Raw material market update

Market conditions and outlook for the winter

As the summer draws towards an end, farmers will begin to turn their attention to contracting their feed for the winter period, no doubt decisions on whether or not to contract will be the subject of much discussion in the farming community. However, it’s difficult to see what factors would now drive down the November-April period.

Weather has had a major impact this year on crops around the world, droughts stretching from Canada to Brazil has hit wheat, maize, soya and rapemeal crops hard, and month after month, the USDA along with independent analyst’s keep reducing yield forecasts. It’s been a similar story across Europe and Russia with crops being hit by either drought or extreme flooding, this comes at a period when world stocks are already at very low levels and there will be little carryover from one crop season to the other.

Despite the above circumstances the opportunity remains to contract for next winter at similar levels to this summer, and certainly below where the markets hit their peaks for proteins during January/ February and cereals during June/ July this year.

When considering whether to contract or buy spot for the winter it’s probably best that we list the primary market drivers that could affect prices over the coming months.

Summary

It’s almost impossible to try and second guess what effect currency and the investment funds will have on the markets but it’s difficult to escape the fundamentals before us; poor global crops (despite our own domestic harvest), low world stocks (UK included with no carryover of either wheat or barley), continued strong demand from China and India, and ever-increasing costs for manufacturing, freight, haulage and wages, which seem to have been exacerbated by Covid and Brexit.

It’s worth considering that although prices remain relatively high in comparison to previous years, they are still a long way off the highs that we saw during last winter when we saw soya prices at £490 and rapemeal and distillers over £300.

Long term it’s difficult to give an argument for any big drop in feed prices, except for occasional dips in the market, however there is potential for large increases as the highs we experienced earlier in the year have raised the ceiling for raw material markets.

For those uncertain what approach to take, it’s always worth considering the option of spreading your risk and taking cover for a certain percentage of your winter feed requirement, whether that’s 30%, 50% or 70%.

Potential for reduced feed prices

• Our own domestic harvest. Wheat forecast at 15MMT up from 10MMT last year. • Currency – stronger sterling versus dollar and euro • Reduced global feed demand • Better than forecasted global yields • Favourable fund activity on the commodities market

Potential for increased feed prices

• Low level world stocks • Reduced global yields across all commodities due to adverse weather conditions. • Currency – weaker sterling versus dollar and euro • increased global feed demand • Unfavourable fund activity on the commodities market • Increasing freight and logistical costs

To discuss this in greater detail please contact your Wynnstay Representative.

Carwyn Worthington

Senior Trading Manager

t: 01691 827128 e: carwyn.worthington@wynnstay.co.uk