September 2, 2010

Bad weather pushes global grain price hikes

Due to adverse weather conditions in three of the world's six major wheat exporters - Russia, Ukraine and Kazakhstan - the price of grain has increased once more.

The remaining three are the US, the EU and Argentina. This has led to an export ban in Russia and export restrictions in the Ukraine, which has caused considerable speculation in the international grain market. Increased investment fund activity and a weaker US dollar over the last few weeks have further increased volatility in the market.

The impact of this on the Irish pig producer is that feed prices, which account for 65-70% of the total cost of production, have recently risen by EUR10-15 (US$12.74) per tonne and are at risk of another imminent rise.

The timing of these rises is unfortunate as the industry had just returned to profitability after a number of setbacks in recent years, including high prices in 2007-2008, the dioxin scare and a sustained poor pig price.

The current difficulty is compounded by the fact that the outlook for the grain market during the spring was for the grain harvest price trend to continue at the recent low level, albeit with a slight rise. This has resulted in most pig producers who are home compounding now having no forward grain contracts in place.

However, the situation today does not look as bleak as in the 2007-2008 season when feed prices soared. They are forecasted to be 50 million tonnes higher than in 2007-2008; although world wheat stocks are projected to be 12.3 million tonnes lower than last year at 175 million tonnes. In addition, the reduced level of wheat exports from the Black Sea area (Russia, Ukraine and Kazakhstan) is expected to be offset by increased exports from the EU, Australia and US (+15%). This is already in evidence with Egypt recently switching its imports from the traditional Black Sea area to the US and Argentina for the first time in a year.

Over the next few weeks, the bulk of the harvest in the EU and Black Sea region will be completed and the projections for the US corn crop (wheat substitute) will have hardened. This accurate data will help to reduce some of the speculation in the market and hopefully allow grain prices to reduce from their present panicked high to more realistic levels.