October 22, 2010
EU feed grain prices climb to two-year high
Prices for feed grains have risen to two-year highs in the EU on speculations of a possible supply crunch.
However, EU feed makers are hoping to ride out the storm, clinging to the prospect of sales from EU stores.
Traders said EU animal feed compounders have taken little cover for 2011, believing prices are overinflated following a rally fuelled by lower-than-expected US corn yields and drought in the Black Sea region.
"The feeders are not buying. They don''t like any price, no matter what the commodity (feed grain) is, and they''ve got little coverage at all for 2011," one UK grain broker said.
Supplies of crops such as feed wheat in the EU are relatively plentiful shortly after summer harvests but usually become tighter as the marketing season progresses.
Traders in Spain also said feed makers had locked in deals to ensure supplies of feed wheat from Bulgaria and Romania or corn from Brazil until the end of the year. Few deals have been settled for the new year, however.
A sharp rise in the cost of corn following downward revisions of the size of the US crop has coincided with grain export restrictions from the Black Sea region after a severe drought to create tightness in the global marketplace.
An EU plan to start selling its 5.6 million tonnes of intervention grain stocks may help ensure there are sufficient supplies in the first half of 2011, traders and analysts said.
"We are likely to see noticeable market relief from the EU''s decision to sell its intervention grain stocks, which are mostly feed barley. I think there will be strong purchase interest in the EU stocks," one trader said.
French analyst Strategie Grains this month estimated that the region this year would have a feed grains deficit (the difference between the estimated ending stocks and the minimum stock requirement) of over three million tonnes, up from 1.6 million tonnes seen last month.
Giulio Usai, an economist at Italian feed makers association Assalzoo, said smaller corn and soft wheat crops expected in some major producing countries do not threaten the overall supply situation and do not justify the current high level of grain prices.
The drought in Russia and its subsequent export ban led to a large premium for feed wheat over corn in the EU, giving corn a competitive edge that it has only partly given back during its recent rally.
But analysts forecast that global corn production is likely to fall below demand this year.
"Germany has a large volume of wheat that is only reaching feed quality, and this has to be sold somewhere. Tightness in feed supplies may mean good demand for German feed wheat both inside the EU and in the Middle East in coming months," one trader said.
A state grains institute has confirmed fears that around 50% of Germany''s wheat crop this summer will reach only feed quality against 20% in normal years.