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Grain & Oilseed Market Outlook 2012/13 - another season of extremes Jack Watts Senior Analyst AHDB/ HGCA.

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Presentation on theme: "Grain & Oilseed Market Outlook 2012/13 - another season of extremes Jack Watts Senior Analyst AHDB/ HGCA."— Presentation transcript:

1 Grain & Oilseed Market Outlook 2012/13 - another season of extremes Jack Watts Senior Analyst AHDB/ HGCA

2 Introduction - a season when... A long term trend will be broken US maize supply becomes a long term driver Extreme weather has become the norm The global wheat market is becoming more assertive Forecasters have to grapple with demand rationing

3 Not forgetting... macro-economics and politics

4 Paper overview The grains perspective Maize – in summary Wheat – becoming more assertive Barley – more than a follower in the modern grain market Oats – an evolving niche market The oilseeds perspective Palm oil – the price limiting factor for vegetable oils Soyabeans – the need to bridge the Oct-Mar supply gap Rapeseed – global production fails to impress Sunseed – providing less relief

5 Grains

6 OECD consumption forecasts - the long term driver Source: OECD

7 Growth in global meat demand - a key driving force of rising grain usage Source: USDA

8 Why demand rationing is difficult to forecast Strong prices Processing / livestock margins reduce Forecasters reduce demand predictions Prices fall Buyers take advantage of lower prices

9 International grain futures (nearby) - relationships are changing Source: AHDB

10 Maize

11 Global maize supply and demand - high prices now impacting demand Source: USDA

12 Mt10/1111/12 Est.12/13 Proj. JunSeptOct Opening stock Production Yield (bu/acre) Total available Demand Feed Ethanol Exports End stock Stocks-to-use8.6%7.9%13.7%6.5%5.5% US maize supply and demand - demand rationing now evident Source: USDA

13 Funds / speculators in CBOT Maize - recent sell-off, but remain long Source: CFTC Commitments of Traders Legacy report (Futures Markets Only)

14 European maize production (Mt) - down more than 10Mt on 2011 Germany Hungary Italy France Romania Ukraine Spain Bulgaria Serbia Source: IGC

15 South American maize supplies - less impact than soyabeans, but useful supply Source: USDA

16 Maize summary US drought is the big issue – a tight supply situation has got tighter As a result, demand rationing is essential, hence high prices European issues also compounding US drought impacts Increasing reliance on South American crop, but less so than in the oilseeds market Funds remain long so can possibly amplify the impact of new S&D information

17 Wheat

18 World wheat supply and demand - stock erosion expected in 2012/13 Source: FAO

19 World wheat exports - US of increasing importance Source: IGC

20 International wheat prices - rising as Russian supplies dwindle Source: AHDB/HGCA

21 Egyptian (GASC) wheat purchases - the largest importer securing supplies Purchase DateQuantityOriginDelivery Date 11 th Aug120KtRussian1-10 Sep 14 th Aug120KtRussian, Ukrainian21-30 Sep 25 th Aug180KtRussian, Romanian1-10 Oct 1 st Sep335KtRussian, Romanian, Ukrainian Oct 11 th Sep235KtRussian, French, Romanian11-20 Nov 13 th Sep235KtRussian, French, Romanian21-30 Nov 26 th Sep300KtFrench, Romanian1-10 Dec 3 rd Oct240KtFrench, Argentine11-20 Dec TOTAL1,765Kt Source: Reuters

22 World wheat stocks (Mt) - US and India(?) key in avoiding 07/08 scenario EU-27StocksSTU 2007/ % 2012/ % USStocksSTU 2007/ % 2012/ % ChinaStocksSTU 2007/ % 2012/ % ArgentinaStocksSTU 2007/ % 2012/ % RussiaStocksSTU 2007/ % 2012/ % IndiaStocksSTU 2007/ % 2012/ % AustraliaStocksSTU 2007/ % 2012/ % UkraineStocksSTU 2007/ % 2012/ % CanadaStocksSTU 2007/ % 2012/ % Source: USDA

23 Chicago nearby futures prices - the spread is widening Source: AHDB / HGCA

24 Australia - Lower area, dryness, but reasonable stocks Key features: Plantings down 4% YoY at 3.686Mha 2011/12 production: 29.5Mt (ABARES) 2012/13 forecasts: ABARES: 22.5Mt USDA: 23.0Mt IGC: 22.5Mt Stock draw down in 12/13 Source: ABARES, USDA, IGC

25 Argentina – lower area but good yield potential Key features: Area declining – historical low Good yield potential in 12/13 Export policy Source: BAGE, USDA

26 Shifting in Argentine crop areas - Soyabean dominates, but watch barley Strong soyabean economics An up and coming barley exporter Is wheat becoming a niche crop in the Americas? Source: USDA

27 European S&D and export licenses - finely balanced, again M tonnes2010/112011/12 est 2012/13 fcast Opening stocks Production Imports Demand Human cons Animal feed Bioethanol Exports Closing stocks Source: EU Commission

28 Key European wheat producers - a mixed bag ProductionExports 2011/12 est 2012/13 fcast 2011/12 est 2012/13 fcast France Germany Poland Hungary Romania Bulgaria Source: Strategie Grains

29 European grain - stocks have bailed out unimpressive production recently Source: EU Commission

30 UK wheat S & D – low production, high imports, uncertain demand M tonnes2010/112011/122012/13 fcast Opening stock Yield (t/ha) Production Imports Total availability Domestic demand H&I Feed S&D balance Exports Closing stock Source: Defra, AHDB

31 GB wheat quality - specific weights the big issue as well as variation Specific Weight (Kg/hl) Hagberg F.N (Seconds) Protein (% dm) AverageSD*AverageSD*AverageSD* Nabim group Nabim group Nabim group *Standard Deviation 2011 final results –67,933 samples 2012 provisional results – 54,060 samples Source: AHDB / HGCA

32 GB quality: High quality bread wheat - Group 1, 76Kg/hl, 250s, 13% 2011 final % samples meeting spec 2012 provisional (10 Oct) % samples meeting spec Source: AHDB / HGCA

33 GB quality: Medium quality bread wheat - Group 1/2, 74Kg/hl, 180s, 12.5% 2011 final % samples meeting spec 2012 provisional (10 Oct) % samples meeting spec Source: AHDB / HGCA

34 GB quality: Soft wheat - Group 3,74Kg/hl, 180s, 10.7% 2011 final % samples meeting spec 2012 provisional (10 Oct) % samples meeting spec Source: AHDB

35 UK milling wheat pricing – rapid move to import parity: harvest delay and quality Source: AHDB / HGCA

36 Physical and futures prices detaching - limited availability of 72.5Kg feed wheat Source: AHDB / HGCA

37 Wheat summary Lower global output in 2012/13 is making wheat less abundant – globally Declining exporter stock levels - US is critical India could become a useful exporter Wheat needs to build premium over the feed grain market to regulate global animal feed demand The market is not in a 2007/08 scenario, but weather issues in 2013/14 could further sensitise stock levels

38 Barley and oats

39 Barley is globally tight and 2009 surpluses now eroded Source: USDA

40 Key players in barley production - fragile export availabilities M tonnes2011/122012/13Change EU Russia Ukraine Canada Australia Argentina Source: IGC

41 World barley exports - Argentina emerging as a real player Source: IGC

42 EU barley supply and demand - rebound in French production Million tonnes 2008/092009/102010/112011/ /13 Oct fcast Opening stock Production Imports Demand Feed H&I Exports Ending stocks Source: EU Commission

43 Malting barley export prices – good EU quality, squeezing premiums Source: RM Analytics

44 UK barley S & D - recovery in feed demand M tonnes2010/112011/122012/13 forecast Opening stock Production England & Wales Scotland Imports Total availability Domestic demand H&I Feed S&D balance Exports Closing stock Source: Defra, AHDB

45 GB barley quality - lower N levels compared to the 2011 drought hit crop Nitrogen (%) Screenings (% through 2.25mm) AverageSD*AverageSD* Winter Barley Spring Barley *Standard Deviation 2011 final results – 29,829 samples 2012 provisional results – 27,662 samples Source: AHDB / HGCA

46 EU oat supply and demand - tight stocks a key feature M tonnes2010/112011/12*2012/13**% change Opening Stocks % Production % Finland % Germany % Sweden % UK % Demand % Exports % End-Season Stocks % *estimated, ** forecast Source: IGC, Defra

47 UK Oat Production – a niche crop that needs to compete for area Source: Defra

48 Barley and oats summary Global barley is finely balanced and is becoming increasingly reliant on the Southern Hemisphere - Argentina A rebound in French barley production and reasonable quality is keeping EU premiums low However, absolute prices are supported by the strong feed grain market – risking quality barley entering the feed market To maintain sufficient supplies, oats need to compete for land against the mainstream crops – pre-planting price signal is key

49 Questions - grains

50 Oilseeds

51 Global vegetable oil prices - widening spreads Source: Oil World

52 Malaysian palm oil supply and demand - seasonal production peak looks strong Source: Malaysian Palm Oil Board

53 Global soyabean supply and demand -production recovery in 2012/13? Source: USDA

54 Seasonal soyabean supply - holding out for potentially large South American crop Source: USDA

55 Chicago soyabean crush margin -strong despite high raw material costs Source: AHDB / HGCA

56 Chicago soy complex - meal is driving the crush margin Soya oil has remained relatively flat with the threat of demand switching to palm oil Soya meal is the dominant protein meal. Switching opportunities to other protein meals is limited, enabling values to rise – supporting crush margins Source: AHDB / HGCA

57 Soya meal production - heavily dependent on good South American crops Source: USDA *Forecast

58 US soyabean exports (as at late Sep) - buyers hedging the South American risk Hedging South American crop risk? *Forecast Source: USDA

59 South American soyabean prospects - the market expects a record crop Brazil Record plantings of 27.14Mha - 8% year-on-year increase (CELERES). Early dryness in central regions delayed planting, but rains have since arrived. Argentina Record plantings of 19.7Mha - up 4.5% on last season (BAGE). Wet weather in the lead up to planting has helped soil moisture. Drier conditions recently for planting Brazil soyabean growing area Argentina soyabean growing area El Nino Neutral La Nina Source: CELERES, BAGE

60 European rapeseed - production continues to disappoint at sub-20Mt EU Rapeseed Supply and Demand (Mt) Mt10/1111/1212/13* Opening stocks Production Imports Exports Crushings Other use Closing stocks Mt -8.0% 5.4Mt +1.1% 4.9Mt +26.6% 1.73Mt -7.5% Source: Oil World

61 Canadian & Australian Canola – no record crop expectations this season *estimate, **forecast Source: COPA, Statistics Canada, ABARES

62 Sunflower seed production - down almost 3Mt (7%) on last season Mt09/1010/1111/1212/13 fcast World Russia Ukraine Argentina EU Stocks Crushing Source: Oil World

63 Oilseeds summary Seasonal peak in palm oil output is making the commodity competitive for demand, limiting wider vegetable price rises However, rising soya meal prices are supporting crush margins, despite high soyabean prices The world has never been so reliant on the approaching South American soyabean crop. Any weather threat will result in volatility and impact Chinese import levels Rapeseed expected again to be in tight supply. Weather issues in EU and Canada focuses attention toward Australia

64 Conclusions Expect volatility to remain for the foreseeable future Demand rationing is required in 2012/13 to balance S&D Production depending, the long term increasing demand trend should be expected to continue Political and macroeconomic influences may increase: US, China, EU The global grain industry is now five years into the new volatile era, businesses need to evolve

65 Final comment - fixed price selling/buying can only do so much in volatile markets Source: AHDB / HGCA

66 Thank you


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