, pasta, meat and poultry costs.

FAO officials have been reluctant to lay too much blame on speculators – “weather has been the big trigger,” it says, although adding that speculators might be a factor in sustaining these prices. Yet anyone following the day-to-day market reports from Chicago and European traders cannot be unaware of the huge influence the ‘outside’ investment community has – and will continue to have in the months ahead – on commodity prices. Traditional fund speculators may not have piled into the wheat market but they have huge ‘long’ positions in maize and soyabean futures, whose strength spills

over into wheat. Also, the so-called index traders – institutional investors looking for alternatives to volatile stocks and shares – have recently built record positions in Chicago futures. These participants are not (yet) labelled speculators by the exchange authorities (which would make them

Anxiety resurfaces over risingcereal costs & food price inflation

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possibly US) 2011 production. The main events influencing the supply outlook are listed in the commodity sections below. Probably the most important factors to watch, (assuming Latin American crops don’t get hammered by drought), will be spring and early summer weather for northern hemisphere wheat crops and the progress of US spring planting campaigns for soya and maize. A lot of extra US acres will undoubtedly come into play at these high prices for all crops, maybe more than the 10m or so touted recently by many economists. Extra spring acres may also be drawn in for Canada, Europe and the former Soviet Union for wheat, maize, barley and, in some cases, oilseeds. World wheat output will likely recover somewhat in 2011/12 but maybe not by enough to relax prices back to pre-2010 levels – perhaps not such a bad thing if that assures farmers an income level that will keep adequate crops coming in the following year. Coarse grain and oilseed output will almost certainly rally too but however well these crops perform there will be a need to start replenishing extremely low maize stocks – or risk another speculative feeding frenzy in 2011/12. Certainly the grain and feed consuming world cannot afford any more major problems on the weather front this year.

Main commodity highlights since our last review

Wheat quality concerns build A wet harvest in Eastern Australia reignited

bullish sentiment as 2010 drew to a close and has remained a supportive factor in January. Early forecasts that 40/60% of the (eastern, not total) crop might be downgraded from milling to feed were not what the markets wanted to hear in the wake of earlier crop quality problems caused by wet harvests in Canada and Germany. Price strength was also encouraged by ongoing dryness in the US winter wheat belt, mainly affecting the Central/Southern Plains hard red winter wheat area. US crop condition ratings are low, indicating some loss of yield potential. Although there is still time for spring rains to salvage a reasonable crop, there has been a lot of talk about farmers ploughing up poor stands to plant more lucrative corn and soyabean

unusually large, at 197m tonnes when the season started and equal to about 29% of demand. These are still seen at a comfortable 27.5% by the close of this season in mid-2011. So, even after Russia’s much-publicised crop losses from drought and all the other world weather problems since, there is no outright shortage of wheat. Nonetheless, millers around the globe are getting edgy about availability of quality food wheat, especially of hard bread-wheats in the months ahead, after wet harvest problems in Europe, Canada – and

now Australia too. W hea t p r i ce s

h ave con t i n u ed to r ise in recent months (see charts below), led by the bellwether Chicago futures market which recently tested the two-year highs of last summer (when Russia announced its grain export ban). Some analysts – again mainly

from the investment community, rather than commercial grain firms – think wheat prices could even return to the 2008 highs when Chicago briefly nudged 13c/bu compared with around $8 as we go to press. When speculators get involved and markets start to panic, anything is possible. However, this scenario would probably require more unlucky weather in first half 2011.

For maize the reduction in crop prospects in recent months has been less severe, from 835m expected mid-2010 to about 816m this month – but again 20m tonnes below estimated demand. Maize has less carry-in stock than wheat to supplement a short crop with a global stock/use ratio expected to drop from 18% at the start of this season to 15.2% by the close (in September). In the US, the world’s largest maize supplier, that ratio is far tighter.

To these headline figures one must add other coarse grains, led by barley, for which production is down from 150m tonnes in 2009 to 125m – also about 15m tonnes below consumption – suggesting a like drawdown in barley stocks during 2010/11.

Finally to soyabeans which, on paper at least, had earlier looked likely to be in relatively good supply af ter bigger crops across the Americas. Strength in this sector also persists due to the rapid depletion of US stocks (thanks to record Chinese demand) and uncer taint ies over Latin American (and

subject to speculative limit regulations) but their impact is often more profound, using their huge financial muscle to buy and hold paper stocks of grains and oilseeds for the long haul, with potential to squeeze physical deliveries. As we have recently seen in the cocoa market, when a speculative player obtains too large a share of supply, prices can far exceed levels that would be reasonably justified by supply/demand fundamentals – though what goes up, eventuallycomes down (as cocoa has since shown). So, while grain supply fundamentals

are certainly firm this season, it seems likely that some of the recent strength in prices has been exaggerated by over-exuberant bets from both of the above groups of ‘non-commercial traders’ (or by their computer proxies which are programmed to buy and sell electronically when prices trigger so called price ‘stops.’)

‘Outside’ investors have also been treating the markets to a whole raft of predictions for 2011 and beyond, most of them bullish (surprise, surprise!). One again, economists are talking of food commodity prices moving onto a permanently higher plain that reflects the realities of the modern world – record populations, record living standards, finite land resources and production potential etc etc. These forecasts, many of them from relatively newer players in the commodity markets, seem to pay scant regard to the over-riding impact of one year’s exceptionally poor weather – a phenomenon that has occurred in previous decades when funds were less active in these markets.

A sense of proportion might be helped by recollecting where grain and oilseed markets were before the past year’s weather problems struck. Earlier in 2010, world wheat production was expected to reach 672m tonnes for the 2010/11 season – well ahead of demand for the third year running. Amid massive surplus stocks, all the talk in the early months of 2010 was of where all this grain would go, how it was depressing wheat prices below the cost of production for many countries and threatening a contraction in future supply.

A run of crop weather problems around the globe has since reduced the crop to about 645m – about 20m below consumption needs. Yet carryover stocks from past years are still

Grain&feed millinG technoloGy32 | January - february 2011

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be needed from now on though and, even if that transpires, prices at the close of 2011 will probably manage to get only halfway back to their 2010 lows at best.

KEY WHEAT FACTORS IN THE MONTHS AHEAD• Spring/summer weather for winter-sown

crops in the EU, N America, former Soviet Union

• Spring wheat planting results in the above• Level of increased wheat feeding globally to

make up for tighter maize and barley• Speculative activity in wheat futures linked

to the $ exchange rate, macro economic pointers, media spotlight on world food/inflation issues

• Importers’ willingness to ‘de-stock’ and hold out for possibly cheaper new crop wheat

Screws tighten further on maizeUS maize prices jumped to 30-month highs

in January after the USDA reduced its final US 2010 crop estimate from 318.5m to 316.2m tonnes – still the third largest harvest ever but well short of this season’s combined US domestic and export needs for 342m. The resultant cut in forecast US ending stocks – to 18.9m tonnes puts them at just 5.5% of consumption – less than three week’s supply and the lowest level since the record-small (5%) ratio of 1995/96. The USDA also cut its Argentine crop estimate by 1.5m to 23.5m tonnes, reducing world total maize output from December’s forecast 820.7m to 816m tonnes.

Although USDA also trimmed world maize consumption and imports slightly, this still knocks another 3m tonnes off this season’s carry-out stocks at 127m tonnes – about 20m less than last year’s.

Questions dominating US – and global – maize market in the New Year all revolve around cost. Has the price risen far enough yet to reflect these fundamentals, to ration demand at a sustainable level, and to ‘buy’ the necessary acres to grow an adequate crop in 2011?

The answer to the first question depends on the other two. Certainly import demand for US maize has drifted down after prices almost doubled in second half 2011 although the seasonal forecast for US exports remains close to 2009/10’s 50m tonnes. US demand on the other hand is still forecast 10m tonnes higher this season than last, mostly due to higher ethanol usage and a smaller gain in feed. World maize demand in total is forecast 23.5m tonnes higher. Like the US, China is expected to use about 10m tonnes more, the rest of the gain demand spread among many smaller

somewhat by upward revisions to Argentina’s crop, now seen around 15m tonnes by local analysts compared with 11m last year. Larger export supplies from this source have been figuring in a number of recent import tenders.

Australia crop estimates have also risen since latter 2010 with the popular f igure around 25m tonnes – one of its largest crops ever. If, as some observers think, some of the downgraded milling wheat may yet be fit for blending in food rather than feed outlets, Australia may be far from written off as a force in the global milling wheat export markets (It

too has been quite prominent in recent big tenders, keeping other suppliers from hoisting prices too quickly).

Russia, as expected has stayed out of the market and made various noises about keeping its options open for a more prolonged absence depending on this year’s crop weather. It will also plant more spring wheat, which yields less but can be higher quality.

Ukraine has planted more winter wheat. The other big regional exporter Kazakshstan is an unknown quantity at this stage but, along with the region as a whole, might be expected to produce a much better crop in 2011 if the weather normalizes. The success or otherwise of former Soviet Union crops will, as always, be key to where the world wheat price sets its floor next season.

Finally to the EU, which, apart from rain plagued Germany, survived last year’s weather challenges with a far better overall crop than anyone imagined in the drought-ridden summer. Plantings are up but not to the same extent as in the USA. Crops have survived a harsh winter well so far and harvests should

increase next summer. The big issue at this stage, however, is the hectic pace of exports to capitalize on these high world prices, especially from France and the UK, where supplies risk running very low before the next harvest. This may lead to some late season price blips and more intra-EU trade to fill gaps, or even more imports from non-EU countries. Along

with the chronic weakness of the Euro and the constant bursts of strength in Chicago futures markets, this has recently pushed EU wheat futures prices to their highest levels since March 2008.

Forward Chicago futures suggest an eventual 10% premium on new crop wheat but with decent weather, such ‘price revelation’ predictions could be swept away – as they were in 2008. Good weather will

crops. The US needs a decent HRW crop to keep up with world demand which has risen strongly for this variety in first half 2010/11 season on the back of shortages and higher prices for other hard bread wheats. On the plus side the US has sown almost 10% more winter wheat in total this year than last (although less HRW than expected earlier). HRW export prices have recently reflected these events, rising to a new 2½-year peak of $327 at US Gulf ports, exactly double what importers could have bought it for in mid-2010. US hard red spring bread wheat prices have

also jumped to a new high of $423/tonne – a 54% increase from last year’s lows with similar grade Canadian CWRS prices advancing at a similar pace.

Despite Russia’s shortfall, ordinary soft milling wheats are not in bad supply and prices of these have risen more slowly than those of the hard wheats. However, this largest sector of the market is still being pulled up from above by consumers seeking alternatives to tight, more expensive quality wheat supplies and, pushed from below by increased substitution of wheat for short coarse supplies by the animal feed sector.

The latest snapshot of world wheat production from the USDA was seen mildly

bullish by the markets as the Department lowered its US wheat stocks estimate to reflect a further shift in world import demand to the top supplier. However, US stocks by the next harvest (starting in May in the southern states) will still be huge at over 22m tonnes. So, even if the US crop is a little mediocre, it should still have one of its largest total supplies of recent years.

Markets have also been comfor ted

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drought reducing prospects for a much-needed bumper harvest in Argentina. Early forecasts of a possible 54/56m tonne crop – in line with last year’s record – have given way to a much lower range of 42/50m recently. Some timely rains might yet make all the difference but as we go to press the possibility has to be penciled in that Argentina’s domestic and export customers will see anything up to 8m tonnes less in meal equivalent than budgeted for earlier. Soya prices have also reacted to the dwindling supply in the USA - even after last year’s near record 90.6m tonne harvest there. Traders blame a massive expansion in Chinese demand, accelerating in the last few months as Argentina’s weather problems raised the possibility of a smaller than expected global supply. At the last count, China was expected to import 57m tonnes of whole soyabeans from all sources in 2010/11 against last year’s 50.3m and a mere 28m just four years ago. Demanding some restraint from soya suppliers, however, second largest supplier Brazil still expects another mammoth crop, probably close to last year’s record 69m tonnes, and should manage large exports of both soyabeans and meal. US soyabean prices have risen by about 12% since our last review and about 40% from last summer’s lows. European prices have had a bigger boost because of the weak euro versus the US dollar. Other meal-bearing crops – about from groundnut and cottonseed meals – failed to grow their supplies last year, putting most of the onus on soyabeans to meet expanding woirld demand (a lot of the cotton/groundnut meal is consumed in country of origin). The 2010/11 oilseed marketing season did at least start with large carryover stocks of oilseeds – about 14m more than the year before. These will only be drawn down by about 5% by the end of the marketing year. However, any surpluses may be in keen demand if the Argentine crop deteriorates further and/or the US fails to sow enough soyabeans this spring. There is also some uncertainty about rapeseed output, which could have been expanded for 2011/12 but has faced stiff competition from expensive winter wheat. Forward futures prices suggest soyabeans – and thus other oilseed – costs will ease somewhat into latter 2011 but only if a decent world crop comes through. More should be known on the outlook for soya, rapeseed and sunflower meal supplies by our next issue.

OILMEAL FACTORS TO WATCH• Argentine soya crop weather • US planting intentions (Apr/May)• Nor thern Hemisphere rapeseed and

sunflower crop outlooks• Chinese demand

much the US sows before backing these bullish speculative scenarios with higher prices.

While the biggest exporter of maize, the US is not the only factor. Argentina’s crop is suf fer ing drought and heatwaves that could trim output well below the most recent USDA forecast of 23.5m tonnes, perhaps to under 20m or about 5m less than expected two months ago. The world market needed that supply and may have to buy more from the US instead. On the other hand, Brazil, another leading exporter, has a good crop – probably 2m more than USDA’s forecast 51m tonnes – plus comfortable stocks which it might be tempted to sell abroad at these prices (bearing in mind too that Brazil’s own consumption is expanding – up 7m tonnes in the last four years alone).

Traders are also anxiously watching China where the state continues to auction off maize reserves to keep feed costs and inflation under control. There is widespread skepticism over

China’s own buoyant crop estimates and with feed consumption growing fast there too, the possibility that it will need to buy millions of tonnes from the US this year remains a real one for 2011.

In Europe itself, last year’s smaller maize crop undershot demand by about 3.4m tonnes but this has been offset by raising imports and cutting exports. Even so, European maize prices, as measured on the Paris futures exchange, have been even firmer than those of wheat, reaching three-year highs in mid-January.

MAIZE FACTORS TO WATCH• US spring planted area & weather • Competition from feed wheat, especially

from Australia’s weather damaged crop• Will China grow enough maize to meet its

own demand – or have to import?• How quickly will the global economy/world

livestock feed demand recover?• How will US ethanol demand evolve?• Speculative activity in futures, as with wheat

above

Oilmeal costs rise with soyabeansThe highest soyabean prices since early

2008 have followed news of a prolonged

users. If price-rationing is taking place, then, it is slowing rather than stopping demand growth (2009/10 saw world consumption expand by 30m tonnes).

This year’s US maize plantings are expected by some private analysts to increase by about 5m acres, maybe more which, with perfect weather, could deliver, say, 340/350m tonnes – enough to expand domestic and export demand by 25m to 30m tonnes without taking stocks lower still. However, there are wild cards. Maize is under fierce competition for land from soyabeans which have risen just as sharply in value over the past few months and require less fertilizer (costs of which are rising). The extension of ethanol blending credits in the US and the highest crude oil prices for two years have also firmed ethanol prices and could stimulate greater use than the markets have budgeted for. US livestock prices are also strong, supporting higher feed costs and – especially if the US/global economy does improve this year – possibly pointing to a greater expansion in feed use next season.

Some analysts think these factors could push maize prices up from the present $6/6.50 per bushel towards $8 – a rise that would certainly impact on corn, other feed grain and wheat values in the world at large, including Europe. However, markets must wait and see just how

Grain&feed millinG technoloGy36 | January - february 2011

4B Braime, leading supplier of elevator and conveyor components, has created

a new operation especially for the Australian market. The new subsidiary, 4B Australia, located in Brisbane, was officially incorporated on 1st December 2010 and is now fully operational, under the leadership of Managing Director Paul Dennis, former Product Development Manager at Fenner Dunlop Conveyor Services.

4B Australia has been created owing to the importance of the region in the company’s growth plans. 4B Braime has been serving customers in the area for many years, and 4B components have become an integral par t of many processing facilities.From elevator buckets and bolts through to complete hazard monitoring systems for elevators and conveyors, such as 4B’s Watchdog Elite system, 4B components are the preferred choice of many equipment manufacturers, p l a n t e n g i n e e r s a n d contractors.With its range of components, 4B serves a large range of indus t r ie s r ang ing f rom agricultural to industr ia l through to mining and heavy duty industries.With its local presence in

Australia, 4B Braime is aiming to provide a first class technical support and after sales service to its local customer base, a service which 4B feel is vital, particularly for its electronics range.4B Australia’s mother company, 4B Braime, celebrated its 120th anniversary in 2008 and has been a pioneer of the material handling industry, introducing the first seamless steel elevator bucket back in 1909. With the world’s largest range of elevator and conveyor components, 4B Braime’s material handling division has led the field in elevator bucket design and manufacture by supplying the highest of quality components. 4B Braime’s electronic division specializes in level controls, electric sensors and safety control systems that prevent costly downtime and reduce the risks of explosions in hazardous areas.

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News January - February 2011 NEWS

Grain&feed millinG technoloGy January - february 2011 | 11

Belting Half Page FLT.indd 1 20/01/2011 13:18:54

Hubbard Feeds of Bismarck, North Dakota, is the 2010 Feed Mill of the Year, according to the

American Feed Industry Association and Feedstuffs, the sponsors of the annual contest. The runner-up is Cargill’s animal nutrition facility in Giddings, Texas.

The Peavy Company built the winning plant in 1977. In 1983, it was purchased by Northwestern Supply and renamed Heartland, Inc Hubbard Feeds entered into a joint venture in 1993, before purchasing the plant in 2003.AFIA’s Safe Feed/Safe Food Certification Program and the Hazard Analysis and Critical Control Points system certify Hubbard Feeds. Randy Amelsberg has managed the plant for the last seven of his 30 years at this location. Among the employees keeping the running at maximum efficiency, include seven production employees, a truck driver, two supervisory employees, one plant superintendent, a grain merchandiser and three clerical employees. The mill had no lost time and zero accidents since 2006.H ub b a rd F e ed s m anu f a c t u re s approximately 24,100 tons of feed, annually. The plant has a total of 103 grain and feed bins, with approximately 400,000 total bushel storage. Feed volume is tested twice a year and scales are calibrated once a year.The plant produces 90 percent of pellets, with textured and meal comprising the last 10 percent. The majority of feed is bulk, representing 78 percent of capacity, while bagged feed totals 22 percent. The largest volumes produced are for beef, dairy and wild bird. Hubbard serves 94 percent of dealers and six percent of retailers.Safety is important to Hubbard Feeds. The mill has a safety committee, a written safety program that includes self-inspection for OSHA compliance, and mandatory employee safety training meetings.Hubbard Feeds is also active in the community, sponsoring and donating to several causes.Cargill’s animal nutrition mill in Giddings, Texas, is the runner-up of the 2010 Feed Mill of the Year contest. The mill previously won the award in 1991 and 2006, and it was named runner-up in 1989.Cargill’s Giddings mill is certified by both the Hazard Analysis and Critical Control Points system and AFIA’s Safe Feed/Safe Food Certification Program.Cargill Animal Nutrition Plant Manager Byron Sommerlatte, who has managed the Giddings facility since 1988, taps his more than 30 years of industry experience to

efficiently manage Cargill’s 34 production employees. Safety, customer service and equipment improvement are among the qualities ranking Cargill near the top.Cargill Animal Nutrition supplies feed products throughout the region, with a 300-mile marketing radius in South Central Texas and Mexico. The plant produces beef feed products, horse products, poultry products, deer and other game products. The product mix is 70 percent bagged products and includes pellets, meal, minerals, textured feeds, processed grains and pressed blocks.The annual Feed Mill of the Year award recognizes overall excellence in feed manufacturing operations. Increased safety, quality, regulatory compliance, operating efficiencies and overall industry awareness of food safety are among the criteria reviewed for each applicant.“The quality of this year’s candidates was quite impressive as was their dedication to quality control and safety standards,” said Keith Epperson, vice president of manufacturing and training for AFIA. He said this year’s winning mill stood out because there is a “clear commitment from every employee to produce a safe, quality product for the customers of Hubbard Mills.”Over 75 feed facilities competed for this year’s award. “The number of facilities increased again this year,” said Epperson. “I believe this is due in part to the fact that each facility that applies receives important feedback in the way of bench-marking information. Comparing their own mill to others in the industry gives managers a way to focus on the areas where they may have scored low so they can make improvements.”Selection of the top plant starts with an online application process and concludes with personal visits to the top sites by an inspection team from AFIA and Feedstuffs. Final selection is based on a combined scoring of the application and personal visit.Additional details on the 2010 Feed Mill of the Year and the runner-up will be in a future issue of Feedstuffs. Visit www.feedstuffs.com to learn more.The winner of the 2009 contest was a Southern States feed mill in Cleveland, North Carolina. The runner-up mill in last year’s contest was Cargill’s Value Added Meats turkey production plant in Harrisonburg, VA.

More inforMation:Leslie MaloneAFIA2101 Wilson Blvd, Suite 916, ArlingtonVA 22201, USA

Tel: +1 703 5240810Email: lmalone@afia.org

Hubbard Feeds Named 2010 Feed Mill of the Year

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