Commodity markets start to tighten

According to DairyCo, feed wheat futures for May-14 have rallied in recent days, bouncing off of the low of almost £151/t set on 31 January, with prices around £154.50/t at the time of writing.

To demonstrate a sustained rally, analysts and traders will be looking for the market to hold above and take support from the £155/t level. New crop prices (Nov-14) have seen the same trend, bouncing off the low of £142/t and now hovering around £145/t.

The price trends of recent days have been a global affair with both US maize and Paris wheat futures tending higher since late January. Recent days have also seen slight weakening in the Pound (supporting UK prices) against the longer-term strengthening trend.

In the US, monthly crop condition data from the top wheat state, Kansas, helped support the market. Some 20 per cent of the wheat crop was rated as poor or very poor at the end of January – against just six per cent a month earlier. This has pushed the market toward ‘rumour trading’ as the full impact of this winter’s weather won’t be quantifiable until spring. Linked to this, speculators (who have largely taken a downward view towards prices this season) are expected to be reducing sold positions as confidence in the new crops loses its edge.

In South America, where this season’s focus has largely been around soyabeans, confidence in the maize crop has reduced – adding a bullish flare to feed grain prices. In Argentina, Informa Economics have reduced production estimate by 2.4Mt to 22.6Mt following a less than ideal growing season. The Brazilian crop was also revised slightly lower.

US soyabean futures have also rallied in recent days, breaking out of the narrow price channel that had been created since 20 January and at levels not seen since mid-January. Over the last week May-14 values have increase from $461 (£279/t) to $477/t (293/t).

Following the rise in global prices, UK soyameal values have also picked up, with Hi-pro (ex-store, East Coast) reported at £367/t on 31 January – up £5/t on a week earlier. However, it still remains below levels of late 2013.

Following a period of growing confidence for the Brazilian soyabean crop, a period of dry weather has now commenced, creating some concern although the crop is still expected to be a record. This, combined with an expectation that logistics will again be an issue this year, is supporting demand for US soyabeans, which are becoming increasingly tight in supply. This is being compounded by the severe winter weather, which is hampering some US river traffic and so the movement of commodities to ports.

Demand for US soyameal is also strong as exports from the world’s largest exporter of the commodity, Argentina, are relatively low as farmers hold onto soyabeans as a hedge against strong inflation. As and when this comes to a head (either inflation drops or farmers are forced to sell for cash flow) it could be quite a bearish factor for the animal feed protein market.

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