March 11, 2009

As feed costs have been the major headache for UK egg and poultry producers for the last 18 months, the pressures are seen to continue amid the global slowdown.

 

The volatility in prices has been evident since the start of 2009 despite sharp decline on ration costs from their peak in April last year.

 

These fluctuations merely increase the pressures on the industry because producers are rapidly exposed to these price changes.

 

The price of Poultry World's basic layers ration at GBP184/tonne (t), is now GBP50 below its 2008 high, but has gained GBP30 in the last two months.

 

While there has been a recent increase in global grain costs, UK worries in the weakness of sterling, which has sharply magnified those global increases.

 

Sterling is down by 30 percent against the US dollar compared with the exchange rate for much of last year, and this has had an especially dramatic effect on soymeal costs.

 

US soy exports for example, is currently quoted at US$380/t (GBP262), an increase of US$55/t (GBP38) since December, but US$250 (£172) lower than last July.

 

By contrast, UK-produced soymeal hit a new high of GBP345/t in January, compared with GBP325/t last summer, despite coming back to GBP300 last month. This surge in soy is largely behind the recent rise in ration costs.

 

Looking at current soy prices, Alex Miller, soy trader at Cargill, admits that soy complex "provides us with a challenging paradox that needs resolving" amid the global economic crisis.

 

On the one hand, global stock levels are reducing following the current predicted South American crop, which in isolation is bullish. However, world demand is contracting in line with the global slowdown, which is bearish.

 

Traders say the battle as always depends on which has stronger influence, supply or demand, and the challenge for the market is to decipher the direction, and predict correctly the outcome.

        

With wheat, the situation looks a little more favourable. US export prices stabilized lately, hovering around the US$200/t (GBP138) mark since October, apart from a short dip in early December. Last summer they peaked at over US$400/t (GBP276).

 

In the UK, feed wheat has bounced back up from GBP84 to GBP109 since October, which also drove ration costs, but remains some GBP70 below last year's highs.

 

According to analyst Frontier's Simon Christensen, wheat markets will continue to challenge all those involved in the cereals arena. He believes that the supply situation will also have influence on prices.

 

He added that production levels across the globe remain the biggest focus as to where grain values will move next. This year's record wheat crop has provided some comfort in prices, against the back drop of the 2007 harvest rally.

 

Christensen also predicts the next three months from a crop development perspective in the northern hemisphere, along with the planting progress in the southern hemisphere, will give a better idea as to the likely price movement in the second half of 2009.

 

That supply situation is regularly reviewed by the International Grains (IGC) Council in its market reports.

 

In the latest of these, it maintains the immediate supply and demand outlook for grain prices remains "generally bearish", with forecast for global stocks tending to be adjusted upwards in recent months.

 

Looking forward to 2009/10, IGC comments that lower prices and higher input costs are affecting wheat plantings, and production is likely to fall sharply. Largest declines are expected in the EU, Russia, Ukraine, US and China.

 

Although total wheat production would be down 37m tonnes from the 2008 record, it would still be "well above average".