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31-08-2016

Effects of wettest drought in history

Post Brexit Sterling has begun to settle and seems to have found its comfort zone, however, despite the fall increasing our UK import values, this seems to be the least volatile factor affecting feed material prices, according to ForFarmers’ Phil Watkins.

Soya meal value, leading proteins, has risen from near £240/t in early March to a peak of close to £390/t by mid-June, but is currently back to around £330/t. The main reasons for the rally were: a poor Argentinian harvest, due to heavy rainfall; talk of increased Chinese demand; and the managed money funds, which were short. The funds had believed the market would ease on large global stocks and started to buy contracts, in a serious way, thinking that dry weather in the US would further reduce supply.

So where now? The US crop is looking great although it’s coming into the critical August pod-filling stage. The dry weather hasn’t materialised yet with one trader commenting that it’s been the ‘wettest drought in history’. Until the US harvest is complete, concerns will remain as current supply and demand are evenly balanced. Looking at energy feeds, global grain stocks are high and large harvests are being reported to both the east and west. However, early dry spells in northern Europe, followed by substantial rains later in the season, have reduced yields.

Overall, we feel that UK ‘energies’ are due to rise, although this should be capped by large global stocks, but proteins still have potential to ease assuming that the US end up with a substantial soya crop. The market, however, is expected to remain extremely volatile during the next few months.