28 September 2022 - Rising ingredients prices are almost certainly the biggest weight on the minds of feed manufacturers today. Thus, the presentation by Andrée Defois, founder of Stratégie Grains on the subject “what is next for feed raw materials markets” was met with an enthusiastic reception by the audience of Day 2 of the Feedinfo Summit yesterday.
As Defois noted, the 2022 spike in grains prices was higher than those of 2008 or 2011, while in protein meals, we have not yet climbed higher than in previous spikes.
This upside pressure is caused by widely understood factors. First, there is the strong economic growth and demand recovery post-COVID. Second are high energy and fertilizer prices driving up costs for farmers: fertilizer prices have tripled in price since 2022, and their upward drive dates back as far as 2021. Third, there is the war in Ukraine, and the generally low grain stocks globally over the last several years. 2020/2021 had the lowest grain stocks of the last eight years; since then, grain stocks have been slowly but surely recovering.
When it comes to the 2022/2023 harvest, Stratégie Grains predicts that wheat, barley, and soybean stocks will increase strongly compared to this year, even in the absence of Ukrainian grain. This, of course, should drive prices downward somewhat.
Specifically, a record Russian crop and recovery in North American harvests is expected to drive a 1% increase in global soft wheat production, despite crop failure in India and the EU, as well as a big drop in Ukraine.
Meanwhile, global soybean production is expected to add a lively 10% compared to last year, thanks to substantially increased forecasts in Paraguay, Brazil, and Argentina; Defois explained that soybean is favored in crop rotations due to lower input requirements as fertilizer and energy remain expensive. And on rapeseed, Stratégie Grains expects a 15% increase thanks to Canadian and EU production.
Unfortunately, the same is not expected for maize, for which the 2022/2023 stocks will be slightly lower with or without Ukraine. This is largely due to the “very serious” impact of EU drought, as well as the loss of acreage in Ukraine and a big drop in USA due to lower acreage and drought. Meanwhile, the extent of contributions by South America to these numbers is uncertain, but given the soybean fertilizer dynamic explained above, as well as the effects of “La Nina”, it is expected to be lower.
Defois claimed that this has caused maize to lose attractiveness compared with other feed grains. The spread between maize and wheat prices in both the US and Ukraine is approaching 0. Moreover, it is making protein-rich materials highly attractive compared to cereals.
At the moment, Defois said, demand for grains from the animal sector is seen to be lower because animal production is struggling with profitability. Global feed demand is expected to decrease slightly (less than 1%) for a second year in a row.
Overall, this comes out to a supply and demand situation for 2022/2023 which is “comfortable to heavy for soybean, but tight for maize”, she explained.
And beyond that? Even given the “limited potential” of Ukrainian production (in Defois’s euphemistic terms), production trend forecasts should allow the global tightness to alleviate from 2023 to 2025, barring further unexpected developments. Still, she does not expect prices to go back to the levels seen in 2019/2020, due to the higher costs, particularly energy, and also to environmental requirements such as Europe’s Green Deal driving up production expenses.
