Raw Material Update Winter 2008

The raw material market continues to experience great volatility with the last 4 months showing a downward movement in many raw materials.

The causes in these movements are numerous but the main factors are:

• Global credit crisis leading to the onset of recession in many countries with the associated slow down in spending.
• Near record cereal harvest in Europe with stocks starting to build from 30 year lows.
• Huge falls in crude oil prices.
• Exchange rate volatility supporting wheat exports from the UK but adding to the cost of imported raw materials.
• Financial funds liquidating positions.

Energies

The above graph highlights the vast spread in wheat prices over the last 18 months with December 07 & January 08 peaks being driven by world demand for cereals outstripping supply & stocks. With a record European harvest in late summer 2008 cereal prices started to tumble.
Current UK wheat prices are attracting some export demand but at these levels sellers are reluctant as these prices are well below the cost of production.
Forward prices currently for wheat show only small increases into 1st half 2009 with wheat stocks starting to build again.

Proteins

Soya values continue to show great volatility. In recent months the exchange rate ($ against £) has lifted the spot price with one cent drop in value adding £1.50 to a tonne of soya despite optimistic views on the supply of soya.
The GM issue continues to cloud the availability of US maize derived mid proteins leaving EU origin gluten & distillers expensive.
Rapemeal has fallen significantly in price recently due to a ready supply of rapemeal across Europe.Rapemeal currently offers good value in the protein market.

Fibre

The general downturn in prices has followed through to fibre sources especially soya hulls & citrus pulp. Sugar beet pulp, despite bumper crops of beet, looks expensive.

The forward outlook does look more stable than of late. We have thought that before and seen prices fluctuate wildly on sometimes thin rational. Should raw materials remain weaker this will be good news for all our customers as we would look to reflect this in lower feed prices. 

Andrew Galling
Raw materials

RAW MATERIAL UPDATE JUNE 08

As can be seen from the table above raw material prices continue to be unstable, with cereals showing a marked decline – on the back of optimistic harvest predictions, and the fact that there is still a significant amount of old crop to be moved before this years harvest.
Global oil and energy prices along with high demand for food leading to the continued hardening of protein prices: However the view looking forward to autumn is somewhat easier with almost all materials with the exception of urea showing weakness. The coming northern hemisphere harvest is awaited with great interest.

The recent UN summit on the world food situation has done little to solve the current problems and shortages, but it has highlighted to governments worldwide the need to increase production, calling into question the ethics and efficiency of Bio fuel production, along with a changing view (not globally accepted yet) that GM crops must play a part in helping to avoid what could become a massive humanitarian disaster.
This must be good news for farmers, especially those in temperate areas with relatively stable climates.

RAW MATERIAL PRICES AND IMPLICATIONS

Since the last comprehensive report posted on this site in August 07 the raw material market has continued to rise, almost exponentially. The reasons for this are many, but all are here for some time to come.

The continued growth in the economies of countries such as China and India with massive populations to feed, with people themselves wanting more food, better food, and more food choices. When these extra demands globally are put in the context of little or no food stocks held anywhere in the world means that the sellers hold sway. It is also quite amazing that given these two facts most of the developed world’s governments are rushing headlong into producing food crops to process into Bio Fuels. It is now widely accepted that one major weather event, would rapidly lead to major food shortages throughout the world.
So whilst we will have fuel for our vehicles we will either be short of food, or must be prepared to pay much more for that food. Although a recent report from an all party committee of MPs points to the folly of this strategy, however this needs balancing by the current governments concern (or lack of it) for food security, being as it seems quite happy to see more and more food and food products imported into this country.

So as we can see some of the reasons for these massive rises are indeed global, however one other issue is causing great pressure and difficulty, and that is the EU and its stance on GM crops. This has meant the virtual disappearance of North American Maize Distillers and Maize Gluten from the market. Also has been the activities of city speculators who have latched on to rising prices and money making opportunities through the futures markets.

The raw material implications for compound feed therefore remain bleak and the following market price table gives a clear indication of that:-

In the space of two years there has been a 97% increase in prices, and in the last twelve months a 38% increase. This will inevitably lead to a feed price rise this spring in the order £35-£40pt.

Not good news and not what farmers want to hear, however as food prices to the consumer do increase this must eventually benefit the primary producer, as has been seen recently in the dairy sector.

Howard Blackburn
Managing Director       
22/01/08

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