Feed Bussiness Worldwide: September 2014

 

by Eric J. BROOKS

 

After ten years pockmarked by hyperinflation, a succession of new price records and unprecedented market volatility, the world market for feed inputs has entered a new era of more lower, stable prices and reduced volatility.

 

 

 

For livestock farmers, the cost relief could not come fast enough, as high feed costs made them suffer countless losses over the past ten years. From July 1999 to their peaks in 2011 and 2012, the cost of soy, corn and fishmeal skyrocketed 311%, 267% and 433% respectively. Moreover, even though late August saw corn, soy and fishmeal trading 57%, 42% and 5% respectively below their all-time price records, this recent deflation must be put into perspective.

 

Even after undergoing a new, recent round of steep deflation, feed inputs remain far pricier than they were at the turn of the century. Corn remains 66% above its price of 15 years ago, soy 119% higher, with fishmeal still costing a whopping 393% more than it did in July 1999. All these far exceed the rate of consumer price inflation and is comparable to the rising cost of more popular commodities such as oil or gold.

 

Fortunately, as the accompanying chart shows, after the past year's coincident feed cost deflation and animal price inflation, meat and livestock prices are finally keeping pace or even overtaking the last decade's feed cost inflation. Except in countries like China or India where the cost of feed inputs, meat or both are government controlled, most livestock producers are finally firmly in the black again.

 

 

 

Nevertheless, the present situation, though promising several years of stable, gradually declining feed costs, remains far from ideal. Soy was responsible for the rise in feed costs more than corn or fishmeal. Though it is likely to fall further from today's price near US$10.00/bushel, it remains far above the US$5/bushel to US$7/bushel taken for granted ten years ago.

 

With America's supply of arable land maxed out, a price of US$9/bushel or higher is needed bring fresh, unfarmed Brazilian land into soy cultivation. Depending on whether or not Brazil government finally succeeds in building the new roads and railways required to bring down its high transportation costs, the cost of bringing virgin South American land under soy cultivation could conceivably rise higher. Hence, barring an extraordinary market shock, soy can never fall too far below US$9/bushel for long and will remain almost twice as expensive as it was ten years ago.

 

Second, with a population compared to that of China, India has only 1.8 million square kilometres of agricultural land, compared to China's 5.5 million square kilometers. With India's feed demand rising twice as quickly as that of China, the last five years have seen its soy harvests fall behind its poultry and dairy output.

 

So long as India stays out of the world market for soy, China's feed demand is rising slowly enough for the Americas to keep up with.

 

On the other hand, if India resorts to massive soy imports, the inflationary history of China's entry into the world oilseed market could be repeated, especially if Southeast Asia's meat demand takes off at the same time.

 

Third, although corn has deflated more than soy, it has greater potential for a market upset. As we explain in the last article of our cover story, beneath the bountiful corn supplies implied by China's corn statistics, ground level market contradictions and supply shortfalls abound. Just as India could upset the soy market, a change in China's official corn policy that favors integrators over corn farmers could rekindle the world feed grain market.

 

Finally, despite all the feed market deflation experienced by feed grains and oilseeds, protein meals remain problematic. The accompanying chart shows that unlike feed grains or oilseeds, fishmeal remains nearly 400% higher than it was 15 years ago, and has barely fallen in price.

 

Unlike soy, which can access new South American farmland, or corn, which can be redirected from ethanol production, there is no way of stocking additional fishmeal-suitable fish species into the world's oceans.

 

With no viable substitutes in sight, fishmeal costs will remain problematic, threatening to exert cost pressure on livestock feed through its connection with the soymeal and rapeseed meal prices.

 

All this implies that while low feed costs are here for several years, beyond a few growing seasons, the risk of inflationary upsets still hangs over the market.

 

While we will examine fishmeal's problematic role in more detail in next month's aquaculture issue, in the pages that follow, we examine forces shaping the supply/demand balance and market direction of livestock farming's most important feed inputs.

 

 

The full report is published on the September 2014 issue of FEED Business Worldwide. To read the full report, please email to  inquiry@efeedlink.com to request for a complimentary copy of the magazine, indicating your name, mailing address and title of the report.