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Discussion, opinions and analysis from the Feed Compounder editorial team

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20 November 2017

USDA Updates Soybean PSD Data

As reported in the previous issue of this E-Letter, the United States Department of Agriculture’s Foreign Agricultural Service has updated its Production, Supply and Distribution database with regard to the 2017-18 agricultural year. This update includes the situation as regards soybeans.

The major difference between the November projection as compared to the previous month is a million-tonne upgrade to Brazilian soybean production, to 108 million tonnes. This compares with US production which, at 120.44 million tonnes, has been reduced by 146,000 tonnes compared with USDA’s October projection. There is no change to USDA’s projection of Argentine soybeans; at 57 million tonnes, this is estimated at 800,000 tonnes less than in the preceding crop year.

The increase in the projected Brazilian soybean crop reflects a number of factors. At 108 million tonnes, it has been increased by a million tonnes or 1 per cent from the October projection but it is down by 5 per cent from last year’s record production of 114.1 million tonnes. Total harvested area is estimated at record 34.9 million hectares, up by 0.2 million hectares or 1 per cent from USDA’s October projection and up 3 per cent from the previous season. Yield is forecast at 3.09 tonnes per hectare, up slightly from last month’s projection but down 8 per cent from last year’s record.

Yields for 2016-17 were reportedly at record levels in many parts of Brazil, due to a combination of exceptionally favourable weather and what USDA describes as ‘technological improvements’. The area planted to soybeans is estimated to increase again this season, at the expense of first crop maize. According to government and trade sources, planting intentions reflect an even greater preference this season for soybeans over first-crop maize; this reflects the large maize supply and the disappointing financial returns of last season’s record maize harvest.

Globally, the relationship between end-of-season soybean inventories and domestic consumption is estimated at 5.1 per cent (the latter figure representing the ratio of end-of-season stocks to annual consumption of soybeans). This compares with 5.5 per cent in the previous season and with a ten-year average of 5.3 per cent and would potentially appear to be indicative of modest upward pressure on prices; the emerging outcome of the 2017-08 Brazilian soybean crop will be an important further element in the soybean price equation.

Production Update

DEFRA and its predecessors have been producing animal feed statistics for Great Britain for many years; however, the latest readily available set of continuous statistics goes back to quarterly data published in 1980.

Looking at the latest quarterly data for production of feed in Great Britain, amounting to just under 2.79 million tonnes, raises the question as to how this stands in a historical context. It is certainly the highest total since data was first presented in its current form in 1992. However, taking the quarterly data for feed production in Great Britain, as presented in the years between 1980 and 1991, the highest quarterly total for the years in question was 2.41 million tonnes, a figure comfortably exceeded by production in the third quarter of 2017.

There are obvious caveats to these observations, particularly in the case of poultry where the past three decades have seen the emergence of a significant volume of integrated poultry feed production as opposed to production for retail sale.

At 8.57 million tonnes, production of animal feed in Great Britain during the first nine months of 2017, compared 8.27 million tonnes during the equivalent period in 2016 looks to point towards a new record when data for the year as a whole is available.

Economic Catch Up

There was considerable speculation as to the rate of UK inflation as measured by the Consumer Price Index, following the 3 per cent increase announced in September and which followed the 2.9 per cent increase in August. The 3 per cent rise was the highest reading since early 2012.

In the event, and to many commentators’ surprise, the Office of National Statistics announced on 14 November that inflation, as measured by the Consumer Price Index (CPI) in October rose by 3.0 per cent in October 2017, unchanged from September 2017. The Consumer Prices Index, including owner occupiers’ housing costs (CPIH) 12-month inflation rate, was 2.8 per cent in October 2017, also unchanged from September 2017. However, the inflation rate for food and non-alcoholic beverages continued to increase to 4.1 per cent, its highest since September 2013. Rising prices for food and, to a lesser extent, ‘recreational goods’ provided the largest upward contributions to change in the rate between September 2017 and October 2017. The upward contributions were offset by falling motor fuel and furniture prices, along with owner occupiers’ housing costs, which remained unchanged between September 2017 and October 2017, having risen a year ago.

The fall in the sterling exchange rate following the result of the Brexit referendum was an important element in the inflation rate for food and non-alcoholic beverages. Looking at the food products of most immediate interest to the animal feed industry, the retail price in October 2017 of beef and pork was up, respectively, by 1.4 per cent and 1.3 per cent compared to a year-earlier. The retail prices of bacon and lamb also increased by, respectively, 4.5 per cent and 7.6 per cent. In contrast, the price of poultry was lower by 2.2 per cent. The prices of milk, eggs and cheese rose, with cheese showing the greatest increase, at 4.4 per cent; milk, at 75 pence a litre, was just 1.5 per cent higher.

However, it was butter, mentioned before in this column in the context of developments in the French butter market, that showed the most startling change; at £6.82 a kilo, it was a massive 20.3 per cent higher than in October 2016. This has led to apocalyptic warnings that the fall in butter production, combined with rising demand in the UK, with sales of packs of butter and spreadable butter up by 0.7 per cent, could result in severe butter shortages in the run-up to Christmas. In contrast, sales of alternative spreads are reportedly down by more than 10 per cent.

What all this will mean for the profitability of the feed industry is difficult to judge. Albeit that average feed prices for compound feeds have risen in the latest twelve months for which data is available, the devaluation of sterling since the referendum will mean that a significant volume of raw materials priced in dollars or euros will have seen cost increases in sterling terms. More on this in the next issue of Feed Compounder.

18 October 2017

USDA PSD Update

The United States Department of Agriculture has recently updated its Production, Supply and Distribution (PSD) report for the 2017-18 marketing year. Issued on 12 October, the updates apply to wheat, maize and soybeans.

USDA has increased its projection of world wheat production in 2017-18 by 6.34 million tonnes to 751.19 million tonnes. This reflects significant increases in a number of countries. While India constituted the largest national increase, USDA estimated wheat production for 2017-18 at a record 98.4 million tonnes, up 13 per cent from the previous year; there were significant increases in countries likely to affect prices in the UK.

USDA estimates Russia wheat production for 2017-18 at 82 million tonnes, up 1 million tonnes from last month’s projection and exceeding last year’s record output by 9.5 million tonnes. Total wheat yield is estimated at 3.06 tonnes per hectare, up around one per cent from last month, and up 14 per cent from last year’s record. The Russian winter wheat harvest is complete and the spring wheat harvest should be finished by the end of October.

The projected EU wheat harvest has been upgraded by 2.17 million tonnes to just over 151 tonnes, reflecting an unchanged area planted to the crop but enhanced yields. Australian 2017-18 wheat production is estimated at 21.5 million tonnes, down 1 million tonnes or 4 per cent from last month’s projection and down 12 million tonnes or 36 per cent from last year. While data for the area planted to wheat is largely unchanged, the yield estimate of 1.72 tonnes per hectare is the second lowest in the past ten crop years, with the two lowest yields occurring in the severe drought years of 2002-03 and 2006-07.

Despite these changes, the world and US end-of-season inventory to consumption ratios remain at satisfactory levels, suggesting that there should be no appreciable impact on prices.

USDA has also upgraded world maize output prospects by 6.17 million tonnes but, as far as the UK is concerned, this largely reflects a 2.43 million tonne upgrade of the US crop. Overall, the impact on prices is likely to be minimal as both the world and US ratio of end-of-season inventory to consumption remain at satisfactory levels, suggesting that, again, there should not be an appreciable impact on prices.

An analysis of the world soybean situation will follow in the next issue of this E-Letter.

Northern Ireland Production

Production of compounds, blends and concentrates in Northern Ireland during July, at 166,900 tonnes, was 6,600 tonnes or 3.8 per cent less than in the same month a year earlier and at a six-year low for the month in question.

Production of feeds for cattle and calves, at 78,500 tonnes in July, was down by 5,000 tonnes or 6 per cent compared with the corresponding month a year earlier and, again, at a six-year low. In quantitative terms, the largest decline was in the production of compound feeds for dairy cows, at 39,600 tonnes, down by 2,900 tonnes or 6.9 per cent. There was also a 1,000 tonne decline in the production of coarse mixes and blends for dairy cattle. Production of coarse mixes and blends for beef cattle, at 12,100 tonnes, was down by 2,600 tonnes or 17.9 per cent although production of compounds for beef cattle, at 9,800 tonnes was 1,900 tonnes or 24.4 per cent higher than in the corresponding month a year earlier.

Production of feeds for cattle and calves constituted 47.1 per cent of total production in July 2017 compared with 48.1 per cent in the same month in 2016.

At 16,800 tonnes, production of feeds for pigs in Northern Ireland during July 2017 was 1,900 tonnes or 10 per cent less than a year earlier. Production of feeds for pigs constituted 10.1 per cent of total output during the month in question, compared with 10.8 per cent a year earlier.

In volume terms, the largest fall in output was in feeds for finishing pigs, at 7,000 tonnes, down by 1,400 tonnes or 16.8 per cent. There was also 400 tonnes or 10.9 per cent fall in the output of grower feeds although output of starter and creep feeds and link and earlier grower feeds was higher. Production of feeds for breeding pigs was also higher, however it must be remembered that although percentage changes in output may be large, the volume of pig feeds production in Northern Ireland is relatively small.

Production of feeds for poultry in Northern Ireland during July, at 63,900 tonnes, was 300 tonnes or 0.4 per cent higher than in July a year earlier. Production of poultry feeds constituted 38.3 per cent of total production compared to 36.7 per cent a year earlier.

The largest contributor to increased production of poultry feeds was, predictably, broiler feeds which, at 36,800 tonnes in July, were higher by 1,100 tonnes or 3.1 per cent than in the corresponding month a year earlier. There was also a very small increase in the production of layer and breeder feeds which, at 21,700 tonnes, were 100 tonnes or 0.7 per cent higher than in July 2016. However, production of rearing feeds for chicks and feeds for turkeys and other poultry feeds were lower.

Production of feeds for sheep and lambs in Northern Ireland during July amounted to 2,900 tonnes, equivalent to 1.7 per cent of total production of compounds, blends and concentrates during the month in question, compared with 1.8 per cent for the same month a year earlier.

There is some indication that livestock farmers in Northern Ireland were making increased use of straight or lightly processed feeds during the month in question. Production of flaked maize and barley, together with their respective meals, amounted to 4,700 tonnes, up by just over 5 per cent compared with the corresponding month a year earlier.

The downturn in the production of prepared feeds in Northern Ireland interrupts the trend of increased output noted during the present decade. It remains to be seen whether this is a temporary phenomenon or indicative of new factors entering the equation.

Cumulative analysis of feed production in Northern Ireland will appear in the next issue of this E-Letter.

‘Mistake’ Tweaks Interest Rate Prospects

The Office of National Statistics has added to the speculation about a possible interest rate rise in November by admitting that it had made ‘a mistake’ in its original calculation for the growth in unit labour costs, the price paid by employers to produce a given amount of economic output.

The measure stood at an annual 2.4 per cent in the three months to June, as opposed to the 1.6 per cent originally published by the ONS the previous week. The ONS apologised for the error, saying it was in consequence of using income data from the Second Estimate of GDP instead of data from the Quarterly National Accounts.

The ONS said that ‘We have corrected this error’. What has happened to the individual or individuals responsible is unknown – the rack and thumbscrew comes to mind!

Meanwhile, City AM, the Square Mile-oriented freebie, opined that in the years following the financial crisis, with unemployment still low, it was fair to assume that firms were keeping hold of staff with the intention of giving them more work to do once business picked up, thus contributing to the UK’s poor record on productivity. It remains the case that theories behind the UK’s productivity crisis are numerous, but the Office of Budget Responsibility has recently thrown its weight behind a suspicion that has lingered for some time – namely, that the ‘abnormally low level of interest rates could be … allowing weak and highly indebted firms to survive for longer than they normally would.’

A recent City AM headline proclaimed that ‘Now is Finally the Time to Raise Rates’. There appears to be a growing consensus that the first increase in rates could happen in November. Markets have priced in an 87 per cent chance of a 25 basis-point increase on 2 November, which would reverse the cut put in place after the Brexit vote in 2016.

Consumer Price Inflation (CPI) rose from 2.9 per cent in August to 3 per cent in September; it was last higher in March 2012. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.8 per cent in September 2017, up from 2.7 per cent in August 2017; it, too, was last higher in March 2012.

10 October 2017

Production Catch-up – Great Britain

On 5 October, DEFRA released data on livestock feed production in Great Britain during the month of August.

Total production of compounds, blends and concentrates during August amounted to 898,100 tonnes, 19,600 tonnes or 2.2 per cent more than in August 2016. This total was the highest since records first started to be kept in their current form in 1996.

Production of feeds for cattle and calves amounted to 313,800 tonnes in August 2017, 30,400 tonnes or 10.7 per cent more than in the same month in 2016 and the highest total for the month of August since 1995. In volume terms, the largest contribution to the increased volume was, once again, the production of compounds for dairy cows which, at 164,200 tonnes, were 11,500 tonnes or 7.5 per cent ahead of the same month a year earlier. There was also a substantial increase in the output of dairy blends at 59,800 tonnes, up by 7,100 tonnes or 13.5 per cent. In addition, all other cattle compounds, at 47,700 tonnes, were higher by 8,700 tonnes or 22.3 per cent compared to August 2016.

Production of feeds for calves during the month, at 17,800 tonnes, was 1,700 tonnes or 10.6 per cent higher than in August 2016, and a record for the month in question since data was first kept in its current form in 2001. There was also a near-10 per cent increase in the production of non-dairy blends.

These figures reflect the current level of profitability noted in the dairy sector, although the degree of variation in profitability was reportedly very high.

Production of cattle and calf feeds in August 2017 accounted for 34.9 per cent of all production of compounds, blends and concentrates, compared with 32.3 per cent in the corresponding month a year earlier.

Production of feeds for pigs in August 2017 amounted to 153,300 tonnes, 9,500 tonnes or 6.6 per cent ahead of output in the corresponding month a year earlier. Production of feeds for pigs represented 17.1 per cent of total output of compounds, blends and concentrates during the month in question, compared with 16.4 per cent in August 2016.

The increase in output was spread broadly across the sector. Production of finishing feeds during the month, at 78,100 tonnes, was 4,900 tonnes or 6.7 per cent higher than a year earlier. There were proportionate increases in the output of link and early grower feeds and in grower feeds. Production of breeding feeds, at 32,800 tonnes during the month, was 1,400 tonnes or 4.5 per cent higher than in the corresponding month a year earlier. These data are indicative of a modest expansion where the feeding of pigs is concerned.

Production of feeds for poultry was the only sector to show a contraction during August 2017. During the month, it accounted for 38.4 per cent of all output of compounds, blends and concentrates, compared with 41.7 per cent in August 2016.

The contraction in production of poultry feed during August 2017 was concentrated in the broiler feed sub-sector. At 157,700 tonnes production of broiler feeds was down by 29,300 tonnes or 15.7 per cent compared with the same month a year earlier. Nevertheless, broiler feed production was still at its second-highest recorded level for the month in question, being exceeded only by August 2016. In contrast, the remaining sub-sectors recorded a net gain over year earlier levels of 7,100 tonnes, of which the largest increase was recorded by the ‘miscellaneous’ poultry feed category which, at 44,400 tonnes, was ahead of year-earlier levels by 3,400 tonnes or 8.3 per cent.

Production of feeds for sheep and lambs during August 2017 amounted to 32,700 tonnes, 6,200 tonnes or 23.4 per cent more than in August a year earlier. Production of such feeds accounted for 3.6 per cent of total production of compounds, blends and concentrates, compared with 3 per cent a year earlier. The increase was largely accounted for by a higher output of compounds for growing and finishing animals; production of compounds and blends for breeding sheep was slightly less in volume terms during the month in question although the percentage reductions were large.

There were marginal increases in the output of equine feeds but a 4,800-tonne reduction in the production of ‘other’ compounds, blends and concentrates of which, a substantial proportion is thought to consist of feeds for fish.

Looking at cumulative production of prepared feeds in Great Britain for the first eight months of 2017, production appears to be at record levels compared with data going back to 1992; a comparison with earlier years will only become possible in September as data prior to 1992 was prepared on a quarterly basis. However, in volume terms at least, the situation of feed manufacturers in Great Britain appears to be reasonably satisfactory. Production overall, at 7.58 million tonnes during the first eight months of the year, was running at 254,100 tonnes or 3.5 per cent ahead of the equivalent period of 2016 with gains across all sectors with the exception of pigs; production of feeds for cattle and calves was particularly strong during the eight months in question with output up by 152,500 tonnes or 6.1 per cent compared with the first eight months of 2016.

Data on feed production in Great Britain during September is scheduled for release on 2 November.

Markit CIPS Services – September 2017

Markit Economics has recently released data on its September survey of the UK’s dominant services sector. The closely-watched Purchasing Managers’ Index (PMI) for the UK’s services sector rose to 53.6 in September, ahead of City expectations of 53.2.

The news came after disappointing PMIs for the manufacturing and construction sectors, with data published earlier showing activity in the construction sector contracting in September for the first time in more than a year.

Meanwhile, City economists are reportedly divided over the future path of interest rates set by the Bank of England, as one of its policymakers recently gave another clear sign that an interest rate hike could come at the MPC’s next meeting on Thursday 2 November. Ian McCafferty, a member of the Bank’s Monetary Policy Committee, reiterated his view that economic conditions are ‘already sufficient to justify a modest reduction in monetary stimulus’. Together with fellow member Michael Saunders, he voted for an increase in interest rates at the MPC’s June, August and September meetings.

The Bank of England surprised some economists in the City at its last meeting, saying that raising rates would be ‘appropriate’ in the coming months. This set off speculation about future rate increases, with economists at Morgan Stanley saying they expected the Bank to raise interest rates by 0.25 per cent twice in the next twelve months, with an increase in May 2018 following one at the MPC’s meeting on 2 November.

However, expectations vary as regards what the Bank will decide during 2018. The head of macroeconomics at the Centre for Economics and Business Research, said that even if there was a rate rise, it was not necessarily the start of a string of increases, reflecting currently weak growth forecasts. The chief UK economist at Société Générale, said that the speed of further interest rate rises was likely to be very slow, particularly given the risk of further uncertainty around the Brexit process. However, an economist at Capital Economics expects ‘a much more aggressive path of monetary tightening’, with no less than three increases in 2018.

Production Catch-up Northern Ireland

Data for production of compounds, blends and concentrates in Northern Ireland during July has recently been released by the Department of Agriculture, the Environment and Rural Affairs (DAERA).

This will be reported upon in the next issue of this E-Letter; meanwhile, at 166,900 tonnes, production during July was 6,600 tonnes or 3.8 per cent less than in July 2016 and stood at a six-year low for the month in question.

27 September 2017

Northern Ireland First Half

Total production of compounds, blends and concentrates in Northern Ireland during the first six months of 2017 amounted to 1,239,000 tonnes, a significant increase of 119,800 tonnes or 10.7 per cent over the equivalent period of 2016. It was also and by some distance, the highest total recorded for the six months under review since records started to be kept in their current form in 1996.

Total production of feeds for cattle and calves amounted to 633,000 tonnes during the six months under review, up by 58,900 tonnes or 10.3 per cent compared with the corresponding period a year earlier. The major contributors to this increase was in the production of compound feeds for dairy cows and beef cattle, the former increasing by 28,100 tonnes or 11.1 per cent and the latter increasing by 21,900 tonnes or 36.3 per cent. Production of dairy compounds during the six months under review was at its highest for nine years while production of compounds for beef cattle was at its highest for eight years.

According to the preliminary results of the June 2017 farm survey, the total population of cattle in Northern Ireland was relatively unchanged. However, dairy cow numbers decreased slightly, from their all-time high in 2016, to 315,800 head while the number of beef cows decreased by 1% to 267,100 head. This suggests that external factors were responsible for the increase in production of compounds for both dairy and beef animals. As regards dairy cows, average farmgate milk prices rose to 28.23 pence a litre in July 2017, up from 18.50 pence in July a year earlier. Additionally, finished cattle, steer and heifer cattle prices in the second quarter of 2017 were substantially ahead of the equivalent period in 2016. Taking the first six months of 2017 against the equivalent period of 2016, finished prices for steers were up by 13.7 per cent and equivalent prices for heifers up by 13 per cent.

Despite the increase in the production of cattle and calf feeds, the proportion of total feed constituted by the latter amounted to 51.1 per cent, compared with 51.3 per cent during the equivalent period of 2016.

Feeds for pigs are a relatively small proportion of feed production in Northern Ireland, accounting for 9 per cent of total output during the six months under review; this is slightly up on the 8.8 per cent recorded for the first six months of 2016. Total production of feeds for pigs, of 111,300 tonnes, was 12,700 tonnes or 12.9 per cent higher than in the corresponding six months a year earlier. There were increases across the board with large percentage increases characterising feeds for young animals and finishing feeds, at 46,000 tonnes, up by 4,900 tonnes or 11.8 per cent on year earlier figures. Sow numbers rose by 3 per cent to 41,400 head during the twelve months to June 2017 while the overall pig herd was also 8 per cent larger; mainly driven by the growth in the number of fattening pigs. To an extent, therefore, it would seem that the increase in production of feeds for pigs was driven by growing populations.

At 410,600 tonnes, production of feeds for poultry advanced by 46,800 tonnes or 12.9 per cent compared to the first six months of 2016 and accounted for 33.1 per cent of total production, up from 32.5 per cent during the corresponding period of 2016.

Production of feeds for poultry in Northern Ireland is dominated by feeds for broilers and laying and breeding hens. Production of the former during the first six months of 2017 was 239,300 tonnes, 31,200 tonnes or 15 per cent higher than during the corresponding time frame a year earlier and was at a record high since data started to be collected in its present form in 1996. Production of feeds for layer and breeder feeds, at 138,800 tonnes during the first six months of 2017 was 31,200 tonnes or 15 per cent higher than the same period in 2016 and was also at a record high.

The latest available data on poultry numbers in Northern Ireland show that on 1 June 2017, broiler poultry numbers were 9 per cent higher than a year earlier. The number of laying birds in Northern Ireland on the same day amounted to 3.9 million, an increase of 10 per cent compared to figures from a year earlier.  The only sector to show a fall in production during the first half of 2017 was production of turkey and other poultry feeds which, at 19,600 tonnes, was down by 2,500 tonnes or 11.5 per cent.

Production of feeds for sheep and lambs is a relatively small part of feed manufacturing in Northern Ireland. At 43,700 tonnes during the first six months of 2017 compared with 43,900 tonnes a year earlier, it accounted for 3.5 per cent of the total output of compounds, blends and concentrates compared with 3.9 per cent during the same period a year earlier. All sub-sectors showed falling production during the first half of 2017 with the exception of compounds for growing and finishing sheep and lamb feeds.

The only other sector of significance in Northern Ireland is the production of semi-processed materials such as flaked maize and maize meal together with its barley equivalent. At 40,400 tonnes, this was higher than during the first six months of 2016 by 1,700 tonnes or 4.3 per cent.

Production of compounds, blends and concentrates during the first six months of 2017 amounted to almost 1.24 million tonnes, its highest level since 1996; this is strongly suggestive of a record-breaking year when total production of feeds could reach 2.48 million tonnes.

Economic Catch-up

The UK’s Quarterly National Accounts were due to be published on 29 September, following the preliminary and second estimates of the UK’s Gross Domestic Product. These will be scrutinised with particular attention in view of the recent comments by Chris Williamson, Chief Business Economist at IHS Markit, who was quoted as saying that what he called ‘a summer slowdown’ was evident in the UK economy as slower rates of expansion in services and construction offset an improved performance in the manufacturing sector with the result that overall economic expansion was the weakest for six months.  Although the latest data put the economy on course for another 0.3 per cent expansion in the third quarter of 2017, momentum was being ‘gradually lost’.

Meanwhile, the Bank of England has been warned against raising interest rates from as early as November, as a monthly analysis of the UK economy indicates pressure growing on households following the Brexit vote. David Blanchflower, a former member of the Monetary Policy Committee, said there was ‘absolutely no basis’ for an increase in borrowing costs, given weak readings on the economy. However, another former MPC member, Andrew Sentence, disagreed saying that there had been ‘news of a more positive flavour’ that should encourage the Bank to raise rates.

21 September 2017

Northern Ireland Reports

As noted in the last issue of this E-Letter, the Department of Agriculture, Environment and Rural Affairs in Northern Ireland has recently released data for feed production in June.

Total production of compounds, blends and concentrates during June amounted to 195,100 tonnes, an increase of 44,900 tonnes or 29.9 per cent compared with June 2016 and by far and away the largest total for feed production in June since records started to be kept in their present form in 1996.

Production of feeds for cattle and calves during the month in question amounted to 85,600 tonnes, 16,400 tonnes or 23.6 per cent greater than in June 2016. By far the largest contribution to the increase was in the output of compounds for dairy cows, replicating the picture in Great Britain. Average farmgate milk prices in Northern Ireland during July 2017, the latest available, at 28.23 pence a litre were 9.73 pence a litre or 52.6 per cent higher than a year earlier. Production of compounds for dairy cows, at 45,000 tonnes in June 2017, was ahead of year earlier levels by 7,000 tonnes or 18.5 per cent; again, this was the largest recorded volume of dairy compounds on record since data was first presented in its present form in 1996.

There was an increase in output of coarse mixes or blends for dairy cows. Production, at 13,200 tonnes in June, was 3,200 tonnes or 32.1 per cent ahead of production a year earlier. There was also an increase in production of coarse mixes and blends for beef cattle which, at 12,400 tonnes, was 800 tonnes or 6.6 per cent ahead of year earlier levels. As regards compounds for beef cattle, production of 9,800 tonnes in June was 4,300 tonnes or 77.8 per cent ahead of production in June 2016 and the highest for the month in eight years.

In spite of the increased production of virtually all categories of feeds for cattle and calves, at 43.8 per cent of total output for the month, this was down from 46.1 per cent of the total a year earlier. Production of feeds for cattle and calves in June was at its second highest level since records were first kept in their present form.

Production of feeds for pigs is a relatively small part of feed production in Northern Ireland, accounting for just ten per cent of all output in June 2017. Nevertheless, production of feeds for pigs in June 2017, at 19,600 tonnes, was 4,100 tonnes or 26.5 per cent higher than in the corresponding month a year earlier, with increases in all categories of manufactured feeds for pigs with the exception of protein concentrates, for which no change was noted.

No data appears to be available for pig numbers in 2017 but it is worth noting that ‘at June 2016, the total number of pigs was 601,100, an increase of 5.5 per cent compared to 2015. There was a 1.8 per cent increase to 46,400 in sow numbers.’ This data may explain, at least in part, the increase in output of feeds for pigs observed in June 2017.

Total production of feeds for poultry in June 2017 amounted to 80,700 tonnes, 23,000 tonnes or a shade under 40 per cent more than in June 2016. In volume and proportionate terms, broiler feeds were the star performer, with production of 49,900 tonnes, ahead of year earlier levels by 18,200 tonnes or 57.5 per cent. While data for 2017 is not available, broiler numbers in Northern Ireland grew from 13.46 million birds in June 2012 to 14.46 million birds in June 2016. There was also a significant increase in the output of layer and breeder feeds which, at 26,600 tonnes output in June, were ahead of year earlier levels by 5,500 tonnes or 27.1 per cent. Both output of broiler and layer/breeder feeds were at their highest recorded levels for June.

Production of poultry feeds in June 2017 accounted for 41.4 per cent of total output of compounds, blends and concentrates, a significant advance over the same month a year earlier when production of poultry feeds accounted for 38.4 per cent of total production.

Production of feeds for sheep in Northern Ireland is a very small component of the industry’s output, accounting in June 2017 for 3,500 tonnes or just 1.8 per cent of total output. Nevertheless, production of 3,500 tonnes was 800 tonnes or 28.8 per cent more than in June 2016 with compounds for breeding sheep being the star performer.

On present appearances, Northern Ireland looks to be set for record production in 2017. Output in the first six months of the year, at 1.24 million tonnes, was almost 120,000 tonnes more than in the first half of 2016, up by 10.7 per cent with major gains across the spectrum with the exception of feeds for sheep. More detailed analysis will follow in the next edition of this E-letter.

Change of Tune?

At its meeting ending on 13 September 2017, the MPC voted, by a majority of 7 to 2, to maintain Bank Rate at 0.25 per cent. 

The Committee also voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases at £10 billion and the stock of UK government bond purchases at £435 billion, both financed by the issuance of central bank reserves.

On the face of it, this was not much different from the preceding month’s decision when the Committee had voted by 6 to 2 in favour of maintaining interest rates at 0.25 per cent – the Committee being short of one member at that stage. As expected, new member, Sir David Ramsden, Deputy Governor – Markets and Banking voted in favour of holding the Bank Rate at its current level. But what was markedly different from the MPC’s August decision was the committee’s tone as regards future changes in Bank Rate. Despite keeping rates on hold, the Monetary Policy Committee signalled it was ‘gearing up for a rate increase, possibly later this year’, according to the Independent newspaper, much earlier than expected by the financial markets. The minutes of the meeting said that ‘A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure ... some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target’, the target being an inflation rate of 2 per cent a year.

The Office for National Statistics had already reported that inflation had hit 2.9 per cent in August, higher than the peak that the Bank of England had projected in its August Inflation Report. This largely reflects the effects of the fall in sterling’s value since the referendum. Another factor is the declining amount of slack in the economy, particularly of available labour; unemployment rates have fallen to their lowest level since 1975.

The minutes went on to say that all MPC members judged that, if the economy followed a path ‘broadly consistent with the August Inflation Report central projection’ then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations.

The next Bank of England Quarterly Inflation Report is due in November. Given market speculation about a possible rate rise, Financial Directors will be watching the outcome with particular interest.

Meanwhile, the US Federal Reserve left interest rates unchanged at its 20 September meeting but signalled it still expected one rate increase by the end of the year, despite recent weak US inflation. New economic projections released after the two-day policy meeting showed eleven of sixteen officials seeing the ‘appropriate’ level for the central bank’s benchmark interest rate, to be in a range between 1.25 per cent and 1.50 per cent by December 2017, one-quarter of a point above the current level.

12 September 2017

GB Production Update

DEFRA has recently published production data for compounds, blends and concentrates in Great Britain for the month of July.

Total production of compounds, blends and concentrates in Great Britain during July was 901,900 tonnes, 91,900 tonnes or 11.3 per cent more than in the corresponding month a year earlier. It was the first time that the 900,000 tonne level had been breached in Great Britain during July since reports started to be kept in their present form in 1992.

Production of feeds for cattle and calves during the month in question, at 291,400 tonnes, was ahead of year earlier levels by 28,300 tonnes or 10.8 per cent. The largest contribution to this increase came from compounds and blends for dairy cattle as dairy farmers sought to respond to rising farmgate milk prices. At 156,600 tonnes in July, production of compounds for dairy cows was 12,600 tonnes or 8.8 per cent ahead of output in July 2016 while, at 55,800 tonnes, production of dairy blends was ahead by 6,900 tonnes or 14.1 per cent. There were also significant increases in the production of feeds for non-dairy cattle, although the volumes in absolute terms remained relatively small.

At 143,800 tonnes, production of feeds for pigs during July was 5,300 tonnes or 3.8 per cent ahead of production in the same month a year earlier. There were increases across the board with the exception of protein concentrates. The largest contributor to the increased production was in finishing feed, at 72,400 tonnes up by 2,400 tonnes or 3.4 per cent. Production of feeds for breeding pigs, at 31,600 tonnes, was also up on year earlier levels, by 1,200 tonnes or 3.9 per cent.

There is no specific clue as to what factor underlay the increase in production of feeds for pigs in July 2017 compared to a year earlier but survey data suggests that increased pig numbers between December 2015 and December 2016 play have played a role.

At 386,900 tonnes, production of feeds for poultry in July 2017 was ahead of year earlier levels by 56,600 tonnes or a massive 16.9 per cent. There seems little doubt that this increase was related, at least in part, to a substantial increase in poultry numbers in recent years, although no data is yet available for June 2017. The major contributor to the increase in production of feeds for poultry was feeds for broiler chickens; at 181,800 tonnes these were up by 40,500 tonnes or 28.7 per cent. There was also a significant increase in production of layer feeds: at 93,000 tonnes, up by 6,600 tonnes or 7.6 per cent. There was also a 5,200 tonne or 9.6 per cent increase in the production of ‘all other poultry feed’, a definition that excludes feeds for turkeys. The only sector to show a fall compared to year earlier levels, albeit very small, was the production of breeding and rearing feeds.

Production of feeds for sheep and lambs, at 30,600 tonnes in July 2017, was ahead of year-earlier levels by 6,200 tonnes or 25.4 per cent. Again, and while data for June 2017 sheep and lamb numbers is not yet available, increased numbers of animals would appear to have played a role in the increased demand for sheep and lamb feeds. The major contributor to the overall increase in the production of feeds in this sector was in compounds for growing and finishing animals: at 22,300 tonnes, up by 5,400 tonnes or 32 per cent. The only sector to show a fall in production was in compounds for breeding sheep: at 1,600 tonnes, down by 400 tonnes or 20 per cent.

Production of ‘other compounds, blends and concentrates’, believed to contain a significant production of feeds for fish, at 38,000 tonnes in July 2017, was down by 4,300 tonnes or 10.2 per cent on the same period a year earlier.

Taking the first seven months of 2017 as a whole, production of compounds, blends and concentrates in Great Britain, at 6.68 million tonnes, was 234,500 tonnes or 3.6 per cent ahead of production during the same period in 2016 and was also the highest volume recorded since records were first kept in their present form in 1992.

Production data for compounds, blends and concentrates in Great Britain during August is scheduled for release on 5 October.

Weather Report

The Meteorological Office has recently released its summary of UK weather conditions in August.

As suggested in previous editions of this E-Letter, August, along with its preceding month, stood in marked contrast to the February – June period when temperatures across the UK were ‘above average’ as defined by the years 1981–2010 (in February, March and May, markedly so).

In July, temperatures across the UK were identical to the long term average for the month in question while in August, temperatures were 0.4°C lower.

Rainfall across the UK was also markedly lower than normal in January and April but significantly higher in June and July.

Feed Production Northern Ireland

The Department of Agriculture, the Environment and Rural Affairs published data for feed production in Northern Ireland during the month of June. Production of compounds, blends and concentrates during June, at 195,100 tonnes, was 44,900 tonnes or 29.9 per cent higher than in the same month a year earlier, with significant increases, both in volumes and proportionate terms across all sectors.

A detailed analysis will be included in the next issue of this E-Letter.

Interest Rate Blip?

Some unexpected data set alarm bells ringing in Washington DC and in the City of London.

US employment growth proved below expectations in August, as doubts mounted over whether the Federal Reserve would be able to adhere to its timetable for further interest rate rises. July’s employment growth was also downgraded. The US economy added 156,000 jobs last month, according to official data, missing Wall Street expectations for a 180,000 increase, in what marked the weakest growth in three months. Earnings per hour increased by 0.1 per cent, below the 0.3 per cent rise recorded for July, and the country's unemployment rate eased up to 4.4 per cent from the 16-year low of 4.3 per cent that it hit in July.

The Federal Reserve had been expected to increase interest rates once more in 2017, following two earlier rises this year. It was also expected to start unwinding its $4.2 trillion (£3.2 trillion) balance sheet in the coming months. 

The Bank of England’s Monetary Policy Committee will publish its latest decision on UK interest rates on 14 September. It will be interesting to see whether the two dissident members, Ian McCafferty and Michael Saunders, who voted for a rise in interest rates at the last meeting of the MPC, maintain their position. It will also be interesting to see which way new member, Sir David Ramsden, Deputy Governor - Markets and Banking, votes although I suppose that the smart money would be on him maintaining the status quo, at least for his first meeting.

Meanwhile, data from the closely watched Markit/PMS surveys for August showed that what Chris Williamson, IHS Markit’s Chief Business Economist, called ‘a summer slowdown’ was evident in the economy. The August PMI surveys showed slower rates of expansion in the dominant services sector and construction offsetting an improved performance in the manufacturing sector with the result that the overall expansion of the UK economy was at its weakest for six months.  Williamson added that although the latest two months’ data put the economy on course for another 0.3 per cent expansion in the third quarter of the year, momentum was being ‘gradually lost’.

17 August 2017

International Grains Council Update

The IGC has recently updated its projection of the cereals and oilseeds supply and demand situation for the 2017-18 crop year.

The latest, July issue of the IGC’s Grain Market Report has downgraded IGC’s estimate of world total grain production in 2017-18 by 11 million tonnes compared to IGC’s June forecast, to 2,038 million tonnes, which represents a fall of 4 per cent from the record world grain output reported in 2016-17. Because of unusually dry weather in North America, the EU and Australia, the outlooks for global maize, wheat and barley harvests have been revised downwards. With higher estimated opening inventories and a slight cut in the projected world demand for grain, the figure for grains end-of-season carryover stocks in 2017-18 is only a little smaller than in IGC’s June projection but, at 478 million tonnes, is now seen as contracting by 45 million tonnes compared with the 2016-17 outturn.

Mainly based on a downwards revision to soybean output prospects in the US the IGC’s outlook for world soybean output in 2017-18 has been reduced slightly, to 345 million tonnes, down by 6 million tonnes compared with the 2016-17 outturn but, nevertheless comfortably the second biggest soybean crop on record. The reduced projection of output, largely due to lower yields, has resulted in lower uptake and end-season carryover stocks; the former at 350 million tonnes is down by 2 million tonnes, and the latter at 39 million tonnes shows a fall of 5 million tonnes from the previous season.

The prospects for reduced production in 2017-18 have resulted in increased prices for all components of IGC’s Grain and Oilseeds Index (with the exception of rice), with wheat being the most volatile. Market commentators reported that sizeable increases in soybean prices were linked to concerns about dryness in the western and northern parts of the US Midwest, as well as a slowdown in the volumes being sold by farmers in Brazil. Wheat and maize values were also firmer, reflecting underlying weather concerns, however, the advances were partly reversed during the second half of July. After very sharp gains in June, the IGC’s Grain and Oilseeds Index sub-index for wheat advanced by a further 4 per cent, boosted in part by persistent worries about a potential shortfall in high-quality, particularly breadmaking availability.

USDA Projections

The United States Department of Agriculture has recently updated its 2017-18 production, supply and distribution projections for grains and oilseeds.

Compared to USDA’s July estimate, global wheat production has been increased by 5.35 million tonnes to 743.18 million tonnes. This reflects increase in Russia, Ukraine and Kazakhstan while projected production in the EU, Canada and the US has been reduced. Canadian production in particular has been reduced by 1.85 million tonnes or 6.5 per cent. The percentage increases in Russia, Kazakhstan and Ukraine are large – respectively 7.7 per cent, 7.6 per cent and 10.4 per cent.

Taking projected consumption into account, end-of-season wheat inventories are forecast to be higher than estimated in July’s update with the largest increases taking place in Russia; consequently, it seems unlikely that the increased volume of stocks will have any notable effect on world wheat prices.

In contrast, world maize production has been reduced by 3.43 million tonnes compared to USDA’s July estimate, a reduction of just 0.3 per cent. Once again, the most significant reductions are projected for the US, the EU and Canada, with the largest reduction in volume terms taking place in the US. However, while USDA’s estimate of consumption is also down, it is down by less than the fall in production, resulting in end-of-season inventories that are very slightly up on those estimated by USDA in July. This would appear to have very little effect on world maize values.

In contrast with grains, USDA’s estimate of soybean production in 2017-18 has been increased by 2.27 million tonnes or 0.7 per cent compared with the July projection, with the largest increase taking place in the US. More on this in the next issue of this E-Letter.

Interest Rate Prospects

There was considerable speculation in the run-up to the publication by the Office of National Statistics on 15 August of the inflation figures for July. This followed the unexpected drop in the inflation rate in June, from 2.9 per cent in May to 2.6 per cent.

Alan Clark, Head of European Fixed Income Strategy at Scotia Bank, was reportedly predicting inflation at 2.8 per cent, partly due to food prices which have been rising in recent months, in contrast to this time last year when a supermarket price war was in full swing. Noting that food prices had risen in seven of the past eight months, he said that overall, Scotia Bank viewed the fall inflation in June as ‘temporary’.

In the event, the Consumer Prices Index 12-month rate was 2.6 per cent in July 2017, unchanged from June 2017. The falling price of motor fuel continued, providing the largest downward contribution to change in the rate between June and July, offset by smaller upward contributions from a range of goods and services, including clothing, household goods, gas and electricity, together with food and non-alcoholic beverages.

10 August 2017

Feed in Great Britain – Half-Year Update

With the publication, early in August, of DEFRA’s feed production data for June, it has become possible to collate feed production in Great Britain for the first half of 2017.

Total production of compounds, blends and concentrates during June amounted to 959,300 tonnes, 49,300 tonnes or 5.5 per cent more than during June 2016. It was also the largest total production for the month of June since statistics were collected in their present form in 1992.

Production of feeds for cattle and calves in June amounted to 313,400 tonnes, ahead of year earlier production by 27,900 tonnes or 9.8 per cent and the second highest level of production in twenty-six years. The major contributor to this total was production of feeds for dairy cows. Production of dairy compounds, at 175,200 tonnes, was 18,700 tonnes or 11.9 per cent ahead of year earlier levels, while production of dairy blends, at 58,400 tonnes, was ahead of year-earlier output by 7,100 tonnes or 13.8 per cent.

There were relatively small increases in the production of other cattle and calf feeds. Production of non-dairy compounds increased by 2,700 tonnes or 6.6 per cent compared with June 2016 while production of non-dairy blends rose by just 500 tonnes or 3 per cent. There was a sharp fall in output of protein concentrates, down by 600 tonnes or almost 12 per cent.

Production of cattle and calf feeds in June 2017 accounted for 32.7 per cent of total output of compounds, blends and concentrates, up from 31.4 per cent during the same month a year earlier.

Total production of feeds for pigs during June 2017 amounted to 148,500 tonnes, 9,700 tonnes or 6.1 per cent less than in June 2016. Production of pig feeds accounted for 15.5 per cent of total production of all compounds, blends and concentrates. This compared with 17.4 per cent in June 2016. Total production in June marked a four-year low.

There were falls in production across the sector with grower feeds being the only sub-sector to show any increase over year-earlier data. The largest decline in volume terms was in production of feeds for finishing pigs; at 74,700 tonnes, these were down by 5,400 tonnes or 6.7 per cent compared with June 2016. Production of feeds for link and early growing animals, at 6,400 tonnes, fell by 2,700 tonnes or almost 30 per cent compared to a year earlier. Feeds for breeding pigs fell by 1,900 tonnes or 5.4 per cent.

Production of feeds for poultry during June 2017, at 395,200 tonnes, were 13,500 tonnes or 3.5 per cent up compared with June 2016 They accounted for 41.2 per cent of all feed production, compared with 41.9 per cent during June 2016. Production was at its highest recorded level since data started to be recorded in its present form in 1992, although the DEFRA reclassification of integrated poultry feeds must be borne in mind. However, production in June 2017 represents a significant advance.

The major contributor to the increase in production of poultry feeds was, once again, broiler feeds which, at 199,400 tonnes, were 22,700 tonnes or 12.8 per cent ahead of June a year earlier. The only other sub-sectors to show an increase over year-earlier levels were rearing feeds for chicks; at 13,600 tonnes, up by 1,800 tonnes or 15.3 per cent and feeds for turkeys, at 11,700 tonnes up by a thousand tonnes or 9.3 per cent. There was a sharp decline in the production of ‘all other’ poultry feeds which, at 40,500 tonnes were down by 11,100 tonnes or 21.500 tonnes. There were minor falls in the production of breeding and rearing feeds and in protein concentrates for poultry, although in percentage terms, the fall in the latter, at 50 per cent, was particularly large; however, the sub-sector in absolute terms is very small.

At 38,000 tonnes, production of feeds for sheep during June 2017 was 3,000 tonnes or 8.6 per cent ahead of production during June 2016 and accounted for 4 per cent of all output of feeds for sheep compared with 3.8 per cent during the same month a year earlier. Total production of feeds for sheep in June 2017 was at a four-year high, and at its second highest level since 1992. The largest contributor to the increase was in production of growing and finishing compounds; at 29,000 tonnes, this was up by 3,400 tonnes or 13.3 per cent.

There was a significant increase in the production of ‘other compounds, blends and concentrates’ which, at 51,100 tonnes during June 2017, was 13,700 tonnes or 36.6 per cent ahead of year earlier levels and at their highest recorded level since 1992. Much of this category is understood to consist of feeds for fish.

Taking the first six months of 2017 as a whole, total production of compounds, blends and concentrates in Great Britain amounted to 5.77 million tonnes, 131,800 tonnes or 2.3 per cent more than in the corresponding months of 2016.

Output of feeds for cattle and calves, at 2.04 million tonnes was ahead of 2016 by 87,600 tonnes or 4.5 per cent while production of feeds for pigs fell by 44,000 tonnes or 4.8 per cent. Output of feeds for poultry, at 1.98 million tonnes was 31,500 tonnes ahead of the same six months of 2016, an increase of 1.6 per cent while production of feeds for sheep and lambs, at 547,200 tonnes, was 8,200 tonnes or 1.5 per cent more than during the first half of 2016. There was a small decline in output of feeds for horses but production of ‘other compounds, blends and concentrates’ increased by 51,100 tonnes or 27.6 per cent. In volume terms, therefore, with the exception of feeds for pigs, a satisfactory outcome for the feed industry in Great Britain.

UK Weather Watch

The Meteorological Office has issued its summary of weather conditions across the UK during July.

Taking the UK as a whole, average temperatures were ‘normal’, as defined by the average July temperatures for the years 1981 through 2010. This was a significant departure in that temperatures across the UK during 2017 have been above ‘normal’; in four months, significantly so. Rainfall, on the other hand was well above normal with the UK as a whole receiving 137 per cent of its usual precipitation. As for hours of sunshine, the UK as a whole received 99 per cent of its normal allocation.

Scotland and Northern Ireland saw temperatures falling below the average of July as established by the years 1981 to 2010 while England and Wales saw higher temperatures; it should be emphasised however that the deviations were very small. Rainfall, however, was in ample supply with all countries, particularly England and Northern Ireland receiving more than 150 per cent of their normal allocation of precipitation. This largely repeated the situation in June when rainfall, particularly in Scotland, was unusually heavy.

NWF Group’s Final Results

The NWF Group has announced its full year results for the twelve months ending 31 May 2017.

NWF’s Feeds Division made a headline operating profit of £1.5 million, down from £2.1 million in 2016. The Division saw a good second half recovery, the first quarter having been impacted by margin pressure due to increased commodity costs, particularly during the critical winter months. Volumes were ‘robust’ and the mill developments in the North and Cheshire, completed during the year strengthened the Division’s operating platform. The Group as a whole made capital expenditure of £9.4 million, including £5.2 million invested in feed mill developments in the North and in Cheshire.

Northern Ireland Feed Update – May

According to data released late in July, production of compounds, blends and concentrates in Northern Ireland during May amounted to 185,600 tonnes, ahead of May 2016 by 29,200 tonnes or 18.7 per cent. This was the second highest total for the month of May since records were first kept in their current form in 1996.

Increases were recorded across the industry with the exception of feeds for sheep and lambs. Production of cattle and calf feeds, at 91,100 tonnes, was 14,900 tonnes or 19.5 per cent ahead of year earlier levels with particularly strong results in the production of compounds for dairy cows; at 46,300 tonnes, this was up by 8,300 tonnes or 21.7 per cent compared with May 2016. At 17,700 tonnes, production of feeds for pigs was 2,000 tonnes or 12.5 per cent ahead of the same month in 2016 with especially strong results in the production of feeds for growing animals. Production of feeds for poultry, at 67,600 tonnes, was 12,00 tonnes or 22.2 per cent higher than in the same month a year earlier with feeds for broilers contributing the bulk of the increase.

The only sector to record a decrease in production was feeds for sheep and lambs. At 3,700 tonnes, production in May 2017 amounted to 400 tonnes less than in the corresponding month of 2016, a decline of just under 9 per cent.

Total production of compounds, blend and concentrates in the first five months of 2017 amounted to 1.04 million tonnes, its second highest level since 1996. Given the industry’s strong performance during the months in question, it is not impossible that production of feeds in Northern Ireland will establish a new annual record for 2017.

Economic Catch-up

The Bank of England’s Monetary Policy Committee met on 3 August and there was intense interest in how the members of the MPC would vote, particularly after the surprise 5 to 3 vote at June’s meeting.

Markets took the view that there was a slightly more than one in ten chance that the MPC would raise rates from their current 0.25 per cent to 0.5 per cent. In the event, six members of the Committee, including the recently appointed Silvana Tenreyro, voted to maintain interest rates at 0.25 per cent while two members, Ian McCafferty and Michael Saunders, voted to increase the rate to 0.5 per cent.

Meanwhile, Sir Dave Ramsden, currently chief economic adviser to the Treasury and head of the Government Economic Service, has been named Deputy Governor of the Bank of England for markets and banking, the appointment effective from 4 September. He will sit on the Bank’s Monetary Policy Committee, filling the vacancy created by Charlotte Hogg who was forced to resign earlier this year.

For what it is worth, the National Institute of Economic and Social Research (NIESR), a thinktank, has revised its prediction for a rate rise from sometime in 2019 to the first three months of 2018.

28 July 2017

Feed Material Costs

There appears to be general agreement that supplies of the principal feed grains and oilseeds are currently moving into better balance with demand, which tends to imply an easing in their costs.

While there are a number of measures published, as it were, in real monetary terms (frequently as $ per tonne FOB) the International Grains Council publishes a useful if broad-based measure of world grain and oilseed prices – the Grain and Oilseeds Index (GOI). This is composed of a number of sub-indices – wheat, maize, rice, soybeans and barley – which, when appropriately weighted, make up the overall index. Expressed in index form and based on January 2000 as 100, it averaged 99 during 2000

The GOI stood at 100 in the first few months of 2002 which was the point at which grain and oilseeds prices started to display some resilience. The GOI Index peaked at 122 in October 2002 and thereafter trended downwards until the Spring of 2003 when a modest increase got under way, peaking at 150 a year later. Thereafter the GOI remained subdued, until the autumn of 2006 when a modest increase developed.

What was a ‘modest’ increase turned into a sharp spurt in the summer of 2007.  By early September of that year, the GOI had reached 203, in other words, grain and oilseed prices had doubled compared with January 2000.  Nor was this all. Following the northern hemisphere harvest, the index continued to climb, reaching 260 on New Year’s Eve. The fires continued to burn until early July 2008 when the GOI reached 310, whereupon the onset of the northern hemisphere harvest and weakening demand occasioned by the resulting rise in prices in monetary terms sent the GOI down to a year-end index of 202.

The index was largely stable in 2009 as markets digested the fact that, with growing demand for feed grains in the world’s emerging economies and resulting pressures on the supply and demand balance, the need was for additional supplies of feed grains and oilseeds to meet burgeoning world demand for livestock products. The year closed out with a GOI index of 209, falling to 187 in June 2010 as the world digested the prospects for the northern hemisphere harvest. By the end of 2010, however, the reality of the supply and demand imbalance manifested itself once more with a GOI of 284. The following year saw a period of consolidation, albeit at a high level, with the GOI reaching 290 in mid-August. The index then fell, following the completion of the northern hemisphere harvest and the initial indications as to the impending southern hemisphere crop, but then resumed an upwards path in 2012, peaking at 330 in September 2012.

It appears likely that world markets had caught up with the realities of supply and demand, following the completion of the 2012-13 crop year. Since the completion of the northern hemisphere harvest in September 2012, the trend of the GOI has been downwards, apart from what one source describes as ‘speculative’ activity. Total grain production worldwide broke through the 2,000 million tonne production barrier in 2013-14 where it has since remained. A further indicator, the volume of end-of-season stocks, broke through the 400 million tonne barrier for the first time, establishing a more realistic level of grain and oilseed inventories relative to consumption. During the summer of 2015, the GOI fell below the 200 index for the first time in five years and, although it briefly rose above the 200 level in the early summer of 2016, it has remained at or slightly below the 200 level for most of the past twelve months.

Inasmuch as the GOI is a useful indicator as to the underlying trends in the grain and oilseeds markets, it is important not to ignore current events, such as the less-than-favourable weather conditions prevailing in the parts of the US and the latest EU research which has reportedly ‘ditched’ expectations of a rise in maize yields in the EU this year, citing what is being described as ‘heatwaves’ in Spain, France and southern Italy as well as cautioning of ‘the potential for further downgrades’. Such reports can generate intense speculative activity which may contribute to a distortion of the GOI

The latest edition of the International Grain Council’s Grain Market Report was published on 27 July. IGC’s forecast for world total grain production in 2017-18 has been cut by 11 million tonnes, compared with IGC’s June projection, to 2,038 million tonnes, a drop of 4 per cent from the previous season’s record. Because of dry weather, including North America, the EU and Australia, the outlook for world maize, wheat and barley harvests have been revised downwards; as a result, the GOI is expected to rise significantly.

A more detailed analysis will follow in the next issue of this E-Letter.

Economic Update

The surprise fall in the inflation rate, from 2.9 per cent in May to 2.6 per cent in June sparked speculation that an increase in UK interest rates might be deferred to the first half of 2018 or even later.

A number of analysts have said the views of the Bank of England’s Deputy Governor for monetary policy, would be key to assessing the chances of a first rate rise in a decade. He has been quoted as saying it was ‘a bit tricky’ at the moment to make a decision to raise rates and that, accordingly, he was ‘not ready to do it yet’.

Meanwhile, the Office of National Statistics has published its Preliminary Estimate of Gross Domestic Product during the second quarter of 2017. This was watched with particular interest following the sharp slowdown in the first quarter when growth of the economy slowed to 0.2 per cent. The closely watched Markit/CIPS Purchasing Managers’ Survey showed growth slowing across the economy with the turndown in services particularly marked. Nevertheless, the authors of the Markit/CIPS report said that, despite weakness in June, the second quarter overall was ‘on-track to beat the 0.2 per cent growth recorded in the first quarter’.

In the event, the Preliminary Estimate of GDP in the second quarter of 2017 showed the economy growing by 0.3 per cent, thus fulfilling the HIS/Markit estimate that their surveys were pointing to a higher increase in GDP growth compared with the 0.2 per cent recorded in the first quarter of 2017. The growth in the second quarter of 2017 was driven by the dominant services sector, which grew by 0.5 per cent compared with 0.1 per cent growth in the first quarter of the year. Conversely, output in production and construction contracted in the second quarter of 2017; although that of agriculture increased, agriculture is a very small component of Gross Domestic Product.

11 July 2017

Feed Production in Great Britain – May 2017

Total production of compounds, blends and concentrates in Great Britain in May amounted to 856,800 tonnes, a substantial 37,600 tonnes or 4.6 per cent more than in May a year earlier. This was the second-highest monthly total for May since records were first kept in their present form in 1992, with the highest being the 848,000 tonnes reported for May 2013.

Production of feeds for cattle and calves in May, at 285,100 tonnes was 12,600 tonnes or 4.6 per cent ahead of the same month a year earlier. The star performer was undoubtedly production of compounds for dairy cows. At 152,300 tonnes during the month in question, production was ahead of the same month a year earlier by 12,200 tonnes or 8.7 per cent. By way of contrast, production of blends for dairy cows, at 52,300 tonnes was 2,300 tonnes or 4.2 per cent less than in May 2016.

Although production of feeds for calves, at 16,500 tonnes in May 2017, was 3,900 tonnes or 31 per cent ahead of production in the same month a year earlier, production of other feeds for cattle was either stable or slightly down on year earlier levels. This included production of protein concentrates for cattle – at 3,700 tonnes, down by 1,100 tonnes or 22.9 per cent.

Production of feeds for cattle and calves in May 2017 constituted one-third of all production of compounds, blends and concentrates, unchanged from the same month a year earlier.

Production of feeds for pigs in Great Britain during May 2017 amounted to 144,700 tonnes, 2,600 tonnes or 1.8 per cent more than in the same month a year earlier. The largest year-on-year gains were in the production of link and early grower feeds and in growing feeds; the former was up by 1,600 tonnes or 21.3 per cent and the latter up by 1,800 tonnes or 7 per cent. Conversely, production f feeds for finishing pigs fell by 1,400 tonnes or 2 per cent.

Production of feeds for pigs amounted to 16.9 per cent of all feed produced in May 2017, compared with 17.3 per cent in the same month a year earlier.

Production of feeds for poultry in Great Britain during May 2017 amounted to 327,400 tonnes, equivalent to 38.2 per cent of all compounds, blends and concentrates produced. This compares with 38.1 per cent during the same month a year earlier. Production of feeds for poultry in May 2017 was 14,900 tonnes or 4.8 per cent ahead of production in the same month a year earlier.

The major increase was in production of feeds for broilers which, at 163,400 tonnes, were 15,900 tonnes or 10.8 per cent more than in the same month a year earlier. This was also the highest total recorded for the production of broiler feeds during May since records were first kept in their current form in 1992. At 27,900 tonnes, there was also a 2,200 tonne or 6.6 per cent increase in the output of breeding and rearing feeds for poultry; again, this was also a record total. Also recording a record May output was production of layer feeds which, at 91,200 tonnes, were 1,300 tonnes or 1.4 per cent more than in the same month a year earlier.

In contrast, production of feeds for sheep and lambs, at 43,100 tonnes in May 2017, was 5,600 tonnes or 11.5 per cent less than in May 2016. The most marked declines were in the production of compounds for both breeding and finishing sheep with the former being down by 2,900 tonnes or 25.2 per cent compared with production in May 2016 and the latter down by 2,700 tonnes or 8.6 per cent. Production of blends both for breeding and for finishing animals was unchanged from year-earlier levels.

There was a 1,400 tonne or 10.4 per cent decline in output of feeds for horses during the month, the lowest volume in eight years. Production of ‘miscellaneous’ feeds, understood to include a significant production of feeds for fish, at 44,500 tonnes was a substantial 14,500 tonnes or 48.3 per cent ahead of production in May 2016.

Turning to cumulative total feed production during the first five months of 2017 output, at 4,813,000 tonnes, was 83,700 tonnes or 1.8 per cent ahead on the same period a year earlier. This total was the highest recorded since data was first collected in its present form in 1992.

Production of feeds for cattle and calves during the five months in question amounted to 1,726,900 tonnes, 60,500 tonnes or 3.6 per cent more than in the equivalent period a year earlier. The largest contributor to the total increase in volume was production of compound feeds for dairy cows; at 845,000 tonnes, this was up by 49,600 tonnes or 6.2 per cent on the same period a year earlier. Recently, it has been reported that Peder Tuborgh, CEO of dairy group Arla, had warned that the UK was facing ‘a shortage’ of butter and cream this Christmas in that not enough milk was being supplied by farmers to make dairy products. Dairy farmers had ‘put the brakes on’ in 2016, he said, ‘because of a glut, which led to lower prices’. Judging by the volume of compounds sold to dairy farmers in the first five months of the year, dairy farmers are doing their best to catch up.

There was an 8,700 tonne or 3 per cent fall in production of compounds for non-dairy animals, although there were small increases in production of blended feeds for both dairy and non-dairy cattle. Output of protein concentrates for cattle, at 29,500 tonnes during the period under review was down by 4,300 tonnes or 12.7 per cent when compared to the same period of 2016.

Production of feeds for pigs, at 723,000 tonnes during the first five months of 2017, was 35,300 tonnes or 4.7 per cent less than during the equivalent period twelve months earlier. The decreases were most pronounced in feeds for growing and finishing pigs. Output of the former, at 128,800 tonnes, was down by 10,200 tonnes or 7.3 per cent while output of the latter, at 359,000 tonnes was down by 27,400 tonnes or 7.1 per cent. Production of feeds for breeding pigs was also lower, at 161,400 tonnes, down by 8,200 tonnes or 4.8 per cent. The only bright spot in volume terms was in production of link and early grower feeds which, at 46,700 tonnes during the five months in question, was up by 9,200 tonnes or 24.5 per cent.

Production of feeds for pigs during the five months in question constituted 15 per cent of total output of compounds, blends and concentrates, compared with 16 per cent during the equivalent period a year earlier.

Production of retail poultry feeds during the period under review amounted to 1,590,800 tonnes, 19,600 tonnes or 1.2 per cent more than during the same period a year earlier. Its share of total feed production, at 33.1 per cent was marginally less than during the equivalent five months a year earlier.

Predictably, the largest contributor to the increase was broiler feed, at 820,700 tonnes, up by 25,100 tonnes or 3.2 per cent compared with the first five months of 2016. There were small increases in the output of feeds for layers and for turkeys, up respectively by 3,700 tonnes or 0.8 per cent and by 2,800 tonnes or 7 per cent. There was a 2,700 tonne or 1.9 per cent decline in the output of feeds for breeding and rearing poultry.

Production of feeds for sheep and lambs, at 509,300 tonnes, was 5,300 tonnes or 1.1 per cent more than in the same five months of 2016. The increase was driven by increased output of blends for breeding animals which, at 29,100 tonnes, was up by 12,100 tonnes or a whopping 71.2 per cent. In contrast, output of compounds for breeding sheep was down by 7,900 tonnes or 2.9 per cent.  Nevertheless, the total for the five months in question is respectable when compared to previous years.

Production of ‘miscellaneous’ feeds during the first five months of 2017 amounted to 184,800 tonnes, 37,200 tonnes or 25.2 per cent more than in the corresponding months of 2016.

Overall, total feed production in the first five months of 2017 gives cause for optimism if viewed from a volume perspective. All sectors, with the marked exception of feeds for pigs, showed growth. The latter is likely to have reflected the sharp decline in UK pig numbers reported between June and December 2016, with total pigs showing a 6.7 per cent decline. However, the number of potential entrants to the breeding herd showed an increase during the period under review, giving at least some cause for optimism about future prospects.

UK Economy Slowing Down?

After the debate over the future of UK interest rates, highlighted in the previous issue of this E-Letter, particularly as regards the apparent move by the Monetary Policy Committee towards the view that rates would move earlier rather than later, concerns were voiced that the UK economy was slowing down, against the background of rising prices and stalling consumer incomes. This would potentially tilt the balance towards a delay in raising interest rates.

 The latest IHS/Markit surveys emphasised the changing picture, with Chris Williamson, Chief Business Economist at IHS Markit, saying that a slowing in services sector growth completed ‘a triple-whammy’ of disappointing PMI survey readings. Williamson said that although the three PMI surveys were running at levels that were historically consistent with GDP growing by around 0.4 per cent in the second quarter, compared with 0.2 per cent in the first quarter, it was clear that the economy was losing momentum as it headed into the third quarter. Williamson added that with business optimism hit by the intensification of political uncertainty following the General Election and the commencement of Brexit negotiations, at the same time households were battling against rising inflation, ‘the indications are that the economy’s resilience is being tested’.

A further factor entering the debate is the rising tide of consumer indebtedness, driven to a significant extent by car leases which, highlighted by Bank of England Governor Mark Carney, could add weight to those voices calling for an increase in interest rates sooner rather than later.

7 July 2017

IGC Updates

The International Grains Council has published its Grain Market Report for June 2017.

Compared with IGC’s May projection, the bulk of the 5 million tonne upwards revision to the world grain harvest for 2016-17 reflects upward adjustments to maize harvests in Argentina, Brazil and South Africa. The data for consumption and end-of-season stocks have also been increased compared to IGC’s May projection; like global production, these are also at record levels,

With regard to 2017-18, IGC’s world grain harvest has been cut by 3.5 million tonnes compared with their previous projection. This reflects lower projected production by the major grain exporters; however, IGC warn that ‘the impact on crops of less than ideal weather is still being assessed in some regions.’

As regards wheat, IGC’s projection of the 2017-18 harvest has been trimmed back from May’s projection of 735.9 million tonnes to 735.1 million tonnes. US production has been cut by a million tonnes to 48.6 million tonnes while that of Russia has been increased by a million tonnes to 68 million tonnes; this follows reports of very favourable weather conditions. EU and Australian wheat production projections have been marked down respectively by 0.3 per cent and a more significant 3.1 per cent.

As regards maize, IGC has trimmed its 2017-18 projection from May’s 1,025.9 million tonnes to June’s 1,025.1 million tonnes. The bulk of this is attributed to a 2 million tonne reduction in the projected 2017-18 Chinese maize crop, as well as a 1.3 per cent reduction in the EU maize harvest; this is believed to reflect weather conditions.

In their projection of the world soybean harvest in 2017-18, IGC are looking for a 348.2 million tonne crop, 0.3 million tonnes up on their May projection. In respect of 2016-17, small upward revisions for Argentina and Brazil have lifted IGC’s estimate of world soybean output by a million tonnes to a record 351.3 million tonnes. With total use unchanged compared to IGC’s May projection, end-of-season stocks are also increased to a record level of 44.1 million tonnes.

It is, as far as 2017-18 is concerned, early days. The overall impression, so far at least, must be that, with large carry-over grain and soybean stocks, there is likely to be little upward pressure on prices. At the same time, it must be remembered that the commodities markets have an infinite capacity for springing surprises.

Weather Watch

The Meteorological Office has recently released its analysis of the UK’s weather in June, compared to the ‘average’ as defined by that of the years 1981 to 2010.

The year so far has been notably warmer than normal and June has proved to be no exception to the rule. Across the UK as a whole, average temperatures for June were 1.5°C above ‘normal’, with England 1.9°C above normal. Scotland showed the smallest deviation for the month in question, at a relatively modest 0.9°C above normal.

As for rainfall, however, June was relatively wet, with rainfall across the UK of 155 per cent of normal, a figure that was exceeded in Scotland – 178 per cent – and fallen short of in England and Northern Ireland – 137 per cent. Wales, Scotland and Northern Ireland saw less than abundant sunshine while England had rather more than usual – 107 per cent of normal. 

Economic Catch-up

As one publication stated ‘the drumbeat from top policymakers for an interest rate hike is growing louder as inflation bites’, market speculation increased as the tenth anniversary of the Bank of England’s last increase in interest rates loomed.

Hardly had the Bank of England’s Monetary Policy Committee voted (by five members to three, with Michael Saunders and Ian McCafferty joining Kristin Forbes in voting to increase the cost of borrowing) to maintain UK interest rates at 0.25 per cent when the Bank’s Chief Economist, Andrew Haldane said ‘he was considering joining fellow Monetary Policy Committee members in voting for an interest rate rise’.

In the wake of Haldane’s remarks, Governor Mark Carney told fellow bankers at a forum in Sintra, Portugal that a rate increase might be needed if businesses looked through the Brexit uncertainties and increased investment, adding that ‘some removal of monetary stimulus is likely to become necessary if the trade-off facing the Monetary Policy Committee continues to lessen and the policy decision accordingly becomes more conventional’.

Despite remarks by both Haldane and Carney, many City economists expect rates to stay at their record low; one City economist remarked that Carney still seemed ‘in no immediate hurry’ to raise interest rates and that he thought that rates would remain unchanged throughout 2017. However, if Haldane changed his stance at the MPC’s August meeting, the vote could go four to four, in which case Carney would have the casting vote. In that case, speculation would become rife as to who might be appointed to Charlotte Hogg’s vacant seat.

The most dovish rate-setter at the Bank of England yesterday pushed back against the rising pressure from his colleagues to vote for higher interest rates, further underlining a major split between top policymakers. Gertjan Vlieghe, an external member of the MPC, repeated his belief that Bank Rate should remain at 0.25 per cent despite above-target inflation, telling the Independent newspaper that the environment was one ‘where a premature hike would be a bigger mistake than one that turns out to be slightly late’.

Meanwhile, the Quarterly National Accounts for the first quarter of 2017, published at the end of June, showed that Gross Domestic Product and its components are little changed from the previous, Second Estimate of GDP, published on 25 May 2017. UK GDP was estimated to have increased by 0.2 per cent between the last quarter of 2016 and the first quarter of 2017 with growth driven by output from the business services and finance, and construction industries, partially offset by declines in some consumer-focused industries.

19 June 2017

USDA Updates 2017-18 Cereal Supply Estimates

In its second essay into worldwide cereal supply and demand prospects for the 2017-18 marketing year, the United States Department of Agriculture has boosted world wheat production by 1.7 million tonnes compared to its May estimate but has cut maize production by 1.8 million tonnes. The projected total of 739.53 million tonnes of wheat compares with estimated production of 754.1 million tonnes during 2016-17. The 2017-18 projection of 1,031.86 million tonnes of maize compared with the estimated 1,067.21 million tonnes harvested in 2016-17.

Comparing the latest production of the world wheat harvest in 2017-18 with the preliminary outcome in 2016-17 shows production of wheat in Australia down by 10 million tonnes or 28.6 per cent, following the remarkable harvest of 2016-17. The Russian wheat harvest is projected to fall by 3.53 million tonnes or almost 5 per cent with the Ukrainian wheat harvest down by 1.8 million tonnes or 6.7 per cent.  The EU wheat harvest, at 150.75 million tonnes, is projected up by 5.28 million tonnes or 3.6 per cent compared with 2016-17. Likely to impact upon world wheat prices is the projected decline in the US wheat harvest, at 49.64 million tonnes, down by 13.2 million tonnes or 21 per cent on 2016-17.

Regarding maize, the projected 2017-18 harvest is down by 35.35 million tonnes or 3.3 per cent compared with 2016-17. The EU maize crop, at 62 million tonnes, is projected at 1.29 million tonnes or 2.1 per cent more than in 2016-18. The projected US maize harvest of 357.27 million tonnes is 27.5 million tonnes or 7.1 per cent lower than in 2016-17. Although this seems likely to presage higher world prices for maize as well as wheat, large opening inventories seem likely to assuage the price pressures arising from lower production in 2017-18.

Northern Ireland Feed – April 2017

Production of compounds, blends and concentrates during the first four months of 2017 amounted to 854,300 tonnes, 41,800 tonnes or 5.1 per cent more than in the equivalent period of 2016.

Production of feeds for cattle and calves amounted to 452,300 tonnes during the period under review, 23,600 tonnes or 5.5 per cent more than the equivalent period in 2016.  There were small increases in the production of feeds for calves but, in volume terms, the major increases were in compound feeds for cattle. Production of compounds for beef cattle, at 61,800 tonnes, was 14,100 tonnes or 29.6 per cent ahead of production during the first four months of 2016 while production of compound feeds for dairy cattle, at 186,900 tonnes, was 9,900 tonnes or 5.6 per cent ahead of the equivalent period a year earlier. In contrast, there were very small increases in the production of coarse mixes and blends for beef cattle and a fall in production of these feeds for dairy cattle. Production of feeds for cattle and calves amounted to 52.9 per cent of total production during the period under review, marginally higher than the 52.8 per cent recorded during the same period a year earlier.

Production of feeds for pigs during the first four months of 2017 amounted to 74,000 tonnes, 6,600 tonnes or 9.8 per cent more than during the corresponding period of 2016 and an 18 year high. Production of feeds for pigs accounted for 8.7 per cent of total production during the period in question, compared to 8.3 per cent during the corresponding period a year earlier. There was increased production of starter and creep feeds, link and early grower feeds and finishing feeds and a very small decline in feeds for growing pigs. There was a small decline – down by 200 tonnes or 1.9 per cent – in the production of feeds for breeding pigs.

At 262,200 tonnes, production of feeds for poultry was ahead of the first four months of 2016 by 11,500 tonnes or 4.6 per cent. Production of feeds for poultry constituted 30.7 per cent of total output of compounds, blends and concentrates, slightly down on the 30.9 per cent recorded during the same period of 2016.

The major contributor to increased volumes was production of layer and breeder feeds, at 90,200 tonnes up by 8,400 tonnes or 10.2 per cent compared with the corresponding period a year earlier. Production of feeds for broilers, at 150,000 tonnes, was ahead of year-earlier levels by 5,400 tonnes or 3.7 per cent. There were small volume decreases in the production of feeds for chick rearing and for turkeys and ‘other’ poultry although in percentage terms, the decreases were quite large – respectively 8.4 per cent and 10.3 per cent.

It should be borne in mind that the 262,200 tonnes recorded for production of poultry feeds in Northern Ireland during the period under review was the largest since data began to be recorded in its present form in 1996.

Production of feeds for sheep and lambs, at 36,500 tonnes during the first four months of 2017 was 600 tonnes or 1.6 per cent lower than in the corresponding period of 2016 as increases in the production of growing and finishing compounds for sheep were counteracted by falls in output of breeding sheep compounds and in coarse mixes and blends together with protein concentrates. It is likely that this reflected notably above-normal temperatures in Northern Ireland during the period under review, particularly in February and March when mean temperatures were, respectively, 1°C and 1.4° above the seasonal normal as defined by weather conditions during 1981-2010.

Economic Update

The US Federal Review, having, as widely expected, increased the Federal Funds rate by a quarter point to between 1 per cent and 1.25 per cent, provoked discussion as to when the Bank of England’s Monetary Policy Committee might move on UK interest rates.

Prior to the meeting, City-AM’s ‘shadow’ Monetary Policy Committee voted eight-to-one to hold rates at 0.25 per cent. In the event, the UK rate of 0.25 per cent, set in the wake of the Brexit Referendum decision, remained unchanged at the real MPC’s meeting in June. However, it was noted that three members of the Committee out of the eight voting - Charlotte Hogg having resigned as Deputy Governor of the Bank of England and as yet unreplaced - wanted to raise interest rates this month, as Michael Saunders and Ian McCafferty joined Kristin Forbes in voting to increase the cost of borrowing.

The five-to-three split of the MPC in favour of leaving rates at 0.25 per cent means that it was, in effect, the closest the Bank has come to raising rates since 2007. One newspaper reported that the minutes of the meeting suggested that the Committee regarded the continued ‘robust’ labour market as a sign that rates might need to rise sooner than expected. ‘The continued growth of employment could suggest that spare capacity is being eroded, lessening the trade-off that the MPC is required to balance and, all else equal, reducing the MPC’s tolerance of above-target inflation’.

As this E-letter closed for publication, the Chancellor of the Exchequer announced the appointment of Professor Silvana Tenreyro as an external member of the Monetary Policy Committee.  She will be appointed for a three-year term which will take effect from 7 July 2017. Professor Silvana will replace Kristin Forbes, who comes to the end of her term of office on 30 June 2017.

13 June 2017

Weather Watch

On current trends at least, 2017 is turning out to be a relatively warm year across the UK.

May was a case in point. Across the UK, average temperatures were 1.7 °C higher than ‘normal’ – as defined by the average of UK temperatures during the years 1981-2010. The range of temperatures was unusually small, ranging from 1.7 °C in England and 1.9°C in Northern Ireland. Rainfall across the UK in May amounted to 83 per cent of ‘normal’; in April, it amounted to just 48 per cent – less than half and giving rise to reports of incipient drought on a 1976 scale.

So far in 2017, there has been just one month in which temperatures across the UK were below ‘normal’ – in England during January when the temperature for the month was just 0.3°C below normal, as defined by the average of 1981-2010.

Feed Production – Great Britain

DEFRA has recently released data for feed production in Great Britain during April. At 894,400 tonnes, production in Great Britain of compounds, blends and concentrates was 108,100 tonnes or 10.8 per cent lower than in the corresponding month a year earlier. However, it should be noted that April 2017 was a four-week reporting period and, therefore, direct comparisons with April 2016 cannot be made as this was a five-week reporting period.

Taking the first four months of 2017 as a whole, total production of compounds, blends and concentrates, at 3,956,200 tonnes, was 46,100 tonnes or 1.2 per cent more than in the same four months of 2016.

At 1.44 million tonnes, production of feeds for cattle and calves in Great Britain during the first four months of 2017 was 47,900 tonnes or 3.4 per cent ahead of the equivalent period of 2016. The major contributor to this increase was in the output of compound feeds for dairy cows, at 692,700 tonnes up by 37,400 tonnes or 5.7 per cent compared with the equivalent period of 2016. The next largest contributor was a surge in production of feeds for calves, at 86,400 tonnes up by 14,600 tonnes or just over a fifth compared with the equivalent period of 2016. The total was also the largest on record since data was published in its present form in 1992.

There were also small increases in production of blended feeds for dairy cows and for non-dairy animals. Conversely, production of compounds for non-dairy cows, at 239,900 tonnes during the period in question was 8,700 tonnes or 3.5 per cent less than during the first four months of 2016. Production of protein concentrates, at 25,800 tonnes, was also lower, at 25,800 tonnes down by 3,200 tonnes or 11 per cent compared with the corresponding months of 2016.

Production of cattle and calf feeds accounted for 36.4 per cent of total production, compared with 35.6 per cent a year earlier.

In contrast to cattle and calf feeds, production of feeds for pigs, at 578,300 tonnes, was 37,900 tonnes or 6.2 per cent lower than in the first four months of 2016. The major reductions in production were in grower and finisher feeds; the former was down by 12,000 tonnes or 10.6 per cent while the latter was down by 26,000 tonnes or 8.3 per cent. In contrast, and perhaps indicative of an upturn, production of link and early grower feeds, at 37,600 tonnes was up by 7,600 tonnes or just over a quarter. There was also a quantitatively small but proportionately large increase in production of protein concentrates for pigs: at 3,800 tonnes, up by 900 tonnes or 31 per cent compared with the same period of 2016.

Production of feeds for pigs accounted for 14.6 per cent of total production during the first four months of 2017, down from 15.8 per cent during the corresponding period a year earlier.

Production of feeds for poultry during the first four months of 2017 amounted to 1,263,400 tonnes, up by 4,700 tonnes or 0.4 per cent compared with the equivalent period of 2016. It should be borne in mind, when looking at poultry feed data, that DEFRA reviewed some Integrated Poultry Units producing both feed for their own use and feed for retail sale and have adjusted the data from August 2015. This has resulted in an increase in compound poultry feed and a decrease in feed produced by integrated poultry units. In addition, DEFRA’s data has been updated with final 2016 data for those smaller companies which are only surveyed annually.

Total production of poultry feeds during the period under review accounted for 31.9 per cent of total production compared with 32.2 per cent a year earlier. At 657,300 tonnes, production of the largest component of poultry feeds – broiler feeds – was 9,200 tonnes or 1.4 per cent more than in the first four months of 2016 while production of the second largest component – layer feeds – was up by 2,400 tonnes or 0.7 per cent. There were reductions in the output of poultry breeding and rearing feeds, at 109,800 tonnes down by 4,900 tonnes or 4.3 per cent and in production of ‘all other poultry feeds’, at 53,400 tonnes, down by 4,700 tonnes or 8.1 per cent.

Total product of feeds for sheep, at 466,200 tonnes, was 10,900 tonnes or 2.4 per cent more than in the corresponding four months of 2016 and accounted for 11.8 per cent of total production, compared with 11.6 per cent a year earlier.

The major contributor to the increase was in blends for breeding sheep, at 28,000 tonnes up by 12,100 tonnes or 76.1 per cent. This stands in sharp contrast to the production of compounds for breeding sheep which, at 252,200 tonnes, were down by 5,000 tonnes or just shy of 2 per cent. There were small increases in the production of both compounds and blends for finishing animals; the former at 162,100 tonnes was up by 2,900 tonnes or 1.8 per cent and the latter at 21,200 tonnes was up by 1,200 tonnes or 6 per cent.

There were small increases in the production of feeds for horses and for miscellaneous species, the latter believed to consist to a significant extent of feeds for fish. However, in volume terms at least, 2017 is turning out to look reasonably satisfactory as far as the feed industry in Great Britain is concerned.

Northern Ireland Reports First Quarter

The Department of Agriculture, Environment and Rural Affairs in Northern Ireland has recently reported on the production of feed during the first quarter of 2017. Total production of 655,000 tonnes was 49,900 tonnes or 8.2 per cent up on the first quarter of 2016.

Production of cattle and calf feeds, at 349,400 tonnes was 29,200 tonnes or 9.1 per cent higher and accounted for 53.3 per cent of total production, up from 52.9 per cent in the first quarter of 2016. Production of feeds for pigs, at 55,900 tonnes was 5,700 tonnes or 11.3 per cent higher than the same period a year earlier while production of feeds for poultry, at 197,700 tonnes was 12,700 tonnes or 6.9 per cent higher and accounted for 30.2 per cent of total production, compared with 30.6 per cent a year earlier. Production of feeds for sheep, at 29,400 tonnes, was ahead by 1,200 tonnes or 4.4 per cent; production of these feeds accounted for 4.5 per cent during the first quarter of 2017 compared with 4.7 per cent a year earlier.

Economic Roundup

The US unemployment rate fell to a 16-year low of 4.3 per cent in May combined with a healthy rate of job creation have led to a ‘near-certainty’ that the Federal Reserve will lift interest rates when it meets on 13th and 14th of this month. Investors are confident of a quarter point rise. The US Federal Reserve is expected to raise its federal funds target to between 1 per cent and 1.25 per cent, from 0.75 per cent to 1 per cent in what would be just the fourth increase since the financial crisis.

Meanwhile, in the UK, the Second Estimate of Gross Domestic Product in the first quarter of 2017 showed the UK economy growing by 0.2 per cent. This represented a downgrade from the Preliminary Estimate which showed the economy growing by 0.3 per cent and reflected broad-based downward revisions within the services sector. The final estimate of growth in the first quarter of 2017 is due to be published on 30 June.

The Office of National Statistics has published its latest data on UK inflation. As measured by the Consumer Prices Index (CPI) twelve-month rate, inflation rose to 2.9 per cent in May 2017, up from 2.7 per cent in April. The inflation rate in May was at its highest since June 2013. The Retail Price Index in May, at 3.7 per cent compared with 3.5 per cent in April, was at its highest since February 2012, an indication of the extent to which household budgets appear to be coming under increasing pressure.

7 June 2017

International Grains Council Update

The IGC has recently issued its May projection of world grain supply and demand during the 2017-18 marketing year.

IGC has also updated its projection of world grain supply and demand during the previous 2016-17 marketing year. The changes from the previous projection mainly affect the supply and demand for maize. The forecast for total grains – wheat and coarse grains – for production in 2016/17 has been raised by 8 million tonnes compared to IGC’s April projection, to a record 2,120 million tonnes, up by 5.4 per cent compared with the 2015-16 marketing year. However, IGC has increased its projection of grains comsumption, notably because of an increased figure for feed. The projection for carryover stocks has been reduced by 3 million tonnes to 513 million tonnes; however, this is still the largest carryover on record.

IGC’s latest projection of total world grain production in 2017-18, is 2,052.5 million tonnes; this compares with last month’s projection of 2,054.1 million tonnes and so this represents a very small reduction of 1.6 million tonnes. Compared with IGC’s current estimate of world grain production in 2016-17, it suggests a fall of just over 3.1 per cent.

IGC has reduced its 2017-18 estimate of grain production in the EU by 3.7 million tonnes to 302.5 million tonnes; this appears to reflect the prevailing wet weather in major production areas of France and Spain. There is a very small increase in IGC’s estimate of Russian grain production and, conversely, a small decrease in Ukrainian production. IGC’s projection of US grain production, currently at 421 million tonnes, has been reduced from last month’s projection of 424.6 million tonnes. This also appears to reflect prevailing weather conditions, with a series of major storms in the US. As far as the world’s major exporters are concerned, grain production of 1,067.3 million tonnes in 2017-18 is forecast as being slightly lower than the 1,074.8 million tonnes in IGC’s April projection

IGC has reduced its estimate of world wheat production in 2017-18 from April’s estimate of 736.3 million tonnes to 735.9 million tonnes, a relatively minor reduction but it will be remembered that, as far as the 2017-18 marketing year is concerned, these are early days.

Wheat production by the major exporters – Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine and the US – is projected at 374.4 million tonnes as against IGC’s previous projection of 375.5 million tonnes, an insignificant reduction. Weather conditions have hit forecast wheat production in the EU, at 141.2 million tonnes down from 141.3 million tonnes in IGC’s April projection. Weather woes have also affected IGC’s projection of US wheat production which, at 49.6 million tonnes, is down from the previous projection of 50.2 million tonnes. IGC is also taking a slightly more pessimistic view of maize prospects in 2017-18 with world production of 1,025.9 million tonnes marginally lower than their previous estimate of 1,026 million tonnes. Of the countries shown as producing less wheat in 2017-18 than in the previous marketing year, the most prominent, at least at present, is the US; however, maize production in the EU has also been reduced from 63 million tonnes to 61 million tonnes.

There is a slight reduction in IGC’s estimate of end-of-season wheat inventories, from 239 million tonnes to 238.6 million tonnes but this does not appear to offer any significant hardening of world wheat prices. There is a more significant drawdown of world end-of-season maize inventories, from 206.9 million tonnes to 197.5 million tonnes; this would seem to suggest that any hardening of world cereal prices is set to start with this crop. However, again, these are as yet early days.

IGC has expanded its brief from cereals to include soybeans and its current, May estimate shows a slight advance in world production compared to its previous, April assessment. Total production of 347.9 million tonnes is up by 100,000 tonnes on its April estimate. Of the major exporters (the US, Brazil and Argentina) Brazil has seen a production cutback from 112.5 million tonnes to 110 million tonnes while the US is shown as producing 115.5 million tonnes as against IGC’s April estimate of 114 million tonnes. However, after taking carry-in stocks into account, together with projected consumption, world end-of-season inventories are forecast at 39.2 million tonnes which, while not at a historic high, are seen – at least according the IGC – as being nearly 20 per cent above the previous five-year average. This seems likely to limit any firming of world soybean values.

Economic Roundup

With the pickup in the rate of inflation, as reported in the last issue of this E-letter, there is clearly an increasing degree of attention being paid as to how the various sectors of the economy are performing.

The closely watched Markit/CIPS survey for May suggested that the UK’s manufacturing sector was continuing to advance with the manufacturing PMI at 56.7 only slightly lower than the strong April PMI of 57.3, a three-year high. Both output and new order growth remained solid and the rate of job creation was at a thirty-five month high. In the construction sector, business activity rose at its fastest pace since December 2015, with residential work replacing civil engineering as the sector’s best performing category. Input cost inflation moderated to a seven-month low. In the dominant services sector, however, business activity rose at its weakest pace since February with a slight loss of momentum in new business growth. A more positive picture was painted in that input cost inflation eased to an eight-month low.

Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey said that despite the slower growth in May, the surveys jointly indicated that the economy had regained some momentum in the second quarter, adding that the three PMI surveys were ‘running at levels that are historically consistent with GDP growing at a robust 0.5 per cent rate, although he noted that, with the slowing in May, there were ‘some downside risks to the near-term outlook’.

23 May 2017

First Soybean Projection 2017-18

The United States Department of Agriculture has recently released its first projection of soybean supply and demand during the 2017-18 marketing year.

It will be borne in mind that these first estimates are very provisional in that the soybean harvest in the southern hemisphere including Brazil, Paraguay and Argentina, is barely complete. In this context, it is worth reviewing the outcome for 2016-17. Brazilian soybean production for 2016-17 is estimated at a record 111.6 million tonnes, up by 600,000 tonnes from USDA’s April estimate and up 15.1 million tonnes from 2015-16. The harvested area is estimated at a record 34 million hectares, unchanged from USDA’s April estimate but up 700,000 hectares from last year. Brazilian soybean yields are estimated at a record 3.28 tonnes a hectare, up 1 per cent from USDA’s April estimate and by 13 per cent from last year.

USDA reports that the Brazilian soybean harvest is currently approaching completion in most of the country and ongoing harvest reports indicate month-to-month increases in yields for the Centre-West, South and North regions. The yield potential of this record soybean crop was achieved through a combination of improved seed varieties, better crop management practices, and what is described as ‘very favourable weather’.

USDA is looking for a substantial cutback in the size of the 2017-18 Brazilian soybean crop, from a currently estimated 111.6 million tonnes in 2016-17 to 107 million tonnes. This reflects a combination of factors. The area planted to soybeans is likely to increase, from 34 million hectares in 2016-17 to 34.7 million hectares. Conversely, yield per hectare is expected to fall from 3.28 tonnes per hectare to 3.08 million tonnes, a fall of almost 3.9 per cent; however, this will still be well above the yield recorded for the 2015-16 crop of 2.9 million tonnes.

USDA’s estimate of the Argentine soybean crop of 57 million tonnes in 2017-18 is unchanged from the preliminary estimate of the 2016-17 crop but there are changes to the contributing metrics. The area planted to the Argentine soybean crop in 2017-18, at 19.1 million hectares, is up from the preliminary estimate of the 2016-17 harvest of 18.8 million hectares. However, this is counterbalanced by a fall in yield per hectare, from 3.03 tonnes per hectare in 2016-17 to 2.98 tonnes.

The small but important Paraguayan soybean crop of 9.4 million tonnes in 2017-18 is expected to be 900,000 tonnes or 8.7 per cent lower compared to the 2016-17 harvest. This reflects a decline in both the expected area planted to the crop and in projected yield per hectare.

On the plus side, increases in national soybean crops are projected for Canada and China. The former is expected to harvest a 2017-18 crop amounting to 8.4 million tonnes, up by 1.85 million tonnes or 8.7 per cent more than in 2016-17.  This reflects a projected increase in the area sown to the crop, from 2.22 million hectares in 2016-17 to 2.9 million hectares in 2017-18; no explanation for this projected 31 per cent increase is currently forthcoming. USDA has factored in a very small decrease in yields per hectare, from 2.95 tonnes per hectare in 2016-17 to 2.9 tonnes in 2017-18.

The estimate of Chinese soybean production in 2017-18, at 13.8 million tonnes, represents a 900,000 tonne or 7 per cent increase on 2016-17. This reflects a 400,000 hectare increase in the area planted to soybeans as well as a 1.7 per cent increase in yields per hectare.

USDA’s estimate of the US 2017-18 soybean crop of 115.8 million tonnes is 1.41 million tonnes or 1.2 per cent less than in 2016-17. This principally reflects a fall in yields per hectare which, in 2016-17, came in at 3.5 tonnes; in 2017-18, these are projected to fall to 3.23 tonnes, a decline of 7.7 per cent and bringing US soybean yields back to their 2015-16 level.

Overall, USDA expect world soybean production of 344.68 million tonnes in 2017-18 to fall by 3.36 million tonnes or 1 per cent compared to 2016-17. After usage is taken into account, world end-of-season stocks of 88.81 million tonnes are expected to fall by 1.5 per cent compared to the 2016-17 season. This does not seem to represent a cataclysmic increase in soybean prices; it will, however, be remembered that these are the first attempts at projecting developments in 2017-18 and that caution is the order of the day.

19 May 2017

USDA’s First Look at 2017-18

The United States Department of Agriculture has recently taken its initial look at supply and demand prospects during the 2017-18 season for cereals and oilseeds, amongst the most critical inputs in the manufacture of compound feed manufacture and, by implication, how the cost of such materials may evolve during the coming months.

World wheat production in 2017-18 is projected at 737.83 million tonnes, down 15.26 million tonnes from the 2016-17 record but, nevertheless, still the second highest total on record. Production among the major exporting countries is down by a net 29 million tonnes.

Projected US production, in 2017-18, at 49.54 million tonnes, is 13.32 million tonnes less than in 2016-17. This reflects a very sharp fall both in the area planted to wheat and in the area projected to be harvested; the latter is at the lowest level on record. The decline in US wheat production is the largest of all significant world wheat producers.

Production in Australia, at 25 million tonnes, is slated to fall by 10 million tonnes or almost 29 per cent compared to the 2016-17 season; the Australian Bureau of Agriculture, Resource Economics and Rural Sciences (ABARES) puts the percentage decline even higher. The projected fall in wheat production fall comes despite only a forecast 1 per cent fall in planting, which began in late April, as yields fall back to average levels amid what appears to be shaping up as a drier year. Australian wheat production during 2016-17 was boosted by near-record wet weather across the country's east coast. But with forecasts for a return of an El Niño weather event within the first six months of 2017, which would bring drier conditions, ABARES said wheat yields will fall to a three-year low.

Wheat production is also projected to fall below 2016-17 levels in Both Russia and Ukraine. The Russian wheat harvest is projected at 67 million tonnes, down by 5.53 million tonnes on 2016-17 but still the second highest on record. The Ukrainian wheat crop, at 25 million tonnes, is down by 1.8 million tonnes on lower projected yields. Farmers in Argentina are projected to produce a million tonnes more wheat as the area planted to the crop is expected to expand once again. Conversely, production in Canada at 28.35 million tonnes is forecast 3.35 million tonnes lower, with a reduced yield more than offsetting a slightly higher area. In the EU, production is projected to increase by 5.53 million tonnes to 151 million tonnes, up by 3.8 per cent from last season’s weather-hit crop. In general, wheat conditions in the EU are good with adequate soil moisture in most areas; satellite imagery depicts above-average conditions across most of the EU, albeit the most problematic area has been Spain, where drought has prevailed in the northern grain-producing region.

The overall picture, once consumption of wheat is factored into the supply and demand equation, is that end-of-season stocks are projected to increase by 2.94 million tonnes, despite substantial reductions in production by a number of substantial wheat producers. The increase reflects a massive 17.2 million tonne increase in Chinese inventories, accounting for nearly half of global wheat stocks. Projected end-of-season wheat stocks excluding China are actually down year-on-year. Ending stocks in the eight major exporting countries are collectively projected to drop in 2017-18 after reaching a six-year high in 2016-17. With a smaller crop and continued export demand, U.S. ending stocks are forecast down from the highest level in nearly thirty years. Stocks in Australia and Canada are also forecast to decline reflecting smaller crops. Stocks in the EU are forecast to tighten with larger exports.

Global overall cereal production is forecast to fall from last year’s record driven by smaller crops across all coarse grains – maize, barley, sorghum, oats, and rye. Nevertheless, global consumption is expected to rise moderately as greater use of maize is expected to supplant demand for other coarse grains, particularly in Asia and the Middle East and North Africa.

Maize production in 2017-18 is projected at 1,033.7 million tonnes, down by 31.45 million tonnes or almost 3 per cent on production in 2016-17. The decrease is explained to a very great extent by reductions in the US and Chinese maize crops. The former is projected to fall by 27.5 million tonnes or 7.1 per cent compared to 2016-17 while the latter, at 215 million tonnes, is projected to fall by 4.55 million tonnes or 2.1 per cent. Substantial percentage declines are also projected for Mexico and South Africa.

There is projected to be a substantial drawdown of world end-of-season maize inventories, including a near-20 per cent fall in Chinese stocks as well as an 8 per cent fall in US inventories.

The next issue of this E-Letter will look at USDA’s first estimates for 2017-18 soybean supply and demand as well as the International Grains’ Council’s latest updates for grains and soybeans, if available.

Interest Rates Stay ‘On Hold’

At their meeting on Thursday 11th May, the Bank of England’s Monetary Policy Committee voted as expected, by seven votes to one to hold interest rates at 0.25 per cent, with the sole dissenter, as expected, being Committee member Kristin Forbes who ‘considered it appropriate to increase Bank Rate by 25 basis points’: that is, to 0.5 per cent.

Meanwhile, the latest data on UK inflation, issued on Tuesday 16 May, showed prices as measured by the Consumer Price Index, rising by 2.7 per cent, up from 2.3 per cent in March.

The consensus view amongst economists had been that consumer price index inflation would jump further above the target rate to around 2.6 per cent. In the event, their expectations somewhat underestimated the increase. However, the outcome does raise questions about the future of the Bank of England’s monetary policy. The Bank had estimated that inflation would reach 2.7 per cent by the summer of 2017; this inflation rate has already been reached, making it likely that the Bank’s estimate will have to be increased, especially as producer price output inflation is already above 3 per cent, suggesting that further increases in the inflation rate are in the pipeline.

The National Institute for Economic and Social Research (NIESR) has suggested that inflation, as measured by the Consumer Price Index, will peak at 3.4 per cent. This will reflect a significant increase in food prices, driven by the falling sterling exchange rate; these are likely to be rising at an annual rate of 3.25 per cent by the autumn.

11 May 2017

Compound Feed Production – Great Britain

DEFRA has recently published data on production of compounds, blends and concentrates for the month of March.

Total production (excluding lightly processed feedingstuffs) amounted to 1.17 million tonnes, the largest total for the month of March since records started to be kept in their present form in 1992.

Production of feeds for cattle and calves during March amounted to 420,000 tonnes, 29,000 tonnes or 7.4 per cent more than in March 2016. The largest increase, in both volume and proportionate terms, was in production of compound feeds for dairy cows; at 201,900 tonnes, this was up by 19,300 tonnes or 10.6 per cent during the corresponding month in 2016. However, there was also a notable increase in production of feeds for calves, at 22,800 tonnes up by 4,700 tonnes or 26 per cent compared to production in March 2016.

Production of blended feeds for dairy cows at 87,200 tonnes, was 6,400 tonnes or 7.9 per cent higher than in the corresponding month of 2016. In contrast to the performance of the dairy feed sector, compounds and blends for non-dairy animals registered little change on year earlier levels; output of compounds was slightly lower while output of blends was slightly greater. Production of protein concentrates for cattle and calves, at 7,400 tonnes, was down by a thousand tonnes or 11.9 per cent less than in March a year earlier. The data suggests that confidence is returning to the dairy sector after a period of very low milk prices.

Production of cattle and calf feeds amounted to 35.8 per cent of total production, as opposed to 35.3 per cent in the same month a year earlier.

Production of feeds for pigs amounted to 164,200 tonnes in March 2017, down by 2,100 tonnes or 1.3 per cent lower than in the same month in 2016. Pig feeds accounted for 14 per cent of total production of compounds, blends and concentrates during March 2017, compared to 15 per cent in the same months a year earlier.

There was a 400 tonne or 8 per cent increase in production of feeds for pig starter and creep feeds to 5,400 tonnes; at 14,000 tonnes, production of link and early grower feeds was also higher by 5,100 tonnes or 57.3 per cent. However, across growing and finishing feeds, production declined compared to March 2016. At 80,200 tonnes, production of finishing feeds was down by 4,300 tonnes or 5.1 per cent while growing feeds, at 27,600 tonnes, was down by 1,900 tonnes or 6.4 per cent. Production of feeds for breeding pigs, at 36,000 tonnes during the month, was 1,700 tonnes or 4.5 per cent down compared with the same month a year earlier.

At 364,400 tonnes during March 2017, production of poultry feeds was 15,300 tonnes or 4.4 per cent higher than in March 2016 and, since data on poultry feed production was produced in its present form in 1992, a record for the month in question. However, production of feeds for poultry during the month amounted to 31 per cent of total output, compared to 31.5 per cent during March 2016.

Production of feeds for broiler chickens, the largest single category of poultry feed production, at 192,700 tonnes, was 10,500 tonnes or 5.8 per cent higher than in the corresponding month a year earlier. Production of feed for laying birds, at 101,600 tonnes the second largest category, was up by a much more modest 1,200 tonnes or 1.2 per cent. There were increases in the production of poultry breeding and rearing feeds together with increased production of turkey feeds. The only categories of poultry feed production to show a decline year-on-year were chick rearing feeds and miscellaneous poultry feeds, at 14,500 tonnes down by 1,200 tonnes or 7.6 per cent.

Production of feeds for sheep and lambs put on a creditable performance during the month. At 166,400 tonnes during March 2017, production was ahead of the corresponding month a year earlier by 13,500 tonnes or 8.8 per cent with particularly strong performances by compounds for both breeding and finishing sheep. The month also saw in the production of other compounds, blends and concentrates of which a significant proportion is thought to consist of feeds for fish.

Taking the first three months of 2017 together, total production of compounds, blends and concentrates in Great Britain during the first quarter of 2017 was running 154,200 tonnes or 5.3 per cent ahead of the first quarter a year earlier.

Increased production was recorded in all sectors with the single exception of feeds for pigs. Total cattle and calf feeds production was ahead of the first quarter of 2016 by 62,700 tonnes or 5.9 per cent while poultry feeds were ahead by 40,100 tonnes or 4.4 per cent. Feeds for sheep were ahead by 40,300 tonnes or 11.7 per cent. In volume terms, therefore, a satisfactory turnout for the first quarter of 2017.

Drought Watch

In April, the UK as a whole received just 48 per cent of its normal rainfall for the month; this followed a dry January (of the meteorological type, rather than guilt-induced abstinence from alcohol) where the UK received 62 per cent of its normal precipitation. For the last three months of the year, the UK has also been significantly warmer than normal.

Water companies have warned that parts of UK could see drought this summer after what has been the driest winter in more than twenty years. The lack of rain over the autumn, winter and early spring has left some rivers and reservoirs with dwindling water levels, particularly in the south and west. With weather experts warning that there is little sign of significant rain to come (albeit the sky looks threatening in West Wales as I write), it is being reported that many farmers and gardeners are already watering their crops as the ground dries out.

Alarmists are quoted as saying that the current rainfall deficit could result in ‘crop yields being slashed by 50 per cent’. Light land will obviously be potentially the hardest hit. Meanwhile, while water companies are currently playing down talk of hosepipe bans, with the dry weather continuing the public has now been warned that restrictions could be on the way in some areas unless reservoir levels are replenished by prolonged rainfall. However, there is still some distance to go before the public, to quote from the 1976 drought, will be urged once again to ‘Save water - have a bath with a friend’.

Interest Rates on Hold?

With the Monetary Policy Committee set to meet today (Thursday 11 May), one commentator commented that rising inflation is putting pressure on Bank of England Governor Mark Carney to raise the current 0.25 per cent rate, even as the UK’s economic growth slows.

The combination of slower economic growth and higher inflation present policymakers with ‘a delicate balancing act’ when they meet to set interest rates as well as agreeing new forecasts for the UK as it goes through a General Election and Brexit talks.

The MPC is widely expected to keep interest rates at their record low of 0.25 per cent when they make their announcement at midday, in order to offer continued support to the economy and the jobs market. A poll of City economists forecast that just one policymaker, Kristin Forbes, shortly to return to academia, will vote for a rate rise, sticking to the position she adopted at the last meeting in March, amid worries about inflation picking up too fast.

11 April 2017

Great Britain Feed Output

Total production of compounds, blends and concentrates during February 2017 amounted to 939,800 tonnes, 17,900 tonnes or 1.9 per cent more than in the corresponding month of 2016. It was also the largest total output since 1996.

Production of feeds for cattle and for calves, at 344,100 tonnes, was 6,300 tonnes or 1.9 per cent more than in February 2016. At 19,400 tonnes, production of feeds for calves was 3,800 tonnes or 24.4 per cent higher than in February 2016. Production of both compounds and blends for dairy cattle was higher in February 2017 than in the corresponding months a year earlier, the former by 2,600 tonnes or 1.7 per cent and the latter by 3,900 tonnes or 5.6 per cent. Conversely, production of compounds and blends for non-dairy cattle was lower than a year previously, with the former down by 3,400 tonnes or 5.5 per cent and the latter down by a more modest five hundred tonnes or 1.9 per cent.

Production of feeds for pigs in February 2016, at 135,800 tonnes, was 8,600 tonnes or 6 per cent lower than in February 2016.

The only categories of feeds for pigs to show an increase on production of a year earlier were link and early grower feeds, at 7,900 tonnes up by 900 tonnes or 12.9 per cent and protein concentrates for pigs, at 900 tonnes up by 300 tonnes or 50 per cent. The largest decline on year-earlier levels was in output of growing feeds, at 23,500 tonnes down by 4,300 tonnes or 15.5 per cent. There were also contractions in the output of finishing feeds, at 68,500 tonnes down by 3,900 tonnes or 5.4 per cent. Production of feeds for breeding pigs, at 30,800 tonnes in February 2017 was 1,500 tonnes or 4.6 per cent less than in the corresponding month a year earlier.

Total production of feeds for poultry in February 2017 amounted to 292,100 tonnes, 8,600 tonnes or 3 per cent ahead of February 2016 and a record output for the month. Production of poultry feeds constituted 31.2 per cent of total output of compounds, blends and concentrates, compared to 30.9 per cent in the same month a year earlier.

The most significant increase in apparent output was in production of feeds for broiler chickens, at 151,600 tonnes up by 9,500 tonnes or 6.7 per cent. The most significant decline in year-on-year output was in poultry breeding and rearing diets, at 24,500 tonnes, down by 1,800 tonnes or 6.8 per cent. There were small changes in other categories of poultry feed production including that of feeds for laying birds, at 86,300 tonnes up by 500 tonnes or 0.6 per cent.

Production of feeds for sheep and lambs, at 116,400 tonnes in February 2017, was ahead of year-earlier levels by 6,500 tonnes or 5.9 per cent. Most of this was accounted for by increased output of compound feeds both for breeding and for finishing sheep, particularly the latter. There was a small increase in the production of feeds for horses as well as an increase in ‘miscellaneous’ feeds, at 31,700 tonnes up by 4,400 tonnes or 16.1 per cent. This category of feeds is thought to be mainly for fish.

During the first two months of 2017, production of compounds, blends and concentrates in Great Britain, at 1,885,000 tonnes was running at 85,000 tonnes or 4.7 per cent ahead of the equivalent period of 2016. The increase was accounted for by production of feeds for all species with the single exception of feeds for pigs which, at 279,100 tonnes, was 13,600 tonnes or 4.6 per cent less than during the first two months of 2016.

Weather News

The Meteorological Office has reported on the weather outturn in March 2017.

The mean temperature for the UK as a whole was 1.8°C above the average for the years 1981 -2010; this followed February when mean UK temperatures were 1.6°C higher than average. As regards England, mean average temperatures were 2.2° C above average; this followed February when temperatures in England were 1.8° C to the good. Temperatures in the devolved administrations were also above average although not to the same extent as in England.

Rainfall, which in January was in short supply across the UK returned to more normal levels in February and, again, in March with the exception of a wet Wales which received 141 per cent of its ‘normal’ rainfall for March.

Judging by the weather during the first ten days of April, the month as a whole should reflect the same pattern established for the preceding two months, at least as far as temperatures are concerned. However, this column does not make predictions regarding weather; to do so is unnecessarily to tempt fate.

Economic Catch-up

Data on UK inflation, as measured by the Consumer Price Index, was released on 11th April.

The consensus in a Reuters poll of economists was for an inflation rate of 2.3 per cent in the year to March, the same figure as for the year to February and the highest since September 2013 when the inflation rate hit 2.7 per cent.

 Views of those taking part in the poll ranged from between 1.9 per cent to 2.5 per cent. In the event, the Reuters consensus proved to be spot-on, with the Consumer Price Index in March rising by 2.3 per cent, unchanged from February. The largest upward effect came from food and non-alcoholic beverages. Food prices fell between February and March in the previous six years but in 2017 they rose by 0.6 per cent. The upward effect came from a wide range of food items with only fruit providing a small downward contribution.

Upward effects were largely offset by a downward contribution from transport, coming principally from air fares and, to a lesser extent, movements in fuel prices. The timing of Easter in March 2016 contributed to air fares rising almost 23 per cent on the month whereas this year, Easter is in April. This year, fares fell by 3.9 per cent between February and March. Prices of motor fuels also fell between February and March this year reflecting falls in global oil prices whereas prices rose a year ago. Petrol fell by 1 pence per litre this year but rose by 0.9 pence per litre a year ago. Similarly, diesel fell by 1.1 pence per litre this year but rose by 2 pence a year ago.

Also reported on 11th April were data for Producer Price Inflation; this measures the costs to manufacturers of materials and fuels purchased and output of manufacturing industry.

The annual rate of producer price inflation fell back slightly in March 2017. Factory gate prices rose 3.6 per cent on the year to March 2017, from 3.7 per cent in February 2017; however, this is the ninth consecutive period of annual price growth.

Prices for materials and fuels paid by UK manufacturers for processing rose 17.9 per cent on the year, a slight decrease from February 2017; again, however, this is the ninth consecutive period of annual price growth. Prices of imported materials and fuels increased 17.1 per cent on the year to March 2017, which is the second consecutive month in which inflation in imported materials and fuels has been lower than in total inputs.

4 April 2017

Total UK Meat Consumption

While the DEFRA publication, Family Food, deals primarily with the consumption of food in the domestic environment, there is clearly a significant volume of food, including livestock products that is initially utilised in the feed manufacturing industry before ending up on the nation’s dinner plates.

Taking all meats including poultry into account, the UK produced 3.89 million tonnes of meat in 2016, an increase of 2.9 per cent on the previous year. A further 1.83 million tonnes were imported while 755,400 tonnes were exported; in addition to the latter, 11,500 tonnes were exported ‘live’. Taking everything into account, this means that UK consumers had 4.95 million tonnes of dressed carcass weight of meats to consume, 3.3 per cent more than in 2015.

The data shows that UK production as a percentage of the volume of meat moving into consumption amounted to 78.6 per cent, very slightly lower than in 2015. However, the self-sufficiency figure in 2016 was slightly better than during the previous decade, albeit lower than during the preceding ten year period from 1996 to 2005.

In terms of the proportion of meat consumed, chicken led the coop at 41.9 per cent with pork at 29.3 per cent. Beef, at 22.3 per cent was third while mutton and lamb, at a lowly 6.5 per cent, brought up the rear.

International Grains Council Update

The March edition of IGC’s Grain Market Report has recently been published, including a preliminary assessment for world prospects during the 2017-18 marketing year.

World production of wheat and coarse grains is projected at 2,050.2 million tonnes, down by 55.3 million tonnes or 2.6 per cent on the estimated outcome for 2016-17. Production by the world’s major exporters – Argentina, Australia, Canada, EU, Kazakhstan, Russia, Ukraine and the US – is projected lower than in 2016-17 with the single exception of the EU. Total use of wheat and coarse grains is projected at 2,079.2 million tonnes, 7.2 million tonnes or 0.3 per cent more than in 2016-17 of which use as food shows the largest increase in both volume and proportionate terms. IGC note that ‘The preliminary outlook for total grains in 2017/18 is for another well-supplied global market’. While end of season inventories could shrink for the first time in five seasons, they will likely stay large relative to projected consumption.

IGC is looking for a smaller global wheat crop of 734.5 million tonnes, 19.2 million tonnes or 2.5 per cent less than the estimated 2016-17 harvest. Again, the reduction will occur in all significant wheat exporting countries with the exception of the EU. Global production of maize, at 1,023.9 million tonnes is also projected to fall short of the 1,053 million tonnes harvested in 2015-16, although the drought-stricken South African crop is projected to undergo a significant recovery. End-of-season stocks of wheat and maize are projected to be lower than was the case in 2016-17 although their levels relative to projected consumption are unlikely to cause concern; while carryover stocks of total grains in 2017-18 are projected to contract, they will still constitute the second highest ever.

IGC projections for soybeans in 2017-18 will be discussed in the next issue of this E-Letter.

Meanwhile, the US Department of Agriculture has also released its estimates of prospective plantings for this year.

The area planted to maize for all purposes in 2017 is estimated at 90 million acres, down 4 per cent or 4 million acres from last year. Compared with last year, planted acreage is expected to be down or unchanged in 38 of the 48 estimating States. The area planted to wheat for 2017 is estimated at 46.1 million acres, down 8 per cent from 2016 and the lowest total area planted to wheat for the United States since records began in 1919.

Soybean planted area for 2017 is estimated at a record high 89.5 million acres, up 7 per cent from last year. Compared with last year, planted acreage intentions are up or unchanged in 27 of the 31 estimating States.

2016 GDP Data Updated

With the last day of March came the latest and final update to the data regarding the growth of the UK economy during the last three months of 2016.

Previously published data attested to the surprising resilience of the British economy following the Brexit vote on 23 June 2016. The Preliminary Estimate of GDP growth during the last quarter of 2016 was 0.6 per cent. However, to widespread surprise, the Second Estimate, published in late February this year, showed GDP growing at 0.7 per cent. Upward revisions, due to later data received within the manufacturing industries was the main reason for the upgrade; however, GDP growth in the fourth quarter saw a continuation of strong consumer spending and strong growth in the output of the services sector with a notable contribution in consumer-focused industries. There was, however, a slowdown within business investment which fell by 1 per cent.

The third and most authoritative measure of Gross Domestic Product is typically published around ninety days after the end of the quarter in question. As regards the fourth quarter of 2016, this confirmed that GDP grew at 0.7 per cent; however, growth in the third quarter of 2016 has been revised down by 0.1 percentage points to 0.5 per cent from the previous estimate. The services sector was the main driver of growth in the fourth quarter but production and construction also grew, the former increasing by 1.2 per cent and the latter by 1 per cent.

Bank Note Brouhaha

The opening of the consultation over the use of animal fats in the manufacture of the new £5 banknote and the forthcoming £10 and £20 notes, following protests by vegans and various religious groups has been marked by further protests by those opposed to the possible replacement of animal fats by palm or coconut oil derivatives. This is on the grounds that increased production of, in particular, the former has resulted in a significant increase in world deforestation.

The bank of England, it seems, cannot win.

28 March 2017

Soybean Outlook

USDA have updated their soybean projection for 2016-17. World production during the 2016-17 run is now slated at 340.79 million tonnes, an increase of 4.16 million tonnes or 1.2 per cent on USDA’s February projection.

As regards this latest, March update USDA, besides a 164,000 tonne increase for ‘miscellaneous’ countries, has pencilled in a 4 million tonne or 3.85 per cent increase for Brazil, bringing soybean output for that country up to a record 108 million tonnes. This is equivalent to 92 per cent of the output currently projected for the world’s largest producer of soybeans, the United States.

Brazil’s harvested soybean area is estimated at a record 33.9 million hectares, unchanged from last month but up from 33.3 million hectares last year. An increase of ten per cent or 0.5 million hectares was planted in the North and North-East regions. Area also increased in the Centre-West but was offset by declines in the South and South-West.

However, yields are estimated at 3.19 tonnes per hectare, up 4 per cent from last month’s estimate and up 10 per cent from last year. The crop has benefited from favourable weather with ample rainfall throughout the growing season, raising prospects for above-average yields.

Wynnstay in 2016

The Wynnstay Group has reported results for the year ending 31 October 2016.

The Group made sales of £368.14 million during the twelve months under review, £9.24 million less than in the corresponding period a year earlier. Operating profits amounted to £7.44 million, down from £9.05 million in 2015 while pre-tax profits amounted to £7.28 million, down from £8.34 million in the preceding twelve months.

Wynnstay’s Gross Profit ratio – the ratio of Cost of Sales to Turnover – has risen since 2013 when it stood at 12 per cent; it increased to 14.7 per cent in 2015 and to 15.6 per cent in 2016. Wynnstay’s Operating Profit ratio which, in 2015, rose sharply to 2.4 per cent, fell back to a fifteen year low of 2 per cent in 2016. The Group’s Pre-tax Profit ratio also fell back to 2 per cent, illustrative of the intensely competitive nature of the markets in which the Group operates.

Family Food 2015

This publication, the lineal descendant of the National Food Survey, is primarily concerned with food consumption at home although in recent years, it has also sought to take food purchased and consumed outside the home into account. The data contained in Family Food is of particular relevance to the feed industry in that it represents, as it were, the ‘final market’ for companies manufacturing livestock feed.

Average consumption of milk and milk products excluding cheese amounted to 1,828 millilitres (ml) per person per week during 2015, down by 21 ml or 1.1 per cent compared to the previous year. Compared to 2010, consumption of milk and milk products in 2015 was 69 ml or 3.6 per cent lower.

A substantial proportion of the decline represented lower consumption of liquid whole milk, at 312 ml in 2015 down by 40 ml compared with 2010. While consumption of fully skimmed milk is relatively small, consumption of semi-skimmed milk, at 964 ml per person in 2015 was down by 81 ml or 7 per cent compared with the previous year, continuing a statistically significant downwards trend; this is interesting in that the supposed health properties of semi-skimmed milk as compared to its wholemilk equivalent appear to have played out.

Turning to milk products, consumption of cheese in 2015, at 112 grams per person per week, was 1 gram higher than in the preceding year but 6 grams lower than in 2010. There is, in fact, a small downward trend in consumption of hard cheese of the cheddar type, nevertheless, it is still this type that dominates the UK domestic market.

Consumption of carcass meats is of obvious importance to the livestock feed industry and, during 2015, total consumption amounted to 188 grams per person per week, down by 7 grams compared with the previous year and 23 grams compared with 2010.

 In 2015, total consumption of beef and veal amounted to 103 grams per person per week, 1 gram more than in 2014. However, when looking at beef in terms of different cuts, it was the ‘more expensive’ beef steak cuts that saw a decline albeit of only 1 gram per person per week while consumption of the ‘less expensive’ cuts rose by a similar amount. If we look at the years since 2010, then consumption of the ‘more expensive’ beef steak fell from 21 grams per person per week to 15 grams in 2015, a decline of over 28 per cent. Household consumption of mutton and lamb, at 35 grams per person per week in 2015, was 2 grams less than in the preceding year and 9 grams less than in 2010. This suggests that the ‘underlying demand’ for mutton and lamb, particularly the former, is in long-term decline. The opposite is said to be the case in France. Consumption of pork in 2015, at 50 grams per person per head was 7 grams less than in 2014; however, it appears that the 57 grams consumed in 2014 was the result of special circumstances, being the largest quantity consumed for at least a decade.

Of the category of non-carcass meats and meat products, the category of uncooked chicken is the most important in volume terms. At 184 grams per person per week, household consumption of chicken, either whole or in pieces was 2 grams less than in the previous year, albeit 3 grams more than in 2010. However, consumption of uncooked chicken in 2011 and 2012 was, respectively, 190 grams and 192 grams per person per week, significantly higher than in the years 2013-2015. Consumption of eggs per person each week has remained at 2 eggs for many years. Taking fish as a whole, there has been a steady decline over the past twenty years with the marked exception of salmon, both fresh, chilled or frozen; this reflects the growth of the farmed salmon sector.

A more detailed review of total consumption of livestock products, both inside and outside the home as well as that used for manufacturing will follow in the next edition of this E-Letter.

22 March 2017

USDA Update

The United States Department of Agriculture (USDA) has recently updated its Production, Supply and Distribution (PSD) report for wheat and maize.

USDA has lifted its projection of world wheat production in 2016-17 to 751.07 million tonnes, up by 2.84 million tonnes or 0.4 per cent compared with the February projection. Apart from a small reduction in the prospective EU wheat crop, the major part of the change reflects increased production in Argentina, up by a million tonnes or 6.7 per cent, and Australia, up by 2 million tonnes or 6.1 per cent.

Regarding Argentina, while USDA had made no change in the area planted to wheat compared with the February projection (4.9 million hectares) this figure was 24 per cent higher than a year earlier. Wheat yields, however, at 3.27 tonnes a hectare, constituted a 7 per cent increase on USDA’s February estimate and up 14 per cent from last year. The main areas of wheat production benefited from ‘timely precipitation’, which boosted yields while posing little in the way of disease problems; in any case, the wheat harvest was complete before the heavy rains in late December 2016.

In Australia, rainfall has been above average since sowing operations commenced in May, resulting in soil moisture in virtually all winter cropping areas, including wheat, barley and rapeseed, being ‘markedly improved’ from the relatively dry conditions that prevailed during much of the previous year. Growing conditions were ideal in most regions with the exception of localized minor losses. USDA is projecting Australia’s 2016-17 wheat crop at a record 35 million tonnes, up 2 million tonnes or 6 per cent from last month’s projection and up by 10.8 million tonnes or 45 per cent from last year. Harvested area is estimated at 12.9 million hectares, down nearly 1 per cent from last month’s projection, but still up 1 per cent from last year. Wheat yield is estimated at a record 2.71 tonnes per hectare, up 7 per cent from February’s estimate and up by a huge 44 per cent from the 2015-16 harvest.

USDA is looking for total maize output in 2016-17 of 1,049.24 million tonnes, 9 million tonnes or 0.9 per cent up on February’s projection. Of this total, 5 million tonnes or 6 per cent is accounted for by increased Brazilian output. This is based on improved yields for the first crop and increased area for the second crop. Yield is estimated at 5.38 tonnes per hectare, up 4 per cent on February’s projection and up 29 per cent from last year, when the below-average yield resulted from the reduced output of the drought-affected second maize crop.

South Africa’s maize harvest is projected at 14.6 million tonnes, up 1.6 million tonnes or 12 per cent from February’s projection and up 6.4 million tonnes or a massive 78 per cent from last year harvest. Area is estimated at 3.1 million hectares, unchanged from last month’s projection and up 0.9 million hectares from last year. The forecast yield is 4.71 tonnes per hectare, up 18 per cent from the 5-year average. The 2017 commercial production estimate is the second-highest on record due to favourable rains during the planting season and well-above-average rains during January and February. Crop conditions are especially favourable in the two provinces that, together account for over 60 per cent of national maize production.

USDA has scheduled its next PSD update for 11 April. The latter update will be the last for the 2016-17 marketing year; thereafter, the focus will switch to 2017-18.

Wynnstay Results

Wynnstay held its Annual General Meeting recently and reported on current trading conditions. 

The trading environment for farmers had continued to show signs of improvement, with farm output prices higher year-on-year, although from what Wynnstay describes as ‘low comparatives’. This was encouraging although, as yet, it was too early to determine the strength of the recovery. In the Agricultural division, demand for ruminant feed had increased year-on-year; this mirrored national trends.

There were important seasonal trading months ahead for Wynnstay, particularly as regards feed sales and these would influence the outcome for the half-year. Nonetheless, at this stage, Wynnstay was ‘on track’ to return to growth during the current financial year.

More on this in next week’s issue of this E-Letter.

Interest Rate News

As widely expected, the US Federal Reserve Bank voted, at its meeting on 14th and 15th March, for an increase in the Federal Funds target range to between 0.75 and 1 per cent. This followed the increase which took place last December. The increase took place against a background of what observers have described as ‘near full employment’ and firming inflation.

Meanwhile, the Bank of England’s Monetary Policy Committee voted, by eight votes to one, to leave monetary policy unchanged, holding interest rates at 0.25 per cent. But in what market observers described as ‘a major surprise’, one member, Kristin Forbes, voted to raise interest rates to 0.5 per cent. Forbes, who leaves the Committee at the end of June, felt that inflation ‘was rising quickly’ and was likely to remain above the Bank’s 2 per cent target for at least three years. Minutes from the meeting showed Forbes also felt that the weakness in activity expected since the referendum had not materialised and that unemployment showed no signs of increasing. Accordingly, she voted against the rest of the Committee, advocating an increase in Base Rate to 0.5 per cent. Her decision is the first split on the MPC since the aftermath of the Brexit vote in July 2016, when Jan Vlieghe voted for a rate cut from 0.5 per cent to 0.25 per cent. The rest of the MPC opposed him -  but then voted for just such a cut a month later.

Meanwhile, and as regards the value of sterling, the Economist observed that ‘In recent weeks they (investors) have been building up short positions against sterling (i.e. betting that it will fall). Before long the gravity-defying pound may be brought down to earth.’ Purchasing managers take note!

14 March 2017

Great Britain January 2017

The first production data for compounds, blends and concentrates in Great Britain during 2017 was published by DEFRA earlier this month. Total production in January 2017 amounted to 944,200 tonnes, 65,800 tonnes or 7.5 per cent more than in January 2016.

Production of feeds for cattle and calves, at 353,100 tonnes, accounted for 37.4 per cent of total production of manufactured feeds, a slightly lower proportion than in the corresponding month of 2016. It was, however, 22,800 tonnes or 6.9 per cent up on January 2016.

The largest contributor to the increase was production of compound feeds for dairy cows, followed by increased output of feeds for calves. Output of dairy compounds, at 165,100 tonnes, was ahead of the corresponding figure for January 2016 by 9,800 tonnes or 6.3 per cent. This was in contrast to a much more modest increase in production of blended feeds for dairy cattle, suggesting that dairy farmers may be recovering from the effects of very low recent first-hand milk prices.

Production of feeds for calves, at 23,100 tonnes during January 2017, was 13,900 tonnes or 23.1 per cent higher than in the corresponding month a year earlier and were at their highest on record since records started to be kept in their current form in 2002. This may be a further indication of growing confidence in the sector.

Production of feeds for pigs, at 142,200 tonnes, was 4,900 tonnes or 3.3 per cent less than in January 2016. Output was lower in all sectors with the marked exception of link and early grower feeds which, at 8,100 tonnes, were ahead of year-earlier levels by 2,000 tonnes or almost one-third.

Production of feeds for poultry, of 299,000 tonnes in January 2017, was ahead of year-earlier figures by 16,300 tonnes or 5.8 per cent. The bulk of this increase was in output of feeds for broiler chickens and feeds for laying birds. At 155,800 tonnes, output of the former was ahead of year-earlier levels by 8,500 tonnes or 5.8 per cent while production of feeds for laying birds, at 88,000 tonnes, was 7,700 tonnes or 9.6 per cent higher than during January 2016. It is also worth noting that output of broiler and layer feeds were at their highest ever level since 1992.

Production of feeds for sheep and lambs in January 2017, at 101,700 tonnes, were at a seven-year high – being 20,100 tonnes or almost a quarter ahead of the corresponding moth a year earlier. It is worth noting that January’s total output of feeds for sheep and lambs has only exceeded 100,000 tonnes four times since 1992. While the increase was principally driven by increased output of compound feeds both for breeding and for finishing stock, there was also a sharp increase in output of blends for breeding animals; at 16,100 tonnes, This was 12,600 tonnes or a massive 360 per cent more than in the corresponding month of 2016.

There were increases in production of feeds for horses and also in ‘miscellaneous’ feeds, believed to consist largely of feeds for fish.    

DEFRA is scheduled to update feed production in Great Britain during February on 6 April.

Economic Update

Following better-than-expected employment data and a high degree of unanimity amongst market watchers, a rise in US interest rates was looking increasingly likely at the meeting of the Federal Reserve taking place on 14 and 15 March. The increase is expected to be of twenty-five basis points, from the current rate of 0.75 per cent.

One side-effect of an interest rate will be its effect on developing countries, struggling to cope with steep rises in their debt payments after being hit by a ‘double whammy’ of lower commodity prices and the stronger dollar. If such an increase takes place, it will be the first of a reported three increases in US interest rate thought to be on the cards during 2017, although some observers now believe the Federal Reserve Bank’s policymakers may signal there could be more than the three rate rises this year.

6 March 2017

Feed Production in Great Britain

DEFRA has recently published data on production of compounds, blends and concentrates in Great Britain during January 2017.

Production amounted to 878,400 tonnes which was 9,100 tonnes or 1 per cent less than in the corresponding month of 2016. There were declines across the board with the exception of feeds for poultry. More on this in the next issue of this E-Letter.

IGC Record

The International Grains Council has, once again, boosted its latest, February projection of world grain production in 2016-17. 

A further 5 per cent upward revision has brought projected global grain output in 2016-17 to an all-time peak of 2,101.8 million tonnes. A record maize harvest accounts for the largest proportion of the increase with wheat output also at its highest ever level. Despite a solid rise in consumption, global end-of-season stocks are projected to rise by just short of 33 million tonnes to 507.5 million tonnes, as inventories of wheat and maize both climb by about 7 per cent.

The major sources of increased grain production are in Argentina and Australia as well as the EU.

Northern Ireland in 2016

Total production of livestock feed in Northern Ireland during December 2016 amounted to 232,900 tonnes, 28,300 tonnes or 13.9 per cent more than in December 2015 and, by some distance, the largest total for December since records of feed production in Northern Ireland started to be kept in their present form in 1996.

Production of feeds for cattle and calves in December 2016 amounted to 126,100 tonnes, 17,300 tonnes or 15.9 per cent more than in December 2015 and, again by some distance, the largest total for December since records started to be kept in their present form. It is likely that this outcome reflected recent low levels of rainfall, resulting in poor late season grass growth; temperatures during December 2016 in common with the rest of the UK were well above normal for the month in question.

Production of feeds for cattle and calves during December 2016 constituted 54.1 per cent of all feed produced in the province, up from 53.2 per cent in the same month in 2015. Increased production was noted in all sectors, with the largest contribution being made by compounds for dairy cattle, at 47,900 tonnes, up by 7,200 tonnes or 17.8 per cent.

 Production of feeds for pigs in December 2015, at 20,500 tonnes, was 3,100 tonnes or 17.5 per cent more than in December 2015. In volume terms, the largest increase in production was recorded by finishing feeds which, at 9,200 tonnes, increased by 2,200 tonnes or 30.6 per cent compared with the corresponding month of 2015. Output of feeds for pigs were at their highest December level for the month in eighteen years and constituted 8.8 per cent of total production.

Production of feeds for poultry in Northern Ireland during December 2016, at 73,000 tonnes, were 5,900 tonnes or 8.7 per cent ahead of the same month a year earlier and constituted 31.4 per cent of total output, slightly down as a proportion compared with December 2015.

The most significant increase in poultry feed output in December 2016 was in broiler feeds, at 41,500 tonnes, 5,200 tonnes or 14.5 per cent more than in December 2015. There was also a 1,100 tonne or 4.7 per cent increase in the output of layer and breeder feeds. The only category of poultry feeds to show a decline was in turkey and other poultry feed which, at 5,400 tonnes, was down by 500 tonnes or 8.3 per cent.

Production of feeds for sheep, at 5,500 tonnes in December 2016, was 1,300 tonnes or 31.2 per cent higher than in the corresponding month a year earlier. This is likely to reflect the same factors that drove production of cattle feeds. Compounds, both for breeding stock and for growing and finishing, constituted the bulk of the increase.

Total production of compounds, blends and concentrates in Northern Ireland during 2016 amounted to 2,234,700 tonnes, 18,800 tonnes or 0.8 or cent less than in 2015. Production of feeds in Northern Ireland peaked in 2013, reflecting that year’s prevailing weather conditions; production has subsequently declined annually, albeit that it still exceeds 2 million tonnes as it has now done for the past eight years.

Economic Update

Data released by the Office of National Statistics on 22 February showed that, according to the Second Estimate of the UK’s Gross Domestic Product during the final three months of 2016, the UK economy grew by 0.7 per cent compared to the previous quarter. This compared with the Preliminary Estimate, published on 26 January of 0.6 per cent.

The main reason for the upwards revision is due to later data received concerning the manufacturing industries, first published on 10 February 2017.

In addition, UK GDP growth in the last quarter of 2016 saw continuing strong consumer spending and strong growth in the output of the services sector. However, there was a slowdown in business investment which fell by 1 per cent, driven by subdued growth within the ‘ICT equipment and other machinery and equipment assets’.

Chris Williamson, Chief Business Economist at the closely-watched IHS Markit survey said that a further slowdown in UK business activity growth in February added to evidence that the economy had ‘lost momentum after the impressive expansion seen at the end of last year’, adding that the Purchasing Managers’ Index surveys were collectively signalling GDP growth of 0.4 per cent in the first quarter of 2017. The Office of National Statistics’ Preliminary Estimate of GDP during the first three months of 2017 is due for publication on 28 April.

Meanwhile, the prospect for an increase in US interest rates appears to be coming closer. According to one correspondent, Fed Chair Janet Yellen has hinted that the first increase in 2017 could come within a few days, perhaps at the Federal Open Market Committee’s meeting on 14-15 March.

14th February 2017

Great Britain – December and 2016

With the publication, on 9 February, of feed production data for Great Britain in December 2016, it has become possible to take a first look at feed production in Great Britain for the year as a whole.

In December, total output of compounds, concentrates and blends in Great Britain amounted to just over 1.08 million tonnes, 42,700 tonnes or 4.1 per cent ahead of the equivalent month in 2015 and the highest monthly total for December since records started to be kept in their current form in 1992. There were increases in all categories of feeds with the exception of feeds for pigs which, at 167,400 tonnes, were down by 9,300 tonnes or 5.3 per cent compared with December 2015.

Taking 2016 as a whole, production of compounds, blends and concentrates in Great Britain amounted to 11.14 million tonnes, 307,900 tonnes or 2.8 per cent more than in 2015 and the first time production has exceeded 11 million tonnes since records started to be kept in their present form in 1992.

Taking individual sectors, production data for 2016 show increases across the board with the exception of feed for pigs that, at 1.81 million tonnes, was 63,800 tonnes or 3.4 per cent less than in 2015. It should also be borne in mind, with regard to poultry feed production, that statistical changes have resulted in production by integrated poultry units being reduced while production by retail producers has been increased.

Northern Ireland November Production

The Department of the Environment, Agriculture and Rural Affairs (DEARA) has recently updated its data on production of compounds, blends and concentrates in Northern Ireland during the month of November 2016.

Total production amounted to 196,000 tonnes, 13,4000 tonnes or 7.4 per cent more than in the corresponding month of 2015 and the highest November total since records started to be kept in their present form in 1996.

Production of feeds for cattle and calves, at 102,800 tonnes in November 2016, were 7,100 tonnes or 7.5 per cent more than in November 2015. Production of cattle and calf feeds constituted 52.4 per cent of total feed production in Northern Ireland during November 2016, unchanged from a year earlier. In volume terms, the greatest increase was in production of compounds for dairy cattle, at 38,800 tonnes up by 2,500 tonnes or 6.9 per cent. Production of coarse mixes and blends for beef cattle, at 24,300 tonnes was up by 2,200 tonnes or 10.2 per cent; this was the only category of cattle and calf feeds that increased its share of feed total production.

Production of feeds for pigs amounted to 18,100 tonnes in November 2016, 1,700 tonnes or 10.5 per cent more than in November 2015 and accounting for 9.2 per cent of total production, slightly ahead of the equivalent proportion during the same month a year earlier. The largest increase was in the production of finishing feeds, at 7,900 tonnes up by 1,500 tonnes or 22.7 per cent compared to November 2015. Production of poultry feeds, at 64,500 tonnes, was 2,900 tonnes or 4.7 per cent ahead of the equivalent month of 2015, accounting for 32.9 per cent of total feed production during the month under review, down from 33.7 per cent a year earlier.  The largest increase, 2,100 tonnes or 20 per cent, was recorded in production of feeds for turkeys and other poultry. Total production of feeds for turkeys and other poultry was at its highest level since records of feed production in Northern Ireland were first kept in their present form in 1996.

 Production of feeds for sheep and lambs, at 3,900 tonnes in November 2016, was 1,100 tonnes or 40.9 per cent higher than a year earlier, largely due to increased production of compounds for both breeding stock and finishing feeds. This may very well have reflected the relatively cold weather in Northern Ireland during November with temperatures averaging 1.3°C below normal for the month in question. In percentage terms, there was also a significant increase in output of lightly processed feeding stuffs and this may have been attributable to the same factor.

In cumulative terms, feed production in Northern Ireland during the first eleven months of 2016, at just over 2 million tonnes, was running at 48,800 tonnes or 2.4 per cent less than the equivalent period of 2015. This reflected significant falls in the output of feeds for dairy cattle, notably production of coarse mixes and blends. There were also significant declines in poultry feed production, notably broiler feeds.

Complete figures for feed production in Northern Ireland in 2016 are scheduled for release on 3 March and will be reported upon in due course.

USDA Update

The Foreign Agriculture Service (FAS) of the United States Department of Agriculture has recently updated its new website to give its latest predictions of the world supply and demand situation for wheat and maize during the 2016-17 marketing year.

Total wheat production, at 748.24 million tonnes, has been reduced downwards by 4.45 million tonnes compared to FAS’s January projection. This largely reflects reductions in Kazakhstan and India, although production in Turkey and Ukraine has also been revised downwards albeit by smaller amounts. Indian wheat production has been reduced by 3 million tonnes or 3.3 per cent to 87 million tonnes, which is ‘well below the latest government of India estimate’; no further information is currently available. The Kazakhstan wheat crop has been reduced by 1.5 million tonnes or 9.2 per cent on ‘updated government statistics’. The sole upgrade is a 538,000 tonne increase in estimated EU wheat production.

Taking projected consumption into account leaves world end-of -season stocks at 123 Days Consumption Equivalent (DCE), two days less than in FAS’s January projection.

Global production of maize has been increased by 2.28 million tonnes or a marginal 0.2 per cent in FAS’s February projection; this largely reflects increased output in Mexico and Ukraine. Maize production in Mexico is projected at a record high, as government data indicating a ‘higher planted area and a lower level of abandonment following a favourable summer growing season’. FAS has increased its projection of Ukraine maize production on ‘a forecast record-high yield, based on the latest harvest results to date’.

Albeit that the ratio of end-of-season stocks of both wheat and maize have been revised downwards, the latest estimates put DCE at relatively high levels; no dramatic upwards shifts in prices seem likely. However, FAS’s first estimate of the 2017-18 marketing year starts in May and it is likely that attention will increasingly shift to prospects for supply and demand in the next twelve-month period.

UK Inflation

Inflation in the year to January 2017, as measured by the Consumer Price Index published on 14 February, was 1.8 per cent, its highest since June 2014.

This compared to the widely-held view that January inflation would reach 1.9 per cent, although there were a number of prior commentators who noted the sharp jump in fuel prices in January pointed to a potential for ‘upside surprises’. Dr Andrew Sentance, a former member of the Monetary Policy Committee observed that ‘UK inflation has been 0.4 – 0.6 per cent ahead of the Eurozone for nearly a year. If that pattern continues, UK January inflation will be over 2 per cent’. The latter, if realised, would have brought the prospect of a rise in UK interest rates significantly closer.

1st February 2017

IGC Looks To 2017-18

While the United States Department of Agriculture will not issue its first 2017-18 world wheat supply and demand estimates until May, the International Grains Council has provided an early look ahead at the next marketing year, projecting world wheat production in 2017-18 at 735 million tonnes, down 2 per cent from the currently estimated 752 million tonnes produced in 2016-17. If this total were realized, it would still be the third largest ever wheat crop - but would be the first year-on-year decline in five years. For comparison, USDA estimates 2016-17 global wheat production at 753 million tonnes.

The IGC is looking for just two major exporting countries, Russia and Ukraine, to harvest more wheat in 2017-18, even though their estimates are up only 1 per cent and 2 per cent, respectively. IGC predicts that the EU’s harvested area will remain stable in 2017-18; however, harvested area is forecast to fall 3 per cent in Argentina, Australia and Canada. On the other hand, farmers in the US and Kazakhstan are expected respectively to harvest 8 per cent and 10 per cent less wheat in 2017-18.

Opening wheat inventories for 2017-18 are estimated at a record high of 235 million tonnes, up 6 per cent year-on-year. However, these are not expected to offset the forecast decrease in production; as a result, total world wheat supply is projected as declining by 3 million tonnes to 970 million tonnes.

IGC notes that, for the first time since the 2012-13 season, total wheat consumption is projected to be greater than total production. Total consumption is forecast at 737 million tonnes, down by an estimated million tonnes from 2016-17. Use of wheat for food will exceed more than 500 million tonnes for the first time, partially offsetting an expected decrease in use for feed and ‘miscellaneous’ use; this will be largely due to smaller production in Canada and the United States. 

NWF Reports First Six Months

The NWF Group has reported results for its first half year ending 30 November 2016. Total sales amounted to £255.9 million, up by £31.3 million or 13.9 per cent over the corresponding period a year earlier. This represented growth in all three of NWF’s operating divisions: feeds, foods and fuels.

As regards feeds, while sales increased by 4.8 per cent from £62.1 million to £65.1 million as a result of increased volumes and commodity prices, the division saw a headline operating loss of £0.3 million, compared to a £0.3 million profit for the same period in the corresponding period of the previous year.

Volumes were up by 1.5 per cent from 264,000 tonnes to 268,000 tonnes; this was despite market demand being depressed as a result of lower milk prices, particularly in the first quarter. The lower milk prices have ‘continued to impact feed prices and this has been exacerbated by a significant increase in commodity costs’; this presumably reflects the result of the Brexit vote and the ensuing decline in sterling against the US dollar and the Euro. NWF note that, across a basket of products, commodity costs increased by over 20 per cent from March to November 2016, as a result of both underlying commodity prices and adverse movements in exchange rates. Average milk prices at the end of November were 25.5 pence a litre compared with 24.6 pence a year earlier but were as low as 20.5 pence in June 2016.

NWF say that the acquisitions made in the last eighteen months ‘have continued to perform in line with expectations’. NWF’s feed customers have seen some further positive increases in milk prices and the new milling capacity comes online ‘to optimise our infrastructure, deliver efficiency benefits and meet increased demand’.

Wynnstay Reports 2016 Results

Towards the end of January, the Wynnstay Group has reported its results for the twelve months ending 31 October 2016.

Group sales of £368.14 million compared with year-earlier sales of £377.38m and were ‘impacted by deflation’ The Group generated pre-tax profits of £7.29 million, down by £1.05 million or 12.6 per cent compared to a year earlier. Underlying pre-tax profits amounted to £7.37 million as against £9.05 million a year earlier; underlying pre-tax profits include the Group’s share of pre-tax profit from joint ventures and associate investments but exclude exceptional items and share-based payments.

As regards feeds, Wynnstay note that demand was down year-on-year; this mirrored national trends. Reduced demand was particularly evident in the dairy sector, especially for blends, some of which were replaced by straight feeds. This reduction reflected farmers’ decisions ‘to search for production efficiency and, for some, not to feed for marginal milk volume’. The resulting reduction in UK milk yields provided a catalyst for an increase in milk prices in the late summer of 2016.

Wynnstay note that feed demand over the winter period improved and that there were ‘encouraging signs that demand will continue to strengthen’.

Economic Update

According to the Preliminary Estimate of Gross Domestic Product, published on 26 January, the UK economy grew by 0.6 per cent during the last three months of 2016, ahead of the consensus of economists’ predictions that it would grow at 0.5 per cent.

Meanwhile, the Bank of England is expected to keep interest rates at their historic low of 0.25 per cent this week, despite the fact that inflation is creeping up. The Monetary Policy Committee (MPC) meets ahead of publishing its latest rates decision on Thursday 2 February and, on the same day, will publish its quarterly inflation report. Howard Archer of IHS Global Insights has predicted that the MPC will need to adjust its forecasts for growth and inflation to reflect recent indicators that suggest that the economy is ‘outperforming the Bank’s expectations’. More controversially, he also said that the current interest rate was likely to stay the same for the rest of 2017; it will be recalled that the Bank halved the interest rate from 0.5 per cent to 0.25 per cent in August last year, following the referendum and ensuing concerns over the economy.

The Second Estimate of the UK’s Gross Domestic Product in the final quarter of 2016 will be published on 22 February.

25th January 2017

USDA Soybean PSD

The United States Department of Agriculture has recently updated its Production, Supply and Distribution (PSD) report for January as regards soybeans.

Prior to this, in December USDA upped its November projection of world soybean production from 336.09 million tonnes to 338 million tonnes, an increase of 0.5 per cent. This projection incorporated an unchanged outlook for the three major world soybean exporters – the US, Brazil and Argentine – but a substantial increase, from 9.7 million tonnes to 11.5 million tonnes for India and a smaller increase for Canada from 6 million tonnes to 6.45 million tonnes. Both these increases reflect higher yield estimates; the increased projection for India also appears to reflect new and updated data from the Indian authorities.

In January, USDA has trimmed its forecast of global soybean production from 338 million tonnes to 337.85 million tonnes; this reflects reduced harvests in Bolivia, Uruguay, and the United States, more than offsetting increases in Brazil, China, and Russia. It remained, however, a world production record.

The reduction in US soybean output reflected a slight reduction in the estimated harvested area as well as a reduced yield per harvested acre, down from 52.5 bushels to 52.1 bushels per harvested acre. There is, however, no current explanation for the 2 million tonne or 2 per cent increase in Brazilian production or the additional 0.4 million tonne increase pencilled in for China; more on this in subsequent issues of this E-letter.

Northern Ireland Reports

The Department of the Environment, Agriculture and Rural Affairs (DEARA) has recently updated its estimate of production of compounds, blends and concentrates in Northern Ireland during October 2016.

Total production of compounds, blends and concentrates in Northern Ireland during the month in question amounted to 202,000 tonnes, 9,100 tonnes or 4.7 per cent more than in the corresponding month of 2015 and was comparable with October output in all but one of the preceding five years in which production of feeds in October has exceeded 200,000 tonnes.

Output of feeds for cattle and calves, at 99,400 tonnes in October 2016, was 2,600 tonnes or 2.7 per cent ahead of the equivalent month in 2015. There were increases across the product range with the sole exception of coarse mixes of blends for dairy cattle which, at 18,400 tonnes, was down by 300 tonnes or 1.4 per cent compared with production in October 2015.

Weather affects ruminant feed sales, and in this regard it is worth noting that temperatures in Northern Ireland during October 2016 were half a degree warmer than normal for the month in question, as defined by the average of October temperatures for the years 1981 – 2010. Rainfall, however, was in short supply, averaging only 41 per cent of average precipitation while hours of sunshine were around normal for the time of year.

At 20,200 tonnes, production of feeds for pigs during October 2016 was 1,500 tonnes or 7.8 per cent more than during the corresponding month of 2015. Again, there were increases across the board with the single exception of growing feeds which, at 3.800 tonnes, were down by 400 tonnes or 8.6 per cent on the levels of the same month a year earlier. The most prominent contributor to increased output was an increase in output of feeds for finishing pigs which, at 9,100 tonnes, was up by 1,400 tonnes or 18.2 per cent.

At 73,000 tonnes, output of poultry feeds in Northern Ireland during October 2016 was 3,900 tonnes or 5.6 per cent higher than in the corresponding month of 2015. The major contributors to this increase were broiler feeds together with turkey and other poultry feeds. The former, at 38,100 tonnes, was up by 1,900 tonnes or 5.3 per cent while the latter was up by a similar volume which represented an increase of 20.2 per cent, more than a fifth. There were very small increases month-to-month in output of chick rearing feeds and a minute decline in output of laying and breeding feeds.

Output of feeds for sheep and lambs, at 3,500 tonnes in October 2016, was up by 900 tonnes or 35.3 per cent, well in excess of an increase of one-third. With the sole exception of protein concentrates for sheep, all sub-sectors showed increases on a year earlier; production of coarse mixes or blends for sheep, at 1,200 tonnes, was almost double.

Cattle and calf feed production in October 2016 accounted for 49.2 per cent of total output, a percentage point less than in October of the preceding year. Feeds for pigs accounted for 10 per cent, slightly higher than in October 2015 while feeds for poultry accounted for 36.1 per cent of total output, compared with 35.8 per cent a year earlier. Production of feeds for sheep, although a very small proportion of total output, accounted for 1.7 per cent compared to 1.3 per cent a year earlier while production of lightly processed feeds, at 2.9 per cent of total production, was unchanged from October 2015.

Taking the year to date, total production of feeds in Northern Ireland during the first ten months of 2016, at 1.82 million tonnes, was running at 49,500 tonnes or 2.7 per cent less than in the equivalent period of 2015 – a five-year low.

International Grain Council Update

The IGC has recently updated its previous, November Grain Market Report – no update is issued in December – which suggests that global grain production – wheat and coarse grains – is set to hit a total of 2,094.4 million tonnes in 2016-17, up by 9.9 million tonnes compared to IGC’s November projection and ‘a new peak’.

As regards wheat, IGC is looking for 2016-17 production of 751.5 million tonnes, slightly up on IGC’s last projection. Looking at prospects for 2017-18, winter wheat across the Northern Hemisphere looks ‘broadly favourable’, with concerns about dry and occasionally chilly weather mainly confined to parts of the US and Europe. IGC say that, assuming a marginal decline in harvested area and with yields dropping back closer to average, total production is tentatively projected at 735 million tonnes, down by 2.2 per cent. With the outlook for wheat supply and demand looking ‘finely balanced’, IGC are looking at ‘a small contraction’ in end-of-season stocks.

IGC has reduced its projection of world soybean production in 2016-17 to 334.2 million tonnes, albeit still a record global outlook and an 18.5 million tonne increase over the estimated total production in 2015-16. The reductions largely reflect developments in the US and in Argentina, the latter affected by adverse weather conditions. However, production in Brazil is expected to reach a new peak.

Recent price developments appear to reflect concerns over weather in several important exporters regarding wheat, maize and soybeans. IGC’s wheat sub-Index was up by 5 per cent since the last issue of the Grain Market Report; this reflected concerns about cold, dry conditions in parts of the northern hemisphere, coupled with the news of a sharp drop in the area planted to US winter wheat. Average maize quotations were also firmer with the IGC maize sub-Index rising by 3 per cent. The soybean sub-Index has also strengthened by 3 per cent since IGC’s last report with early losses, reflecting more than ample global supplies, being reversed by increasing concerns about the impact of adverse weather on Argentine crops.

UK Economy

Thursday 26 January will see the publication of the Preliminary Estimate of Gross Domestic Product in the UK for the fourth quarter of 2016.

The last HIS Markit/CIPS surveys for 2016 highlighted the robust performance by all three major sectors of the UK economy during the last quarter of 2016, pointing to growth of 0.5 per cent during the three months in question, a view also subscribed to by a Reuters poll of economists. If fourth-quarter GDP growth is confirmed by the Office of National Statistics at 0.5 per cent, it will be ‘a markedly better outcome than economists had pencilled in at the time of the referendum’.

10th January 2017

Brexit and Raw Material Costs

A number of recent feed company statutory company reports and accounts have drawn attention to the effect on raw material costs, following the Brexit vote and the subsequent fall in the value of sterling relative to that of the Euro and, in particular, the US dollar.

Is it possible to quantify the extent of the effects that sterling’s devaluation has had upon the feed industry’s raw material costs? As the single largest input into feed manufacturers’ costs, what buyers actually pay for their raw materials must rank as one of their more closely-guarded secrets and the matter is made more complicated by forward buying arrangements and seasonality.

It is too early to look at individual companies’ gross margins to see how sales and cost of sales have moved relative to one another since June. For example, in NWF’s accounts ending 31 May 2016, the company’s Gross Margin increased, from 9.4 per cent the previous year to 10.4 per cent. The data as regards raw material costs has become increasingly sparse in recent years and all that one is practically able to do is to look at AHDB data for the period under review and try to draw some rational conclusions from it.

For example, take the AHDB quote for 48 per cent soybean meal ex-store Liverpool on 3 June 2016 - £370. On 17 June, the quote dropped to £359 but on 1 July, it had risen to £385. Similarly, with maize gluten feed, these was no obvious sign of the Brexit vote kicking off a sharp increase in what may fairly be regarded as spot prices.

What about average compound feed prices? For cattle and calf feeds, these were quoted at £197 a tonne during the third quarter of 2016, £8 less than in the equivalent three months of 2015. Compound feeds for pigs averaged £215 in the third quarter of 2016, £22 less than a year previously. For poultry, average prices amounted to £236, £6 less than in the third quarter of 2015 while feeds for sheep and lambs, at £208 were down by just £1. There is, no doubt, an element of finished feed prices winding down in the wake of the fall in commodity prices that characterised the previous three or four years but no obvious sign that finished feed prices were beginning to respond to post-Brexit sterling-related pressures.

More on this in future issues as new data comes to be available.

Economic News

The Office of National Statistics’ latest estimate of UK inflation will appear on 17 January, showing data for the year to December 2016.

November’s estimate, of 1.2 per cent, was the highest since late 2014 and, no doubt, partially reflects the influence of sterling’s devaluation, following the Brexit vote in June last year. It would be surprising, discounting the possibility of a Michael Fish moment, if the rate of inflation did not increase again when December’s figures emerge in a week or so’s time.

There appears to be little movement imminent in UK interest rates except for the fact that, contrary to talk following the Brexit vote, when all the ‘experts ‘were factoring in the possibility at least of a further cut in UK interest rates, the talk is now of an increase, particularly in view of the increase in the rate of inflation. The change in sentiment is backed up by the recent upwards move in US interest rates with the prospect, according to the Federal Reserve, of a further three increases in 2017, one more increase than the number regarded as likely by the financial markets.

Meanwhile, the markets were predicting UK growth of 0.5 per cent in the fourth quarter of 2016, as against 0.6 per cent in the preceding quarter, effectively a continuation of the strong trend in economic growth that has confounded the ‘experts’ for much of the period since the Brexit vote.

Weather

After a notably chilly November, with temperatures across the UK at around 1.3 °C below normal (as defined by the average of 1981 – 2010), December turned positively mild with average temperatures of 2 °C above normal. Scotland in particular was balmy with average temperatures 2.8 °C above normal. In Wales, Scotland and Northern Ireland, rainfall was notably below normal in both November and December.

7th December 2016

Weather Watch

As the weather unwound from the warmth experienced across the UK in September, particularly in England, November turned out to be distinctly on the chilly side.

Taking the average temperatures for November for the years 1981 to 2010 as ‘normal’, the UK as a whole experienced average temperatures of 1.3 °C below normal during the month in question. Scotland shivered in average temperatures of 1.6 °C below normal while England remained relatively balmy at 1.1 °C below normal. Wales and Northern Ireland were, respectively, 1.2 °C and 1.3 °C below normal.

It will readily be apparent that the areas described above are very ‘broad-brush’, often experiencing wide variations between different parts of the region. For example, while England as a whole showed average temperatures in November of 5.7 °C, northern England averaged 4.6 °C while southern England averaged 6.2 °C, both the latter figures being a degree or so below normal. Temperatures in the sub-region defined as north-west England and North Wales averaged 4.8 °C during November while those in south-west England and South Wales averaged 6.5 °C; again, both these measurements were below normal for the month in question, albeit the differences between the northern and southern parts of England were predictable and unsurprising.

Inasmuch as weather conditions affect the demand for feed, this column will try and develop a summation of these regional and sub-regional weather statistics which may go some way to explaining changes in production of livestock feeds in Great Britain.

AIC Agribusiness 2017

As noted in the previous issue of this E-Letter, this annual event was, once again a stimulating and well-organised event, much to the credit of the Agricultural Industries Confederation, the trade association that represents the vast bulk of the supply trade in the UK.

Following initial remarks by recently elected AIC Chairman Nick Major and an address by CEO David Caffall, came a presentation by George Eustice MP for Camborne-Redruth in Cornwall and currently DEFRA Minister of State for Agriculture. Then Oliver McEntyre, Barclays Agriculture’s National Strategy Director, presented his paper entitled ‘Investment in agriculture, agribusiness innovation - what’s the outlook? After reviewing what he called the ‘headwinds’ affecting the agricultural sector, including the effects of the exchange rate and the uncertainty surrounding Brexit, Mr McEntyre went on to review the financial position of UK agriculture and the criteria that banks used to assess the industry’s finances. Looking at the opportunities for UK agriculture, he cited the growing world demand for food as well as the opportunities represented by the growth in demand for renewable energy.

Tom Hind, the Chief Strategy Officer of what is evidently a much-revitalised Agricultural and Horticultural Development Board (AHDB), spoke of ‘Creating world class innovation & solutions for UK agriculture’. Noting that price remained the ‘key driver of product choice’, Mr Hind said that consumer demand was ‘reshaping’ the retail landscape. Moving on to the ‘impact’ of Brexit, he pointed out that UK farm incomes were heavily dependent on support from a number of sources.

Spelling out the AHDB’s strategy for the years 2017 to 2020, Mr Hind stressed the need to understand and harness the critical drivers of competitiveness and productivity, focusing on the drivers that the UK can influence. Turning to the implications for AIC, he stressed that ‘We can’t do this on our own – you guys matter!’, adding that AHDB was looking for new partnerships; he ended by urging AIC to ‘Help us understand where we can make the biggest difference’.

The afternoon featured three papers that were of a more technical bent but none the less interesting for that. Dr Daniel Morton of the Centre for Ecology & Hydrology, described as a world-class research organisation focusing on land and freshwater ecosystems and their interaction with the atmosphere, presented a paper entitled ‘Exploring new opportunities for agriculture with satellite technology’. This was a highly technical paper with a number of dramatic illustrations as to the power of satellite technology and its ability to support potential applications relative to the farming industry, including mapping crop type and rotation at the field, farm and regional level and providing planning & environmental protection in the context of, for example, catchment sensitive farming. Dr Morton concluded by noting that the availability of free satellite data was ‘driving innovation and bringing significant benefits for environmental and agricultural monitoring’. Stressing that Synthetic Aperture Radar’s ability to see through clouds made annual, accurate UK satellite-derived crop maps feasible, Dr Morton ended by saying that crop maps had ‘multiple applications in agriculture and other sectors’.

Professor Luke Alphey of the Pirbright Institute presented a paper entitled ‘Genetic pest management – the future of pest management?’

Professor Alphey said that his goal was to combat insect-borne diseases and improve crop yields through the reduction of the insect population causing disease or damaging crops. This involved developing a genetic approach that was safe, sustainable, economic and applicable to many insect species worldwide. Citing the example of dengue fever which, he noted, ranked as the most important mosquito-borne viral disease in the world, with human and economic costs that were ‘staggering’, he outlined the steps that were being essayed to interrupt the mosquito breeding cycle.

Of particular importance was the approach involving the production of insects that were genetically sterile. Professor Alphey noted that while there was no way of conventional control for the mosquito Aedes aegypti, periodic release of treated male mosquitoes suppressed wild target population. Public and regulatory approval for this approach was also readily forthcoming.

The final paper of the day was a presentation by Dr Cristobal Uauy, Project Leader in Crop Genetics at the John Innes Centre and entitled, ‘A step change in plant breeding to achieve a UK competitive advantage? Dr Uauy’s message was that we are in what he called ‘the middle of a DNA revolution’. In particular, Dr Uauy asked whether it was sustainable to continue to ignore transgenics, noting that new plant breeding techniques would ‘redefine, accelerate, and enhance traditional breeding’.

While a summation of the proceedings cannot do justice to the papers presented at Agribusiness 2017, the papers can be downloaded from the AIC website at http://www.agribusiness.org.uk/agenda/. Given the generally high standard of the material presented, this column will look forward with keen anticipation to Agribusiness 2018.

Economic Catch-Up

The November PMI® survey data from IHS Markit and CIPS signalled that the UK service sector, by far the largest sector of the UK economy, remained on a firm growth path towards the end of 2016 with the rate of expansion of total activity accelerating further to its strongest since January. However, long-term business sentiment weakened for the first time since July; this was attributed to what the survey described as ‘ongoing political uncertainty and inflationary pressures’.

The Markit/CIPS Services PMI Business Activity Index, the survey’s headline figure, rose to 55.2, from 54.5 in October, signalling the fastest expansion of activity since January. However, input price inflation remained sharp in November despite easing for the first time since May, and a similar trend was evident for prices charged by service providers. Companies widely attributed inflationary pressures to the weak sterling exchange rate driving up import costs such as food, higher fuel prices, international travel (again linked to exchange rates) and rising labour costs.

Chris Williamson, Chief Business Economist at IHS Markit, the compiler of the survey, noted that the further upturn in the ‘vast’ services sector showed that the pace of UK economic growth remained ‘resiliently robust’ in the fourth quarter, despite the ongoing uncertainty caused by Brexit. He said that the three PMI surveys – production, construction and services – collectively indicated that the UK economy would grow by 0.5 per cent in the last quarter of 2016, a figure in line with the Office of National Statistics’ latest, Second Estimate of GDP growth in the third quarter of 2016.

In the meantime, and given the latest US economic data, an increase in US interest rates at the FOMC’s next meeting on 13 - 14 December looks increasingly likely.

29th November 2016

International Grains Council Update

The scheduled update to the IGC’s Grain Market Report, due on Thursday 24th November – usually after 4 PM – did not, in fact appear until late on Friday 25th. However, it was no less significant for that.

IGC has upgraded its projection or world grain output during the 2016-17 run by 7.7 million tonnes to 2,084.4 million tonnes. This is an increase of 3.7 per cent compared with IGC’s October assessment and constitutes a record high.

Taking grain output by species, IGC have made a minimal upward correction to their projection for global wheat output, from 748.4 million tonnes to 748.6 million tonnes in 2016-17. However, estimates of total usage have been revised downwards, from 736.5 million tonnes in IGC’s October projection to a current projection of 735.6 million tonnes, reflecting reduced usage in the food and industrial usage sectors although use for feed remains unchanged. As a result, IGC’s estimate of wheat end-of-season stocks has been increased from 233.5 million tonnes to 234.6 million tonnes, although this makes no significant to Days Consumption Equivalent (DCE) which has remained at a comfortable 32 DCE since IGC’s September assessment.

For maize, the changes to IGC’s latest assessment are a little more significant. Projected global production has been increased from 1,034.5 million tonnes to 1,041.7 million tonnes, an increase of 7.2 million tonnes, by some distance, the largest global total in IGC’s current forecasting horizon. Of the increase, the largest proportion is accounted for by the US which, at a currently estimated 386.7 million tonnes, is 4.2 million tonnes ahead of IGC’s October projection. There is also a very small upwards adjustment of projected maize output in the EU.

IGC has also increased total usage, from 1,023 million tonnes to 1025.8 million tonnes; the increase of 2.8 million tonnes is largely attributable to higher use of maize for industrial and feed usage although use of maize for food has been slightly reduced from IGC’s October projection. End-of-season stocks, at 224.4 million tonnes, are increased by 3.8 million tonnes compared to IGC’s October estimate; however, this makes no significant difference to the maize DCE of 22.

For soybeans, IGC has increased its estimate of global production from 332.4 million tonnes in October to 336 million tonnes in their latest update, a global record. Again, this largely reflects an upgrade of US prospects where production has been increased from 116.2 million tonnes to 118.7 million tonnes.

IGC has upgraded its October projection of soybean utilisation from 331.8 million tonnes to 332.3 million tonnes and its estimated crush from 295.5 million tonnes to 295.7 million tonnes. This means that IGC anticipate a significant stock build as part of its November projection and this is estimated at 37.8 million tonnes, 4.4 million tonnes or 13.2 per cent more than in IGC’s October projection in October.

Overall, the general picture appears to be one of very adequate supplies of grains and soybeans relative to demand, as producers and purchasers move towards the 2017-18 growing season. Significantly, most export quotations for grains and oilseeds export quotations weakened during November, with the IGC Grain and Oilseeds index registering a 1 per cent decline compared to October, reflecting ‘comfortable’ spot availabilities and the generally favourable outlook for southern hemisphere crops.

Northern Ireland Reports September Feed

Total production of livestock feeds in Northern Ireland during September 2016, at 167,000 tonnes, was 1,800 tonnes or 1.1 per cent greater than in September 2015.

There was a very small increase, in the region of 100 tonnes or 0.1 per cent in the production of cattle and calf feeds during the month. The feeds contributing to an increase included compound feeds for beef cattle, at 9,200 tonnes, up by 500 tonnes or 5.8 per cent compared with September 2015. There was also a very small increase – 100 tonnes – in the output of compounds for other than dairy or beef animals. Output of both compounds and coarse mixes and blends for dairy cattle was down by 200 tonnes; there was also a 300 tonne decline in the output of coarse mixes or blends for beef cattle, equivalent to a decrease of 1.8 per cent on the levels of a year earlier.

Output of feeds for pigs during September 2016 amounted to 17,000 tonnes, 1,300 tonnes or 8.1 per cent more than in September 2015. There were increases across the product board with the exception of feeds for breeding animals. Output of the largest category of feeds for pigs, at 7,300 tonnes, was a thousand tonnes more than in the same month in 2015, up by a respectable 15.8 per cent.

Output of feeds for poultry, the second largest category of livestock feeds in Northern Ireland, at 64,900 tonnes was almost identical to production of poultry feed in September 2015, with a 1,200 tonne or 3.3 per cent fall in output of broiler feeds being counteracted by increased production of other poultry feeds, particularly of feeds for layers and breeding birds.

Feeds for sheep are the smallest sector of feeds production in Northern Ireland; in September 2016, output amounted to 3,100 tonnes, 700 tonnes or 27.1 per cent more than in September 2016. The most notable growth areas were in compounds for growing and finishing sheep; at 1,400 tonnes, these were up by 500 tonnes compared to September 2015 while compounds for breeding sheep, at 600 tonnes, were up by 200 tonnes.

There was an overall 5 per cent fall in the volume of lightly processed feeds during September compared with the same month a year earlier, with increased output of flaked maize and maize meal counteracted by declines in the output of other specifications.

Taking the first nine months of 2016, production of feeds amounted to 1.612 million tonnes, 61,100 tonnes or 3.7 per cent less than in the corresponding period of 2015 and the lowest total in four years. 

Sterling Solace?

One small advantage of the Brexit vote, at least, while the UK is, in fact, still a member of the EU, is the rate at which Basic Payment Scheme (BPS) payments for 2016 were converted into sterling.

BPS payments are set in Euros and then converted into Sterling. The conversion rate, set on 30 September, is determined by the European Central Bank and is the average of the European Central Bank’s Euro/Sterling exchange rate for the month.

For this year, the rate was set at €1 = £0.85228. This compares with the 2015 rate of €1 = £0.73129. In other words, for every entitlement expressed in Euros, recipients who received 73.129 pence in 2015-16 will receive 85.228 pence in 2016-17, a 16.5 per cent upgrade.

Looking at the months following the Brexit vote, data shows the monthly average spot rate against the Euro at €1.2845 in May, easing to €1.2663 in June and then falling to €1.1881 in July and €1.1682 in August. After briefly recovering in September to €1.1733, sterling crashed to €1.1214 in October from whence it staged a modest recovery in November to €1.1529.

AIC Confers

The Agricultural Industries Confederation held its annual get-together, Agribusiness 2017, on 23 November.

As usual, this well-attended event was impeccably organised; it is a well-recognised fact that a conference whose content is deemed excellent is fated to lose much if not all of its impact if the conference organisation is ineffective or, simply, non-existent.

Following introductions by AIC Chairman Nick Major and an address by AIC Chief Executive David Caffall, the conference heard a paper from George Eustice MP, DEFRA Minister of State for Agriculture. This was followed by informative and challenging papers from Oliver McEntyre, Barclays Agriculture’s National Strategy Director, entitled ‘Investment in agriculture, agribusiness innovation – what’s the outlook?’ This was followed by a paper by Tom Hind, AHDB’s Chief Strategy Officer, entitled ‘Creating world class innovation and solutions for UK agriculture

Following lunch, there were three stimulating papers of a more technical bent, on topics including the role played by satellites in exploring new opportunities for agriculture and, finally, a paper on ‘Genetic pest management – the future of pest management’, presented by Professor Luke Alphey of the Pirbright Institute. The conference finished with a paper entitled ‘A step change in plant breeding to achieve a UK competitive advantage’, presented by Dr Cristobal Uauy, Project Leader, Crop Genetics at the John Innes Centre.

It would do these papers no justice to summarise them in the space available, so more detail on the proceedings in the next edition of this E-Letter and, subsequently, in the January/February edition of Feed Compounder.

Economic Catch-Up

The Second Estimate of the UK’s Gross Domestic Product, expressed in volume terms, showed an increase of 0.5 per cent between the second and third quarters of 2016, unrevised from the Preliminary Estimate published on 27 October 2016.

The Second Estimate therefore includes data for the whole three months after the EU referendum. Since the referendum result, growth in GDP has been in line with recent trends. The Office of National Statistics suggests the data, so far anyway, indicates ‘limited’ effects from the referendum.

Of the four main output groupings within Gross Domestic Product, only one – the Services Sector – showed an increase in the third quarter of 2016 compared to the second quarter.

Agriculture, forestry and fishing, construction, and production all showed decreases in this period. Production output decreased by 0.5 per cent in the third quarter 2016 compared with the preceding quarter, revised down 0.1 percentage points from the previously published estimate. The service industries increased by 0.8 per cent in the third quarter compared with the previous quarter, unrevised from the previous estimate; this marked the fifteenth consecutive quarter of positive growth and followed a 0.6 per cent increase in the second quarter of 2016.

The Quarterly National Accounts, which will update the Second Estimate of Gross Domestic Product during the third quarter of 2016, are due for publication on 23 December.

22nd November 2016

Farm Incomes

Feed manufacturers’ fortunes will, self-evidently, depend to a certain extent on how well their livestock farmer customers are doing.

In England, the Farm Business Survey provides information on the financial position and the physical and economic performance of farm businesses in England. The main uses of the survey, besides the provision of data to the EU Farm Accountancy Data Network, are to inform policy making and to provide business advice both for benchmarking purposes and for research. In the UK, the survey is a collaborative programme between DEFRA and a consortium of six universities and colleges: Cambridge, Nottingham, Newcastle, Reading, Duchy College and Askham Bryan College. The provenance of the survey goes back as far as 1936 and it has become arguably the most authoritative source of information on the economics of farm businesses in England. Similar surveys are carried out in Scotland, Northern Ireland and Wales.

The central measure statistic derived from the Farm Business Survey is Farm Business Income. This is broken down into four components: income derived from the basic business of farming; agri-environmental measures, which mainly consist of schemes that require farmers to manage their land in an environmentally beneficial way; diversification, which covers other activities which a farm might undertake to generate income, including tourism, rents, or retail ventures; and, finally, the Single Payments Scheme, which replaced the Basic Payments Scheme as of 1 January 2015.

DEFRA has recently published basic data on Farm Business Incomes for England for the twelve months ending February 2016; these data replace previous estimates published on 28 January 2016. The data thus includes the final results of the 2015 harvest and includes the Basic Payment for 2015.

During the period under review, average Farm Business Incomes fell across all farm types with the exception of general cropping, horticulture and grazing livestock farms in the Less Favoured Areas. Average Farm Business Incomes across all farms fell from £39,600 in 2014-15 to £31,400 in 2015-16, a decline of almost 21 per cent.

Of farm types of most interest to livestock feed manufacturers, dairy farmers’ average Farm Business Incomes fell from £83,800 in 2014-15 to £42,300 in 2015-16 in 2015-16, a fall of 49.5 per cent. The lower average income reflects the full impact of the decline in milk prices which started in March 2014. According to the survey, average farmgate milk prices were 25 per cent lower in 2015-16 compared with the previous twelve months.

On lowland grazing livestock farms, lower incomes were driven by reduced output from cattle and sheep, down from £18,500 in 2014-15 to £12,000 in 2015-16, a decline of 35 per cent. On grazing livestock farms in the less favoured areas, higher output from cattle together with an increase in the Basic Payment driven by higher payment rates for moorland and Severely Disadvantaged Areas compared to the Single Payment, led to an increase in Farm Business Incomes, from £14,600 to £19,100, an increase of 31 per cent.

On specialist pig farms, increased throughput was offset by higher costs and lower prices for pig meat, resulting in an apparent decline from £49,700 in 2014-15 to £22,000 in 2015-16, a decline of 55.5 per cent. However, it should be borne in mind that the sample sizes for specialist pig farms are very small, a fact that also applies to specialist poultry farms. For the latter, average Farm Business Incomes fell from £126,800 in 2014-15 to £106,800 in 2015-16, a decline of 15.8 per cent; this was due to reduced output of both eggs and poultry meat. It should, however, be noted that, since 2012-13, there has been one ‘very influential poultry farm’ in the sample. If this farm is excluded from the results, average income on poultry farms was £83,600 in 2014-15 and £56,300 per farm in 2015-16, a decline of 32.6 per cent.

It should also be noted that, across all farm types, the Basic Payment was around 5 per cent lower than the Single Payment of 2014-15, due to the appreciation of sterling against the euro in which all EU payments are calculated.

The importance of this data lies in the detail and, in particular, the role of the Basic Payment in Farm Business Income. This is likely to constitute the core of arguments as to the future shape of agriculture in the UK post-Brexit and the extent to which agriculture should receive payments directly from the state. For example, on the average lowland grazing farm, average Farm Business Income in 2015-16 amounted to £12,000. Of this, the farm business generated a ‘loss’ of £10,900 while the Basic Payment generated net cash income of £12,900, thus more than wiping out the loss. A similar picture emerges with respect to grazing farms in the less favoured areas. In the average English dairy farm, the Basic Payments Scheme generated no less than 48 per cent of Farm Business Income compared with 30 per cent generated by the actual core business of producing milk.

Forecasts of Farm Business Incomes by farm type for the twelve months ending February 2017, thus covering the 2016 harvest are scheduled to be published in February 2017.

Economic Update

The Office of National Statistics will shortly publish its Second Estimate of the UK’s Gross Domestic Product during the third quarter of 2016. This follows the Preliminary Estimate, published on 27 October, which estimated UK GDP growth in the third quarter at what some observers regarded as a surprisingly robust 0.5 per cent. It precedes ONS’ final estimate of Gross Domestic Product in the third quarter of 2016, scheduled to be published on 23 December, just in time for Christmas.

It is, however, interesting to note that there have been few current guesses as to the actual change in Gross Domestic Product during the third quarter of 2016; it maybe that the extent to which previous prognostications have been proved wrong has discouraged analysts from committing their thoughts to the public prints.  As regards interest rates, the pointers suggest that the Federal Reserve is set to raise rates at their December meeting; to quote one authoritative source, ‘Investors appear to believe that a Federal Reserve interest rates rise next month (December) is effectively a done deal after the latest public comments from its chair Janet Yellen.’

As regards the UK, the Bank of England’s May inflation report was such that markets pushed their expectations of the first UK rate rise back from early in 2017 to early 2020. The Brexit vote changed markets’ perceptions radically. In August, the Banks Monetary Policy Committee cut Bank rate from its already record low of 0.5 per cent to 0.25 per cent; it was also clear that ‘a majority of Committee members also expected to support a further cut in Bank Rate at one of the remaining MPC meetings of 2016 if the outlook remained broadly consistent with the one set out in the August Report’. However, the latest Reuters poll of economists has shown a shift in Bank Rate expectations, with 30 per cent of respondents expecting a cut by the end of the year, compared with 81 per cent at the time of the previous survey.

17th November 2016

USDA Reports November PSD

The United States Department of Agriculture (USDA) has recently released its November update to its Production, Supply and Distribution (PSD) report for 2016-17.

Its projection of global wheat production has been raised by a marginal 282,000 tonnes compared to its October assessment. This is largely due to a 350,000-tonne upgrade to the EU wheat harvest, previously the subject of a number of downgrades on account of excessive rainfall. Wheat production in a range of minor producers has been reduced by 68,000 tonnes.

Although no changes have been made to USDA’s September assessment, with the 2016 wheat harvest essentially complete, Russia, Ukraine, and Kazakhstan are all reporting record yields or record production. However, USDA report that above-average rainfall during the growing season has had a negative effect on wheat quality in all three countries.

USDA is currently estimating Russian wheat production at a record 72 million tonnes, unchanged from its September estimate, with yield estimated at a record 2.68 tonnes per hectare. Wheat, as well as other crops benefited from generally favourable weather throughout the growing season in every major production region, but see subsequent remarks on weather and grain quality. In addition, the area planted to winter wheat reached a record level.

Although the area planted to wheat in Ukraine dropped by almost 9 per cent from a year earlier, estimated yield per hectare reached a record level. Production for 2016-17 is estimated at 27 million tonnes, unchanged from last month and only 274,000 tonnes below last year’s 25-year high. However, as in Russia, the abundant rainfall that boosted yields in Ukraine also contributed to a likely reduction in wheat quality, with commodity analysts anticipating a year-to-year decrease in the share in total production of milling quality wheat. One Russian operator has reported that precipitation in August and September ‘had come in at double average levels’. The operator added that the late rains, which encourage sprouting, leaving the crop fit only for livestock feed, had reduced the proportion of its wheat harvest making the benchmark Class III Export Grade to 2 per cent. As a result, prices have collapsed; sellers have discounted the feed wheat price by as much as 40 per cent in order to make sales of sprouted grain

USDA estimates world end-of-season wheat inventories at 124 Days Consumption Equivalent, a day more than at the time of their October assessment and, more significantly, at a fifteen-year high. US end-of-season wheat inventories relative to usage are also forecast to be at high levels.

But it is as regards maize where the bears appear to have had licence to run wild. USDA has upgraded its October assessment to 1,030.5 million tonnes, an addition of 4.83 million tonnes or 0.5 per cent.

The US accounts for the predominant share of this increase with an additional 4.27 million tonnes, an increase of 1.1 per cent compared to its October assessment. Ukraine contributes an additional million tonnes while Russia brings up the rear with an additional half-million tonnes. Against these, there was a 937,000-downward adjustment for a range of smaller producers.

As regards maize, USDA has made no changes to the estimated US area planted or harvested; the major change is in estimated yield per acre from 173.4 bushels to 175.3 bushels per harvested acre. This was sufficient to increase projected US maize output from USDA’s October assessment of 382.5 million tonnes to its current projection of 386.7 million tonnes, delivering what USDA calls ‘a remarkable crop’.                                                                                                   

USDA estimates the 2016-17 Russian maize harvest to reach record levels for area, yield, and production. Production is projected at 14.5 million tonnes, up half-a-million tonnes from USDA’s October assessment and up 1.3 million tonnes from last year’s then record crop. Harvested area is estimated at 2.8 million hectares, unchanged from September’s assessment and up slightly from last year. The expected yield of 5.18 tonnes per hectare is up 5 per cent from last year and 3 per cent above the previous record set in 2013-14.

USDA has also revised its 2016-17 estimate of global soybean production for the 2016-17 run. However, apart from some minor upwards adjustments in the ‘others’ category, the increase in soybean production is almost entirely attributable to the US. The reasons for the increase are largely the same as in the case of US maize production according to the November assessment; while USDA has made no changes to the area planted or harvested, yield per harvested acre has risen sharply from 51.4 bushels an acre in USDA’s October assessment to 52.5 bushels in November, a reflection of increasingly favourable growth and harvesting conditions.

Taking other factors into account, US end-of-season soybean stocks are expected to amount to 480 million bushels or 13.07 million tonnes, an increase of almost 22 per cent compared with USDA’s October assessment of 395 million bushels or 10.74 million tonnes.

AB Agri Reports

AB Agri has announced its results for its financial year ending 12 September 2015. These were originally filed in January this year.

Sales amounted to £886.64 million, down 11.6 per cent from a year previously; this was the result of what the company called ‘softer’ commodity prices. Pre-tax profits, on the other hand, at £17.80 million, were ahead of the previous year by £4.29 million or almost 32 per cent.

Looking at the detailed data, Gross Profit, the difference between Revenues and Cost of Sales, rose by £7.07 million, resulting in a Gross Profit ratio of 13.5 per cent, the best for seven years and one that continued to confer an accounting advantage throughout the rest of the year. AB Agri’s operating profit ratio, at 1.9 per cent, was the highest in eighteen years and its pre-tax profit ratio, of £17.80 million was equivalent to a pre-tax profit ratio of 2 per cent, the highest in six years.

Economic Background

One of the most prominent features of the post-Brexit debate has been the effect that Brexit may have on critical indicators of the UK’s economic importance such as the rate of inflation as measured by the Consumer Price Index.

Inflation watchers will have taken due note of the increase in inflation to 1 per cent in September 2016, its highest since November 2014. As this publication closed for the printers, the Office of National Statistics announced that, contrary to many commentators’ expectations, inflation in the year to October had fallen to 0.9 per cent.

According to the Bank of England, sterling’s spot exchange rate against the US dollar on 22 June 2016, in other words, the day before the referendum, was $1.4687; against the Euro, it was €1.3018. On 23 June, as voters flocked to the polling stations, sterling strengthened to $1.4798 and to €1.3039; it appears that the markets had swallowed the prevailing wisdom and were betting on a ‘Remain’ vote.

On 24 June, when the results were announced, sterling’s exchange rate against the dollar, according to the Bank of England, slumped to $1.3621, equivalent to a ‘devaluation’ of almost 8 per cent within twenty-four hours. Against the euro, sterling dived to €1.2254, a 6 per cent ‘devaluation’. Since then, and taking a month-by-month view sterling, which averaged $1.4209 against the dollar in June, fell to $1.3142 in September and to $1.2329 in October; against the euro, it fell from an average of €1.2646 in June to €1.1722 in September and €1.1190 in October.

At the time of writing, in the first ten days of November, sterling appears to have modestly strengthened against both the dollar and the euro; this appears to be linked to the election of Donald trump to the US Presidency, taking the heat off Brexit.

These exchange rates may not, at first sight, be immediately recognisable to raw material buyers who will have hedged their bets in the foreign exchange markets (not always successfully, reading between the lines of one substantial UK compounder’s statutory Report and Accounts). However, is any effect discernible on feed material prices as the result of sterling’s devaluation? The problem for analysts is that many factors impinge of raw material prices, of which seasonality is just one. At the end of May, AHDB quoted maize gluten feed for June delivery at £150, on 1 July, this had increased to £167 before easing back to £165 for October delivery. On 17 June, the same source quoted Brazilian 48 per cent soymeal at £359 for immediate delivery; on 1 July, the equivalent price had risen to £385. Straws in the wind or the first signs of feed material cost inflation?

There is, of course, another way to look at inflation in the feed industry and that is the DEFRA data on the average quarterly price of compound feedingstuffs in Great Britain. Feed material prices have fallen from the very high levels that characterised the latter part of 2012 and the first half of 2013, reaching a nadir in the first quarter of 2016.  Since then prices, with the exception of feeds for cattle and calves, have been easing upwards; the average prices of the latter, at £197 a tonne in the third quarter of 2016, fell below £200 a tonne for the first time since the fourth quarter of 2010. This may reflect weakness in the cattle and calf feed market attributable to low milk prices and the warm summer which has benefitted grass and forage growth.

4th November 2016

Margaret Croston – R.I.P.

We regret to announce the death on 23rd October, of Margaret Croston, after a short illness. Margaret was co-founder with her husband Alf, of the well-known bulk storage and handling engineers, Croston Engineering, Tarvin, Chester. The company recently celebrated its 40th anniversary with a celebratory dinner for staff and partners. Many will remember Margaret’s enthusiastic support and attendance at UKASTA and Feed Expo exhibitions and events in past years. Her funeral will be at 12 noon on Monday, 7th November, at St. James’s Church, Christleton, Chester. Donations, if desired, to the Church or to Guide Dogs for the Blind.

IGC Updates Supply and Demand Projections

The International Grains Council (IGC) has recently published its latest, October estimates for global supply and demand for grains and soybeans.

Total projected output of grains in 2016-17, at 2,076.7 million tonnes, was 7.9 million tonnes ahead of IGC’s September assessment.  Total projected usage of grain worldwide, at 2,053.8 million tonnes, was 5 million tonnes ahead of IGC’s September assessment. This contributed to a 6.5 million tonne increase in projected world end-of-season inventories, although the latter, measured as Days Consumption Equivalent (DCE), remained at twenty-four days, unchanged from the preceding three months’ forecasts.

Argentina and the US saw the largest increases in output compared to IGC’s September projection with, respectively, upgrades of 2.5 million and 2.6 million tonnes. Kazakhstan was also upgraded by 1.1 million tonnes and there were smaller increases in Canada and Russia, by 700,000 tonnes and 500,000 tonnes respectively.

IGC’s October update for the EU was unchanged from that of September but it will be noted that there were very substantial downgrades in both IGC’s August and September assessments.

Turning to specific grains, IGC have increased their estimate of world wheat production by a marginal 1.4 million tonnes compared to their September projection. This was composed of million tonnes upgrades for Kazakhstan and Russia and reductions of 300,000 tonnes each for the US and the EU.

In terms of DCE, world end-of-season wheat stocks have remained anchored at thirty-one days for each successive IGC assessment, although the latest assessment suggests that this may be increasing.

 As regards maize, following their cutback in September, IGC have more than back-tracked, increasing their estimate of global maize production by 8 million tonnes to a total of 1,034.5 million tonnes. While much of the increase is attributable to major exporters, a significant proportion appears to originate amongst smaller growers. However, the largest single increase is in US maize output, up by 3.7 million tonnes compared to IGC’s September assessment. Smaller increases have been pencilled in for drought-hit South Africa, up by 300,000 tonnes. Inevitably, perhaps, output of maize in the EU has been reduced by 200,000 tonnes.

In terms of DCE, maize has shown a clear tendency to increase during the currency of IGC’s 2016-17 assessment, from twenty days in May 2016 to twenty-two days in their latest, October update.

Broadly, an optimistic picture as regards grain prices during the 2016-17 run. However, it will be noted that, in October, the IGC’s useful Grain and Oilseeds Price Index increased by 2.6 per cent compared to October 2015. While wheat prices were virtually unchanged compared to September 2016, although they were down by almost 10 per cent year-on-year, maize prices firmed by 4 per cent during October; this reflected what IGC call ‘speculative short covering and bullish technical features’.

IGC’s latest views on soybeans will be discussed in the next issue of this E-Letter.

Compound Feed Output in Great Britain

DEFRA has published statistics on compound feed production in Great Britain during September 2016.

Total production of compounds, concentrates and blends during the months amounted to 942,400 tonnes, 27,600 tonnes or 2.8 per cent less than in the corresponding month a year earlier. However, it is the second highest feed volume for September since records first started to be kept in their current form in 1992.

Production of cattle and calf during September 2016 amounted to 333,500 tonnes, 8,500 tonnes or 2.5 per cent less than in September 2015. There was a sharp decline in the output of feeds for calves; at 14,500 tonnes, this was down by 2,900 tonnes or 16.7 per cent compared with September 2015. Output of compounds for dairy cows was also lower, at 173,500 tonnes, down by 3,500 tonnes or 2 per cent compared to year-earlier levels. However, there may have been small signs of increasing optimism in the dairy feed sector; at 64,600 tonnes, output of dairy blends was 400 tonnes or 0.6 per cent higher than a year earlier.

Production of cattle feed compounds for non-dairy animals, at 50,100 tonnes was a thousand tonnes or 2 per cent higher than in September 2015 while output of non-dairy blends, at 24,100 tonnes, was down by 4,600 tonnes or 16 per cent. There was an increase of 1,100 tonnes in the output of protein concentrates for cattle and calves; this suggests that farmers may have turned further towards supplementation of their own feed resources where these are available.

Output of feeds for pigs in September 2016, at 156,800 tonnes, was 20,100 tonnes or 11.1 per cent lower than during the same month a year earlier. The falls were distributed across the entire product range with the single exception of protein concentrates. The largest falls were in output of growing and finishing feeds down, respectively, by 8,199 tonnes or 22.5 per cent and 6,500 tonnes or 7.6 per cent. There were also large percentage falls in feeds for younger stock while output of feeds for breeding pigs was down by 2,500 tonnes or 7 per cent.

The fall in the output of feeds for pigs is difficult to explain given the fact that pig prices have been rising for most of 2016. The latest available price for UK pigs, as measured by the Standard Pig Price was 147.1 pence per kilo; this compares with 129.7 p/kg at the beginning of the year.

Output of feeds for poultry in September 2016 amounted to 354,200 tonnes, 4,800 tonnes or 1.3 per cent less than in the corresponding months of 2015. It should be noted that, following DEFRA’s reorganisation of poultry feed statistics in 2015, the September poultry feed data is, for the first time in a year, comparing like-with-like. The largest contributor to the fall in total poultry feed production was in poultry breeding and rearing feeds; at 28,100 tonnes, this was down by 5,300 tonnes or 15.9 per cent. There were small falls in the output of layer and broiler feeds compared to September 2015 of, respectively, 1,000 tonnes and 800 tonnes or 1 per cent and 0.5 per cent. Very small increases were reported in feeds for other poultry and in the output of protein concentrates for poultry.

Output of feeds for sheep and lambs, at 31,800 tonnes, was the only product sector to show any growth compared to the corresponding month of 2015. Up by 5,500 tonnes or 20.9 per cent in total, the largest increase was reported in the output of compounds for growing and finishing, up by 4,200 tonnes or almost 26 per cent. There was also an increase in output of compounds for breeding sheep, up by a thousand tonnes or 41.7 per cent.

Economic Catch-Up

The UK economy, it is now certain, will not fall into recession in 2016.

The Office of National Statistics’ Preliminary Estimate of Gross Domestic Product in the UK during the third quarter of 2016, at 0.5 per cent, was higher than many analysts had expected, given the fact that the period covered the three months immediately following the Brexit vote was expected to reflect uncertainty about the future course of the British economy. This followed the announcement that the economy grew, according to the latest update of the data, by 0.7 per cent in the second quarter of 2016, again higher than expected.

 The Bank of England in its August inflation report suggested that the United Kingdom ‘was likely to see little growth in GDP during the second half of the year’ and the 0.5 per cent increase was, according to The Economist, ‘far higher than some economists had predicted immediately following the Brexit referendum in June’.

As widely expected, and despite earlier speculation that the Monetary Policy Committee might cut Bank Rate still further, the MPC unanimously maintained rates at their lowest level ever of 0.25 per cent. This has to be looked at in the context of the 1 per cent increase in the Consumer Price Index in October, the highest rate of inflation since October 2014; the Bank of England has warned of a substantial increase in inflation, not least because of the sharp devaluation of sterling following the Brexit vote.

Meanwhile, at their November meeting, the Federal Reserve Bank’s Federal Open Market Committee (FOMC) decided, by eight members to two, to maintain the target range for the federal funds rate at 0.25 to 0.5 per cent. The Committee judged that ‘the case for an increase in the federal funds rate has continued to strengthen’ but decided, for the time being, ‘to wait for some further evidence of continued progress toward its objectives’. Look for an increase at the Committee’s December meeting?

12th October 2016

Great Britain Feed Update

According to data published on 6 October, production of compounds, concentrates and blends in Great Britain during the month of August 2016 amounted to 874,100 tonnes, 43,200 tonnes or 5.2 per cent more than in the corresponding month of 2015.

Output of cattle and calf feeds, at 282,200 tonnes, was marginally down on August 2015, just 700 tonnes or 0.2 per cent lower. There was a 2,100 tonne fall in the output of blends for dairy cattle but a 1,900 tonne increase in the output of dairy compounds, up by 3.9 per cent on August 2015. The largest decline month-on- month was a 2,700 tonne or 12.1 per cent fall in the output of non-dairy blends, accompanied by an 800 tonne or 2.1 per cent fall in production of non-dairy compounds. There was also a 1,700 tonne or 40.5 per cent increase in production of protein concentrates for cattle and calf feeds; this may reflect cattle farmers seeking to make the most of their own feed resources at a time of considerable financial difficulty related to low milk prices.

At 142,900 tonnes production of feeds for pigs was 3,900 tonnes or 2.7 per cent less than in August 2016.

The major contributor to the decline was a 7,600 tonne or 23 per cent reduction in output of feed for growing pigs. Conversely, at 8,300 tonnes, production of link and early grower feeds rose by 1.4 per cent or 20.3 per cent compared with August 2015. These were by far the largest changes month-on-month; however, there was also a 2,100 tonne or 3 per cent increase in the output of finishing feeds.

Readers will be well aware of the concern over recent changes in statistical treatment of poultry feeds. According to DEFRA’s latest data, production of poultry feeds in August 2016, at 363,900 tonnes, was 39,500 tonnes or 12.2 per cent ahead of poultry feed production in August 2015. DEFRA say that they have ‘reviewed some Integrated Poultry Units which produce feed both for their own use and feed for retail sale.’ DEFRA say that, as a result, they have ‘adjusted the data from August 2015 which has resulted in an increase in compound poultry feed and a decrease in IPU feed’.

Looking at the data for Integrated Poultry Units, production of poultry feeds in August 2016 amounted to 162,000 tonnes; this compares with 167,200 tonnes a year earlier. However, the most significant figure may be what was produced in July 2015, the month before DEFRA’s modifications went into effect. Integrated production of poultry feed in July amounted to 195,400 tonnes, 28,200 tonnes more than in August 2015, the month in which DEFRA’s modifications took effect.

This column will continue to keep this aspect under review, particularly as from the present, the comparison month-on-month should be very much like-with-like.

Total production of feeds for sheep and lambs in August 2016 amounted to 27,700 tonnes, 5,500 tonnes or almost a quarter more than in the same month of 2015 when feed manufacturers in Great Britain manufactured 22,200 tonnes of feeds for sheep and lambs.

Compounds for growing and finishing animals accounted for the bulk of the increased production in August 2016. The former, at 17,400 tonnes, was 4,100 tonnes or 30.8 per cent ahead of production in August 2015. There were also increases across the board although these were comparatively small.

Production of horse feeds declined slightly in comparison with August 2015. However, production of other compounds, blends and concentrates, at 46,300 tonnes, was 3,400 tonnes or 7.9 per cent ahead of production in August 2015 and in addition, was at its highest level since statistics were published in their present form in 1992. Much of this category of feeds is believed to consist of feeds for fish.

As far as September’s outcome is concerned and, in particular, any weather-related effects, September was warm across the UK with temperatures 2° C above normal as defined by the average for the years 1981 – 2010. The UK was marginally wetter than normal across the UK as a whole although this was largely confined to the devolved administrations and, in particular, to Wales and Northern Ireland; England received only 91 per cent of its ‘normal’ rainfall. However, despite the above average temperatures, sunshine was in short supply during September with the UK receiving just 95 per cent of its normal allocation.

Encouraging Statistics

The September issue of the Markit/CIPS Manufacturing Purchasing Managers Index showed that ‘conditions in the UK manufacturing sector continued to improve at the end of the third quarter’. At 55.4 in September, up from 53.4 in August, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index rose to its highest level since June 2014. Furthermore, the rebound in the PMI level since its EU-referendum related low in July was sufficient to make the third quarter average (52.3) the best during the year-to-date.

The construction sector returned to growth in September with business activity rising for the first time since May. Respondents to the survey cited improving confidence among clients and ‘a reduced drag on demand from Brexit-related uncertainty’. Construction firms indicated a further recovery in their business expectations for the next twelve months, with optimism the strongest since May. David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said that the residential sector was the winner in September, as consumer confidence made a modest recovery, following the EU referendum.

And there was encouraging news from the services sector. The survey indicated that activity had risen but that growth rates had eased slightly. However, new business was growing at the fastest rate since February, although the month was characterised by the largest rise in input costs since February. The Business Activity Index remained above the no-change mark of 50.0 in September, at 52.6, signalling growth of UK services output. Although down slightly from 52.9 in August, the latest figure indicated a further modest rate of expansion at the end of the third quarter of 2016, following a contraction in July in the wake of the unexpected EU referendum result.

3rd October 2016

IGC Updates

The International Grains Council (IGC) has recently updated its Grain Market Report issued on 25 August 2016.

The revised report, dated 29 September, projects world grain production in 2016-17 as virtually unchanged from IGC’s previous, August projection at 2,068.8 million tonnes, a record. However, this reflects a further upgrade for wheat which is offset by reductions for coarse grains. This is mainly linked to maize, as overly dry weather has affected crop prospects both in the EU and China. The outlook for wheat is, once again, cut for the EU, but this is more than offset by increases for Australia, up by 1.3 million tonnes, Canada, up by a million tonnes, China, up by 2 million tonnes, and Kazakhstan, up by 1.5 million tonnes on IGC’s August projections.

As far as export prices are concerned, values for both grains and oilseeds were pressured by increasingly heavy spot supplies. The IGC’s useful Grain and Oilseeds Index was down 5 per cent from the last report, closing at a five-month low. While it is true that seasonal factors contributed to the overall decline in grain and oilseed prices, results from the advancing Northern Hemisphere harvests confirmed yields as good overall. There were particularly steep declines in maize and soybean export values which fell mainly on increased availabilities FOB US Gulf. While average wheat prices were broadly unchanged, there were mixed trends between the various grades, reflecting concerns about milling wheat availabilities. The IGC soybean sub-Index dropped by 7 per cent compared to the August Grain Market Report with US prices being particularly weak, reflecting pressure from expectations for a huge crop; however, falling values were ‘occasionally capped’ by firm export demand. IGC increased its projection of soybean production by 3.4 million tonnes compared to its previous projection, largely due to increased US output.

IGC has also made its first tentative observations as regards global winter wheat sowings for the 2017 harvest, saying that it expects they will prove ‘little changed’, despite currently weak prices, although it added that conditions for plantings had, so far, proved ‘mixed’.

Overall, a continuing optimistic outlook as regards raw material values?

Milk Prices on the Up?

A common theme, running through compounders’ statutory Reports and Accounts or, at least, those that produce ‘full’ accounts rather than an abbreviated Balance Sheet, has been the impact of low milk prices on their dairy farmers’ profitability and thus, by extension, on their own margins.

For example, the NWF Group’s Annual Report and Accounts noted that ‘average milk prices in Great Britain decreased during the year by 3.7 pence per litre to 21.0 pence in May 2016, a level below the average cost of milk production, which has caused hardship for dairy farmers’ - and, by implication, won’t have done NWF Feeds much good either. NWF goes on to note that, despite this, milk production increased year on year through to March 2016, with total volume ahead by 1.6 per cent to a six-year high of 12.4 billion litres (2015: 12.2 billion litres), adding that the UK market for ruminant feed fell by 4 per cent as a consequence of both the warm winter and lower milk prices for farmers.

Recent milk prices in Great Britain last peaked at 34.53 pence/litre in November 2013. A year later, they were down at 29.56 pence and a further twelve months saw them at 24.63 pence. Since then, they fell further and, barring a brief recovery in February 2016, reached a nadir of 20.39 pence in June 2016.

There were some insubstantial signs of recovery in July and August. However, in September, Arla raised the milk price for its 2,700 British farmers by 1.6 pence/litre, as the dairy market recovery begins to pick up pace. The cooperative’s members will be paid 21.65 pence/litre in October, after the second monthly increase running. Organic members will be paid 37.2 pence/litre. Most of the rise comes from Arla’s improving returns, as commodity values continue to improve. First Milk has also lifted its milk price by 2 pence/litre. Earlier, Dairy Crest had increased its October standard litre milk price by 1 pence/litre, with a further increase of 0.5 pence/litre scheduled for November. The increase will take October’s milk price to 23.72 pence/litre, a development that will reportedly affect around 400 suppliers of its Davidstow plant.

There is still some way to go but it does appear that world milk supplies are moving into better balance with demand.

The world’s biggest exporter, Fonterra, has announced a further 10.5 per cent increase in its 2016-17 forecast farmgate milk price, to approximately 21-22 pence per litre, following its recent increase in August; this may be considered a positive indication of the improving market situation. Fonterra says that this development reflects the continuing decline in milk production, while demand has remained stable. Fonterra acknowledges that the market remains ‘volatile’ and says it will continue to review its forecast milk price throughout the season. In the UK, milk production in Great Britain during the first seven months of 2016 was 247 million litres lower than over the same period last year, reflecting a smaller dairy herd and the fact that dairy farmers reduced their use of concentrates this year, most likely a result of the extremely poor milk prices.

UK Economy

The Office of National Statistics has announced, in its Quarterly National Accounts release covering the second quarter of 2016, that Gross Domestic Product in the UK in volume terms rose by 0.7 per cent in the second quarter of 2019, revised up by 0.1 percentage points from the Second Estimate of GDP published on 26 August 2016 as well as the Preliminary Estimate of GDP, published on 27 July.

The Office of National Statistics observes that this was the fourteenth consecutive quarter of positive growth since the first quarter of 2013.

Production output increased by 2.1 per cent in the second quarter of 2016 compared with the first quarter, unrevised from the previously published estimate. Construction output decreased by 0.1 per cent in the second quarter of 2016, revised up by 0.6 percentage points from the previously published estimate, due to the incorporation of late data and the results of the annual seasonal adjustment review. The service industries, the largest sector of the UK economy, increased by 0.6 per cent in the second quarter of 2016, revised up by 0.1 percentage points from the previous estimate.

The Office of National Statistics observes that the second quarter of 2016 includes data in the lead up to and for a short period after the EU referendum, adding that ‘There is very little anecdotal evidence at present to suggest that the referendum has had an impact on Gross Domestic Product’ in the second quarter of 2016. The Index of Services for July, published alongside the GDP data, covers a full month of data following the EU referendum; however, the Office of National Statistics ‘has no evidence of a significant impact of the outcome of the EU referendum on July’s services output figures’.

Output of the services sector grew by 0.4 per cent between June 2016 and July 2016. This was slightly ahead of services output in both May and June when growth was 0.3 per cent.

28th September 2016

Customer Numbers

DEFRA has recently published its latest edition of farming statistics for England. These give final estimates of crop areas and livestock populations for England from the June Survey of Agriculture and Horticulture. Data for the UK as a whole will become available in December, following the publication of the June survey results for Scotland, Wales and Northern Ireland.

Total number of cattle and calves on agricultural holdings in England in June 2016 was 5.43 million head, 44,654 head or 0.8 per cent more than in the equivalent month a year earlier. In terms of cattle aged two years and older, thus including a substantial proportion of the cattle breeding herd, the most significant increase was in the numbers of animals in the beef breeding herd, up by 1.2 per cent. In contrast, the numbers of dairy cows in the breeding herd declined by 0.5 per cent. The number of beef animals over two years old not classed as being in the breeding herd fell by 2.2 per cent or 190,000, while the number of dairy animals declined by 9 per cent to 207,000.

Taking female cattle aged between a year and two years old, these increased by 3.9 per cent with beef animals up by 4.1 per cent and dairy animals up by 3.5 per cent. The number of male cattle, at 1.5 million head, increased by 22,361 head or 1.5 per cent during the year in question. 

It seems very likely that the crisis in the dairy sector, stemming from a period of very low milk prices which, in many cases, are below the cost of production, is mainly responsible for cutting the numbers of cattle in the dairy herd. However, there are also signs, in the number of very young animals, of farmers planning to rebuild their dairy herds, following the disastrous fall in profitability due to over-production and the suspension of exports to Russia following the Ukraine crisis.

It is important to note that the data for cattle numbers comes from the Cattle Tracing System (CTS) and includes returns from all holdings with cattle, thus they are not subject to survey error.

Total sheep and lambs in England amounted to 15,282,934 million head in June 2016, 141,371 or 0.9 per cent more than in the corresponding month of 2015. The number of ewes intended for first time breeding rose to 1,194,191 million, an increase of 39,919 head or 3.5 per cent compared to June 2015. The number of lambs, at 7,794,243, was up by 77,841 head or 1 per cent.

Total pig numbers in England in June 2016 were 3,911,082, 84,740 head or 2.2 per cent more than in June 2015 and at their third highest for a decade.

The female breeding herd, at 334,481 head, was 6,499 head or 2 per cent larger than in June 2015. This was represented by a 6,884 increase in the number of sows in pig and a smaller increase in the number of in pig gilts. However, there was a 2.4 per cent decline in the number of other pigs being suckled or dry sows being kept for further breeding and a 3.7 per cent fall in the number of gilts not yet in pig but expected to be kept for breeding. This suggests, as far as England is concerned, that the pig breeding cycle may have reached its apogee and may be expected to turn down during the next twelve months.

The number of fattening pigs, at 3,494,367 head, was 80,870 head or 2.4 per cent higher than in June 2015 with the most prominent increases taking place in the pig populations of less than 50 kg liveweight. This latter category includes a 63,324 head or 6.4 per cent increase in the numbers of animals of less than 20 kg liveweight.

No data is currently available for poultry numbers in England; estimates for poultry numbers will be published on 27 October 2016. Poultry numbers have grown significantly in recent years; however, they have shown signs of levelling off and it will be interesting to see whether these indications have been continued into 2016.

Insect Feed

It is reported that a Dutch feed company has become the first in the world to put a feed product on the market which incorporates insect oil.

The weaner feed with the insect ingredient is said to have significant potential to reduce bacteria, prevent diarrhoea and improve feed intake, the key components influencing a smooth transition from weaner to grower.

Recent reports say that around fifteen pig farmers in the Netherlands were the initial producers to use the feed for their weaners. The insect oil is made from the larvae from the Black Soldier fly. Compared to other farmed insect species, Black Soldier flies are said to be the hardest to breed, but they are very efficient in converting organic waste materials into valuable protein and oil.

In particular, the oil contains a high percentage of lauric acid, well known for its antimicrobial properties and which potentially constitutes a valuable tool in controlling gram-negative bacteria such as Streptococcus or Clostridium.

Given the interest in insect oil as a potential feed ingredient, the feed industry, and not just in the Netherlands, will be watching the outcome of this development closely. It is also likely to increase the pressure on legislators to create a more favourable legal background for developing insect-based feed ingredients.

Economic Outlook

As widely expected, the Federal Open Markets Committee (FOMC) left the target range for the benchmark US federal funds rate unchanged at 0.25 per cent to 0.5 per cent, where it’s been since a quarter-point increase in December 2015 ended nine years since the federal funds rate was previously last increased.

However, it may be significant that three members of the FOMC ‘dissented’, voting for an increase in the federal funds rate. The focus now shifts to the FOMC’s December meeting where the weight of evidence suggests that a rate increase is now more likely. In its statement, FOMC said that the near-term risks to the economic outlook appear ‘roughly balanced’, adding that the case for an increase in the federal funds rate had strengthened ‘but decided, for the time being, to wait for further evidence of continued progress toward its objectives.’

Meanwhile, the Office of National Statistics will publish its most definitive estimate of Gross Domestic Product in the UK for the three-month period April – June 2016; this will be discussed both in the next issue of this E-letter and subsequently.

22nd September 2016

Northern Ireland Catch-up

Latest data for feed production in Northern Ireland shows output in July at 172,900 tonnes, just 400 tonnes or 0.2 per cent ahead of production in July 2015.

There were small increases in the output of calf milk replacers and other calf feeds but overall output of feeds for cattle and calves, at 83,100 tonnes in July, was down by 1,300 tonnes or 1.6 per cent when compared with July 2015. This is also a reflection from the weather-driven heights of July 2012 – 2014 when conditions made it essential to deliver addition volumes of feed to the dairy and beef sectors.

The main reason for the fall in deliveries of feed to the cattle and calf sectors in July 2016 was a sharp decline in output of coarse mixes and blends for dairy cattle. These amounted to 13,000 tonnes in July 2016, down by 3,300 tonnes or 20.2 per cent compared with the same month of 2015. Although milk prices, at 18.47 pence a litre in July were slightly firmer than in the preceding month, they were 10.24 pence down when compared with July 2014 and 12.55 pence down on July 2013. These data illustrate the extent to which dairying in Northern Ireland would appear to be receiving less than the cost of production.

The fall in output of coarse mixes and blends was partially offset by increases in output of, in particular, compounds for beef cattle which, at 8,200 tonnes, were up by 1,100 tonnes or 15.4 per cent compared with July 2015. There was also a small rise in the output of coarse mixes and blends for beef animals. There was also a minute rise in the output of compounds for dairy cattle – at 43,000 tonnes, up by 100 tonnes or just 0.3 per cent.

As regards production of feeds for pigs, output in July 2016, at 18,700 tonnes, was up by 2,400 tonnes or 15 per cent compared with the equivalent month in 2015. The major contributor to this increase was output of finishing feeds, at 8,400 tonnes, up by 2,000 tonnes or 31 per cent. It is worth noting that this figure represented the highest figure for production of finishing feeds for pigs in Northern Ireland for eighteen years. There were small increases elsewhere in the sector with the exception of grower feeds which, at 3,500 tonnes in July, were down by 300 tonnes or 8.9 per cent compared with July 2015.

Output of poultry feeds in Northern Ireland has been growing in recent years, although production in July 2016, at 63,700 tonnes, was 1,300 tonnes or 2 per cent less than in the corresponding month of 2015. This largely reflected a fall in the output of feeds for broiler chickens, at 35,700 tonnes down by 3,000 tonnes or 7.7 per cent compared with July 2015. In contrast, there were small increases in the volume of output of layer and breeder feeds and also in output of ‘turkey and other poultry feeds’ – a statistical candidate, surely, for disaggregation.

Output of feeds for sheep and lambs in July 2016, at just 3,200 tonnes, was around a thousand tonnes ahead of July 2015, an increase of more than 42 per cent. It accounted for just 1.9 per cent of total production of feed with increases taking place across the board.

Taking the first seven months of 2016 cumulatively, output of feeds in Northern Ireland amounted to just over 1.29 million tonnes – 63,600 tonnes or 4.7 per cent less than in the equivalent period of 2015. There was a substantial fall in output of feeds for cattle and calves, notably in the dairy sector. Output of feeds for pigs was up by 3,200 tonnes or 2.8 per cent while output of poultry feeds was down by a cumulative 20,500 tonnes or 4.6 per cent. There was also a small cumulative decline in output of feeds for sheep and lambs. Production of lightly processed materials, at 42,600 tonnes, was also lower, down by 3,000 tonnes or 6.6 per cent.

On the face of it, the feed industry in Northern Ireland does not look set to break any production records in 2016. However, with the recent suggestion that winter could be ‘unusually severe’, one should, perhaps, hedge one’s bets to a modest extent.                               

USDA Updates

The United States Department of Agriculture has recently updated its Production, Supply and Distribution projection for the 2016-17 run.

World production of wheat has been raised by just over 1.4 million tonnes or a marginal 0.2 per cent compared to its August projection. This reflects increased projections for a number of countries including Kazakhstan, India (up by 2 million tonnes or 2.3 per cent on USDA’s August projection), Australia, Brazil and Canada. These increases are partially offset by reductions for the EU (again) and China. The Australian increase is based on continued excellent growing conditions so far in the growing season with yields projected at close to a record high. Brazil is also reporting favourable growing conditions with yields projected at a record high. Taking usage into account, world end-of-season stocks are slightly lower than in USDA’s August projection but, at 123 Days Consumption Equivalent (DCE), are still at historically high levels.

USDA has reduced is estimate of world maize output in 2016-17 by 1.79 million tonnes or 0.2 per cent compared to its August projection. Brazil is up by 2 million tonnes or 3.1 per cent; this reflects relatively favourable maize prices in Southern Brazil which are seen as boosting maize production at the expense of soybeans. Chinese maize production prospects have been reduced by 2 million tonnes; this reflects drier than normal conditions during July and August in key maize growing areas. Maize production prospects in the EU are also reduced. However, taking usage into account, world end-of-season stocks, at 79 DCE, remain at high levels relative to consumption – the ten-year average is 66 DCE.

USDA has left overall world production of soybeans in 2016-17 virtually unchanged but there are significant differences as regards individual countries. US soybean production is projected at a record 4,201 million bushels, up 141 million due to a higher yield forecast. Reduced soybean production projections for Brazil, India, and Canada are more than offset by higher production for the United States and China. Brazil soybean production is reduced by 2 million tonnes or 3.5 per cent on lower planted area as relatively strong maize prices in southern Brazil are expected to increase first-crop maize planting. Projected soybean production, down by 1.7 million tonnes or almost 15 per cent, is projected for India based on lower area and yields, reflecting ‘excessive rainfall’ throughout the major producing region for July and August. Soybean production is reduced for Canada by 420,000 tonnes or 6.7 per cent on lower yields according to Statistics Canada. China soybean production is raised as a higher area forecast more than offsets lower yields.

Total world production of soybean meal has been reduced by 900,000 tonnes; this largely reflects a sharp reduction in Indian production, consonant with lower soybean production. However, end-of-season stocks are projected 476,000 tonnes higher than in August, largely reflecting increases in Argentina and Brazil. 

Overall, the data would seem to point towards stable grain prices during the current season while there would seem to be a slight prospective upward pressure on soybean prices.

Economic Outlook

With the Brexit vote continuing to reverberate, albeit less robustly than widely anticipated, most of the media attention has focussed on the next set of economic indicators. Towards the end of the month, the final estimate of Gross Domestic Product during the second quarter of 2016 will become available, indicating whether there was any market nervousness with the approach of the referendum. In October, the preliminary estimate of GDP in the third quarter will show the first signs as to how the economy has reacted to the Brexit vote.

8th September 2016

July Production Update

DEFRA has recently released production data for feed in Great Britain for July.

Total production of compounds, concentrates and blends in July 2016 amounted to 805,400 tonnes, 10,500 tonnes or 1.3 per cent less than in July 2015. It is worth noting that, with one exception, this total was the highest on record since data started to be collected in its present form in 1992, albeit the data for 2016 has been distorted by the modification of the data for poultry feeds.

Production of cattle and calf feeds during July, at 261,900 tonnes, was 27,600 tonnes or 9.5 per cent less than in the corresponding month of 2015. This may have reflected the relatively mild weather conditions during the month in question. Temperatures in England were 1.2°C above normal while rainfall was only 70 per cent of normal. However, the predominant reason for the downturn in production of feeds for cattle is likely to have been the continuing low price of milk and consequent lack of dairy farm demand for feed. At 20.57 pence per litre, farm gate milk prices, although they were 0.66 pence up on June, remained at 2.97 pence lower than a year previously.

While there were comparative falls in output of cattle and calf feeds across the board, it was in the dairy sector where the declines were most dramatic. Output of dairy compounds in July 2016, at 143,100 tonnes, was 17,200 tonnes or 10.7 per cent less than in July 2015 while dairy blends, at 48,500 tonnes, were down by 4,600 tonnes or 10.7 per cent. While there was a small fall in output of non-dairy compounds, non-dairy blends, at 17,700 tonnes were down by 4,200 tonnes or 19.2 per cent.

To put the decline in dairy compounds into context, output in July 2016 was at its lowest for the month in twenty-five years. Output of non-dairy compounds was at its lowest for a decade, a further indication as to the state of the industry as a whole.

Output of feeds for pigs, at 137,600 tonnes, was 13,300 tonnes or 8.8 per cent lower than in July 2015. This reflected falls across the spectrum with the exception of link and early grower feeds which, at 8,200 tonnes, were 1,600 tonnes or almost a quarter higher than in July 2015. Conversely, however, output of feeds for growing pigs, at 24,700 tonnes, were down by 8,000 tonnes or 24.5 per cent on the levels of July 2015.

As regards poultry feed production data, all the previous remarks made in this column continue to apply. The bald statistics show production of poultry feeds at 328,200 tonnes, 24,900 tonnes or 8.2 per cent higher than in July 2015. The major gainer is broiler feeds, at 141,600 tonnes up by 26,100 tonnes or 22.6 per cent on the levels of July 2015.

Given the mild weather in July, it is somewhat surprising to find that during the month in question, output of feeds for sheep and lambs, at 25,400 tonnes, was 3,800 tonnes or 17.6 per cent ahead of production in July 2015. The bulk of the increase was accounted for by higher output of feeds for growing and finishing sheep which, at 17,600 tonnes, were 3,700 tonnes or 26.6 per cent more than in the corresponding month of 2015. This suggests that flock masters were finding it increasingly profitable to get their stock off to market as quickly as possible.

There were small increases in the output of feeds for horses and for ‘other compounds, blends and concentrates’, the latter thought to be significantly linked to the production of feeds for fish.

Meanwhile, temperatures were significantly higher than normal across the UK in August, with rainfall generally lower with the exception of Scotland. Whether this will have affected feed production will be revealed when DEFRA produce their feed statistics for August on 6 October.

Data for Northern Ireland feed production will be discussed in the next issue of this E-letter.

Harvest Outlook

There remain quality concerns about much of the Northern Hemisphere milling wheat crop with the breadmaking premium over feed wheat likely to remain at significant levels.

Amongst other major cereal growers, FAS/Moscow has increased its July 2016 estimate of Russian grain production by 6.8 million tonnes to 114.5 million tonnes. Russian crop agency Post increased the wheat crop forecast from 65 million tonnes to 72 million tonnes. If this forecast is accurate, this wheat crop will be the highest wheat crop in Russian history. This forecast matches the USDA official forecast. The barley crop forecast is increased from 17.5 to 17.7 million tonnes, but this is 1.3 million tonnes below the official USDA forecast for barley. The maize crop forecast is 13.5 million tonnes, 0.5 million tonnes less than the current USDA forecast.

USDA is due to update its Production, Supply and Distribution projection for 2016-17 shortly and this will be reported upon in the next issue of this E-Letter, scheduled for 22 September. The next edition of the International Grains Council’s Grain Market Review should emerge at the end of September.

Economy Rebounds?

With the dawning of September came the first hard appreciation of the Brexit effect – and it was surprisingly mild if it could be discerned at all.

As reported in the last edition of this E-Letter, the Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI) climbed to 53.3 in August from 48.3 on July, while the Construction PMI climbed to 49.2 from July’s 45.9; still in contraction but to a much smaller extent than expected. The Services PMI, which plummeted to 47.4 in July and which accounts for almost three-quarters of the UK economy, rebounded to 52.9 in August

The month-on-month gain in the Markit/CIPS UK Services PMI was the largest observed over the 20-year history of the survey, following the record drop of 4.9 points in July. The rate of expansion in the latest period was the fastest since May, but weaker than the long-run survey average.

2nd September 2016

Feed Material Price Prospects

With the Northern Hemisphere harvest now well on to completion, overall supply prospects for 2016-17 are becoming clearer.

The International Grains Council, in its assessment dated 25 August, made further upgrades of its forecasts for global wheat and maize production. IGC’s largest adjustment was for maize and this was nearly entirely due to a sustained improvement in crop prospects in the US. IGC note that changes for wheat follow the same pattern as July’s assessment, with increases for the CIS and the US again partly offset by a reduced figure for the EU, a reflection of heavy rainfall in some of the EU’s most important wheat growing areas.

IGC are looking for a 2016-17 world soybean crop of a record 325 million tonnes, as the result of anticipated area gains and enhanced yields. With total consumption seen expanding further on growing demand for soybean products, especially in Asia, IGC expect global stocks to a three-year low of 31.5 million tonnes.

One factor that may be of interest to feed material buyers is that there are increasing reports of quality problems as regards milling wheat. Bankers Rabobank reported that, despite what its saw as a ‘bin busting’ hard red winter wheat harvest, quality was ‘disappointing’, adding that heavy yields often coincided with ‘less than stellar quality’. The effect has also been noted in Russia this season. A Rabobank spokesman said that when big yields came through, quality could frequently be compromised, adding that with EU quality notably poor and some quality questions also being raised as regards the Black Sea and Australia, the premium for milling wheat in both cash and futures markets was likely to be maintained and could even widen, as so-called milling wheat ended up in the feed market - with clear implications for feed wheat prices.

Probiotics Probe

The authors of a new report, recently published by the United Nations’ Food and Agricultural Organization (FAO) warn that animal feed manufacturers and farmers should be aware that probiotic animal feed additives may not be quite as safe and/or effective as some people believe.

Entitled ‘Probiotics in Animal Nutrition: Production, Impact and Regulation’ and prepared by researchers at the University of Queensland in Australia, the document represents a thoroughgoing review of the use of probiotics for poultry, pigs and ruminants. It includes background on definitions, production, modes of action, safety, regulation and labelling as well as probiotics’ efficacy in the most important farm animal species.

With the advancement in knowledge in gastro-intestinal microbial ecology and mode of action of probiotics, the number of probiotic products available for use in animal nutrition is increasing. However, the micro-organisms used as probiotics and their efficacy vary highly. The claims made by commercial producers of probiotics are often difficult to substantiate due to variation in animal species and husbandry practices and lack of scientific publications regarding the products. In particular, it is not possible to generalize the mechanism of action of probiotics. Further studies are also required to determine whether the probiotics used in animal nutrition enter the human food chain and how, if at all, they affect human health.

The report concludes by noting that international guidelines for the production, marketing and use of probiotics in animal nutrition should be developed, especially with increasing globalisation. The guidelines should also give detailed instructions for the analysis of the risk associated with probiotics intended for use in animal production.

Economic Update

Those looking for a post-Brexit downturn in the UK economy will possibly have been taken aback by recent data.

At 53.3, the August manufacturing PMI data indicate a solid rebound in the performance of the UK manufacturing sector from the steep downturn following the EU referendum. Companies reported that work postponed during July had now been restarted as manufacturers and their clients started to regain ‘a sense of returning to business as usual’. The domestic UK market showed a marked recovery, especially for consumer products, while the recent depreciation of sterling drove higher inflows of new business from a number of important export markets.

The construction PMI, although it came in at 49.2, marking the third successive month in which the PMI was below 50, was at its slowest rate of decline since the downturn started in June. However, the final analysis will only be possible with the publication of the Services PMI; a full report on this in the next edition of this E-Letter.

The first official indication of how the economy has performed since the referendum will come in October with the publication of the Preliminary Estimate of Gross Domestic Product during the third quarter of 2016, currently scheduled for publication on 27 October. Meanwhile, the UK economy continues to surprise with a sharp appreciation of sterling against other currencies, just as this issue of the E-letter went to press.

16th August 2016

Northern Ireland Feed Update

In Northern Ireland, the Department of Agriculture, Environment and Rural Affairs (DAERA) has recently published data relating to livestock feed production in the province during June, thus allowing for analysis of feed production during the first half of 2016.

Total feed production in June 2016 amounted to 151,200 tonnes, 17,600 tonnes or 10.4 per cent less than in the corresponding month of 2015, a fairly substantial decline.

Production of feeds for cattle and calves, at 70,200 tonnes in June 2016, was 9,500 tonnes lower than in June 2015, equivalent to a production decline of 11.9 per cent. The most marked decline was in output of coarse mixes and blends for dairy cattle, at 9,800 tonnes down by 4,800 tonnes or just over a third compared to the corresponding month of 2015. This is likely in large part to reflect the prevailing low level of milk prices. There was also a 1,400 tonne or 3.5 per cent fall in the output of dairy compounds, from 40,400 tonnes in June 2015 to 39,000 tonnes a year later. Production of compounds for beef cattle fell by 1,100 tonnes or 15.2 per cent in June 2016 compared to the same month a year earlier while production of coarse mixes and blends for beef cattle fell by 1,400 tonnes or 11.6 per cent to 10,700 tonnes in June 2016.

There was a small increase in the production of feeds for pigs by 800 tonnes or 5.5 per cent to 15,500 tonnes compared with the same month a year earlier. The bulk of this was attributable to increased output of finishing feeds with smaller contributions from link and early grower feeds and feeds for breeding pigs. Production of pig feeds in Northern Ireland during June 2016 was at a seventeen year high.

Production of poultry feeds during June fell by 7,800 tonnes or 11.9 per cent compared with the same month a year earlier; this reflected a sharp decline in the volumes of broiler feeds. At 31,700 tonnes, these were 8,000 tonnes or 20.2 per cent down compared to June 2015 and at a nine-year low. There was also a smaller fall in the output of layer and breeding feeds. Small increases were recorded in the output of chick rearing and of turkey and other poultry feed production, although the increases were large in percentage terms, respectively 17.1 per cent and 26.4 per cent.

Production of feeds for sheep, although very small in both absolute and proportionate terms, at 2,900 tonnes was down by 300 tonnes or 9.4 per cent compared with June 2015 with coarse mixes and blends accounting for most of the decline. There was also a decline in the production of lightly processed materials, mostly attributable to falls in the output of flaked maize and maize meal.

Taking the cumulative totals for the first six months of the year, total production of feeds in Northern Ireland in 2016 amounted to 1.12 million tonnes, 63,300 tonnes or 5.4 per cent down compared with the first six months of 2015 and a four-year low for the period under review. The largest contributors to the decline were in production of cattle and calf feeds, of which the most significant reductions took place in output of coarse mixes and blends for dairy cattle, and poultry feeds of which the largest contributors to the decline was in broiler feeds.

USDA August Projection

The United States Department of Agriculture has recently published its updated Production, Supply and Distribution (PSD) projections for the 2016-17 marketing year.

At 743.4 million tonnes, USDA has upgraded its estimate of wheat production in 2016-17 by 4.93 million tonnes or 0.7 per cent. This reflects a 7 million tonne or 10.8 per cent increase in the estimated Russian wheat harvest, the result of ‘excellent growing conditions throughout the country and harvest reports showing very high yields’. USDA has also upgraded its projection of wheat production in Ukraine and Kazakhstan by 2 million tonnes apiece, equivalent to increases of 8 per cent and 15.4 per cent respectively. The Australian and Canadian wheat crops have both been upgraded by a million tonnes apiece, reflecting favourable growing conditions while the projected US wheat crop has been increased by 1.62 million tonnes or 2.6 per cent on USDA’s July estimate; this reflects increased production in all five of the main classes of US wheat.

The major exception to these increases in estimated wheat production is the EU where the harvest has been reduced by a whopping 9 million tonnes or 5.8 per cent on USDA’s July projection; this is as the result of ‘excessive rain in key growing regions, particularly in France’. There have been similar reports from UK arable areas. The incessant rain during flowering and grain fill have both damaged crop quality and sharply lowered yield prospects. USDA report that French wheat yields are projected to be the lowest in nearly thirty years and, for the EU as a whole, 2016-17 wheat yields are projected to be at their lowest in four years. USDA have also reduced their estimate of the Argentine wheat crop.

As regards maize, USDA are currently projecting a 2016-17 world maize crop of 1,028.4 million tonnes, up by 17.66 million tonnes or 1.7 per cent on their July estimate. The largest contributor to the increase is the US, at 384.9 million tonnes, up by 15.6 million tonnes or 4.2 per cent on USDA’s July estimate. This reflects higher US yields for the crop; USDA reports that the season’s first survey-based maize yield forecast, at 175.1 bushels per acre ‘is up 7.1 bushels from last month’s trend-based projection and above the record 171.0 bushels in 2014-15’.

USDA have also pencilled in higher estimates of maize production for a number of countries with increases for Argentina, India, and Mexico more than offsetting reductions for the EU and Canada. Maize area has been raised in Argentina on expected reduction in the planted area for wheat and small grains. For India, the area planted to maize has been increased following favourable rainfall which has spurred plantings to date as reported in the most recent official statistics. In Mexico, abundant summer rainfall is improving prospects for maize yield but persistently dry conditions in Ontario have reduced prospects for production in Canada. Maize production in the EU has been reduced by 1.73 million tonnes, mainly on account of reductions in Spain and France.

As far as end-of-season stocks are concerned, USDA is looking at 126 Days Consumption Equivalent (DCE), a day more than the provisional outcome for the 2015-16 campaign. The outlook for end-of-season maize stocks, at 79 DCE, is up by four days on USDA’s July estimate and only slightly lower than the projected outcome for 2015-16. This promises the prospects of ‘soft’ wheat and maize prices for much of the 2016-17 harvest year.

As regards world supplies and distribution of soybeans, USDA have increased their projection of world soybean output by 4.46 million tonnes or 1.4 per cent, compared to USDA’s July estimate.  This, to an overwhelming extent reflects an increase in projected US production which is increased by 4.9 million tonnes or 4.6 per cent. Production by Paraguay has also been increased by 170,000 tonnes or by 1.9 per cent compared with USDA’s July estimate.

The increased US soybean projection is due to increased yields per acre; the harvested area remains unchanged from USDA’s July projection.  The first survey-based soybean yield forecast of 48.9 bushels per acre is 2.2 bushels above last month and 0.9 bushels above last year’s record. The U.S. production increase is partly offset by reductions for both India and Ukraine with the latest planting data for both countries indicating lower forecasts for harvested area.

End-of-season soybean stocks of 24.6 per cent of the projected soybean crush suggest that, barring surprises, prices should remain at ‘reasonable’ levels during the 2016-17 season, although they are not likely to be as easy as grain prices.

9th August 2016

Great Britain Feed Production – First Six Months

DEFRA have recently published compound feed production for June, enabling an assessment to be made of feed production in Great Britain for the first half of 2016.

First, the weather in June, which was wet. Taking England on its own, rainfall amounted to 163 per cent of normal (defined as the average for the years 1981 to 2010). Wales scored the same while Scotland and Northern Ireland were relatively drier, although both countries received above average rainfall.

More detailed data on the distribution of rainfall and other weather variables is available from the Met Office and this will be discussed in the next issue of this E-Letter.  Across the UK, as far as average temperatures were concerned, both May and June were 0.9°C above ‘normal’ as defined above. Conversely, however, while May sunshine was 115 per cent of normal, June sunshine was in short supply, at only 81 per cent across the UK as a whole and, taking England on its own, at only 73 per cent.

Production in Great Britain of compounds, blends and concentrates in June amounted to 908,000 tonnes, 19,100 tonnes or 2.1 per cent more than in June 2015.

Production of cattle and calf feeds, at 284,100 tonnes in June, was down by 28,500 tonnes or 9.1 per cent compared with the same month in 2015. The reduction was principally due to lower production of feed for dairy cattle with compounds down by 15,900 tonnes or 9.3 per cent and blends down by 11,600 tonnes or 18.5 per cent year-on-year. Production of non-dairy blends, at 18,600 tonnes, was also down by 2,100 tonnes or 10.1 per cent while production of calf feeds, at 14,400 tonnes, was down by 1,300 tonnes or 8.3 per cent compared with June 2015.

The only class of cattle and calf feed to show a significant increase was in protein concentrates which, at 5,700 tonnes, shows an increase of 1,400 tonnes or nearly a third more than June 2015.

Production of feeds for pigs, at 157,100 tonnes in June, was 6,100 tonnes or 3.7 per cent less than in the corresponding month of 2015. The most significant contributor to the reduction was in grower feeds, at 27,500 tonnes down by 6,900 tonnes or just over 20 per cent compared with production in June 2015. There was also a 2,300 tonne or 6.1 per cent fall in the output of feeds for breeding animals. At 9,400 tonnes, output of link and early grower feeds was up by 1,300 tonnes or 16 per cent compared with June 2015; there was also a 1,900 tonne or 2.5 per cent increase in the column of finishing feeds.

In the contentious area of poultry feeds, output in Great Britain during June 2016 rose by 54,000 tonnes or 16.5 per cent compared with the same month a year earlier. The overwhelming proportion of this increase consisted of incremental broiler feeds at 176,600 tonnes up by 41,500 tonnes or 30.7 per cent. This tends to confirm the view that the bulk of the increase in output of poultry feeds in June 2016 compared with a year earlier was attributable to the addition of feeds produced by integrated poultry units but subsequently sold at retail. There were smaller but still significant increases in the output of layer feeds and breeding and rearing feeds.

At 36,700 tonnes, output of feeds for sheep and lambs was 1,300 tonnes or 3.7 per cent higher than in June 2015; in volume terms, the most significant increase was in the output of grower and finisher compounds which, at 26,700 tonnes, was up by 2,200 tonnes or 9 per cent compared with June 2015.

There were small decreases in the output of feeds for horses and for miscellaneous feeds in June 2016 compared with the same month a year earlier.

Taking the first six months of 2016 together compared with the same months in 2015, at 5.63 million tonnes output of compounds, blends and concentrates in Great Britain was up by 196,000 tonnes or 3.6 per cent higher. However, a major proportion of this was accounted for by higher production of poultry and, in particular, broiler feeds which suggests that the figures are very far from being comparable. As far as cattle and calf feeds are concerned, output of 1.94 million tonnes was 130,900 tonnes or 6.3 per cent down on the same six months of 2015 with the most significant declines in volume terms being recorded in the production of compounds and blends for dairy cattle. Undoubtedly, this reflects the influence of improved weather conditions but low milk prices will also have made a major contribution to reduced demand for dairy feeds.

At 916,100 tonnes, output of pig feeds in the first half of 2016 was 3,400 tonnes or 0.4 per cent up on the same period of 2015 with the main contributors being higher output of link and early grower feeds as well as finisher feeds; production of grower and breeding feeds was down.  At 547,900 tonnes output of feeds for sheep was up by 20,500 tonnes or 3.9 per cent with the main contributor to the increased output being compounds for growing and finishing stock; there were falls in the output of compounds and blends for breeding sheep.

The latest statistics for Northern Ireland feed production in June 2016 will be analysed in the next issue of this E-letter.

NWF Reports

The NWF Group has recently reported its final results for the year ending 31 May 2016. At £465.9 million, revenues were 5.4 per cent down on the preceding twelve months. This reflected lower oil prices in the Group’s Fuels Division and the impact of lower commodity prices in NWF’s Feeds Division.

In Feeds Division, the headline operating profit rose to £2.1 million compared with £1.8 million in the preceding twelve months. Profitability improved both in the core business and acquisitions and market share increased, despite what NWF described as ‘another challenging year in the ruminant feed market’ with lower milk prices and a consequent reduction in demand for feed.

The NWF Group’s result for the twelve months ending 31 May 2016 will be discussed in more detail in the next issue of Feed Compounder magazine. This will include a detailed analysis of NWF Agriculture’s results which refer principally to the activities of NWF’s feed manufacturing activities. 

Economy Catch-Up

The effects of Brexit continue to reverberate around the economy.

As was widely expected, the Bank of England’s Monetary Policy Committee (MPC), at their meeting on 4 August, cut Bank Rate from 0.5 per cent to 0.25 per cent. Other measures included a new ‘Term Funding Scheme’; this will provide funding for banks at interest rates close to Bank Rate which should help reinforce the transmission of the reduction in Bank Rate to the ‘real’ economy, thus helping to ensure that households and firms benefit from the MPC’s actions. The programme also includes the purchase of up to £10 billion of UK corporate bonds and an expansion of the asset purchase scheme for UK government bonds of £60 billion, taking the total stock of these asset purchases to £435 billion.

2nd August 2016

IGC Updates

The International Grains Council has recently (28 July) updated its Grain Market Report. IGC has increased its estimate of world grain production in 2016-17 by 20.3 million tonnes to 2,045.9 million tonnes, ‘close to an all-time peak’ recorded by the 2014-15 harvest which amounted to 2,046.9 million tonnes. Although consumption of total grains also grew strongly, up by 19 million tonnes compared to IGC’s July estimate, increased production was still sufficient to increase end-of-season stocks from 482.5 million tonnes to 488.3 million tonnes, almost equivalent to 88 Days Consumption Equivalent (DCE), a figure almost unchanged from IGC’s July projection.

As regards wheat, IGC has increased its July projection to 735.4 million tonnes, up by 6.6 million tonnes or just under 1 per cent. This includes a 500,000 tonne upgrade for Australia, a 4.5 million tonne upgrade for Russia, a 2 million tonne upgrade for Ukraine and a 4.9 upgrade for the US. These figures reflect the fact that wheat harvests are ‘significantly exceeding expectations in the US and in Russia and Ukraine.

IGC has downgraded its expectations of the wheat harvest in the EU, from 145.7 million tonnes in its July projection to139.9 million tonnes. This reflects the damage inflicted by adverse weather in the shape of heavy rain in a number of EU states, especially in France but also wider afield, including the UK.

The world maize crop has been upgraded to 1,016.7 million tonnes, compared to the July projection of 1,003.1 million tonnes. The bulk of the increase is attributable to improved US prospects, up from 355.3 million tonnes to 365.2 million tonnes; however, there are also small increases for the EU and Ukraine.

IGC has ‘tentatively’ predicted that global soybean production in 2016-17 is set to recover to a fresh high of 321.3 million tonnes in 2016-17, following the disappointing harvest of 315.8 million tonnes in 2015-16. The rise is ascribed to an increased area planted to the crop in leading producers, notably in Brazil. However, with consumption projected to increase by over 8 million tonnes, a new record, end-of-season stocks are estimated to fall for a second consecutive year, by 15 per cent, to 29.5 million tonnes. Much of the downward adjustment will take place in the major exporters, with US end of season stocks projected to fall by almost 25 per cent.

This suggests that soybean prices are likely to remain firm during the current season, in contrast to wheat and maize prices which are likely to reflect plentiful supplies and large inventories.

Economic Outlook

The Preliminary Estimate of the UK’s Gross Domestic Product in the second quarter of 2016, jumped by 0.6 per cent compared with the Second Estimate of Gross Domestic Product for the first quarter of 2016 which showed the UK economy growing by 0.4 per cent, unchanged from the Preliminary Estimate.

The higher than expected estimate of GDP growth caused considerable surprise as most market watchers had been expecting growth of 0.4 per cent.

Breaking down the overall figure of 0.6 per cent shows Agriculture output decreasing by 1.0 per cent in the second quarter of 2016, following flat growth in the previous quarter. Between the second quarter of 2015 and the second quarter of 2016, agriculture output decreased by 0.4 per cent.

The production sector of the economy provided the principal surprise. The index of production increased by 2.1 per cent in Quarter 2 2016, following a decrease of 0.2% in the previous quarter. Manufacturing contributed the most to the increase, growing by 1.8 per cent. Between the second quarters of 2015 and 2016, production output increased by 1.8 per cent. Could George Osborne’s March of the Makers about to become a fact?

The Construction sector, on the other hand, appears to be taking a hammering. Construction output decreased by 0.4 per cent in second quarter 2016, following a decrease of 0.3 per cent in the previous quarter. Between the second quarter of 2015 and 2016, construction output decreased by 1.2 per cent.

As far as interest rates were concerned, there was some surprise that the Bank of England’s Monetary Policy Committee had not moved to cut Bank Rate to 0.25 per cent or, even zero at their July meeting in the wake of the Brexit decision. This has been widely attributed to members’ desire to wait for more data.

However, it is reported that another member of the MPC has signalled his intent to vote in favour of cutting interest rates at the Committee’s next meeting on 4 August, pushing the chances of a cut to what one commentator described as ‘a near certainty’. Martin Weale, an independent member of the MPC said recently that the disappointing ‘flash’ Purchasing Managers’ Index (PMI), which reportedly ‘stunned’ the markets and was discussed in the last issue of this E-Letter, had convinced him of the need ‘to unlock more monetary stimulus’; presumably in the form of a cut in Bank Rate, additional quantitative easing - or both.

With US interest rates unchanged at the Federal Reserve’s July meeting, the scene looks set for a cut in UK rates, probably from 0.5 per cent to 0.25 per cent.

26th July 2016

Brexit Effect

Following the unexpected outcome of the UK referendum vote on 23 June, IHS Markit announced that it would be releasing what it called ‘a Flash Purchasing Managers Index’ for the UK on 22 July, this being ahead of the normal release schedule starting on the first Monday of each month. The release was intended to help provide clarity on the potential impact of the UK’s EU referendum on the economy, and was in response to predictable demand from data users.

Based on more than 70 per cent of usual replies to the regular UK monthly PMI surveys, the flash release would contain survey indices relating to manufacturing and services as well as a set of weighted-composite indices reflecting economic trends across the two sectors combined. The Markit/CIPS ‘Flash’ UK PMI results would be followed by a final UK Manufacturing PMI issued on Monday 1 August and a final UK Services PMI on Wednesday 3 August. These will duly be commented upon in the next edition of this E-letter.

The headline for the 22 July Flash publication said it all: ‘UK economy contracts at steepest pace since early-2009’.

It will be remembered that in the Markit/CIPS surveys, any number below 50 represents contraction while any number above 50 represents expansion. The Flash Composite Output Index (representing a weighted average of the manufacturing and service sectors) at 47.7 (52.4 in June) was at an 87-month low. The Flash UK Services PMI Activity Index at 47.4 (52.3 in June) was at an 88-month low. The Flash UK Manufacturing PMI at 49.1 (52.1 in June) was at a 41-month low while the Flash UK Manufacturing PMI Output Index, at 49.1 (52.9 in June) was at a 40-month low.

Markit report that output and new orders fell in both the manufacturing and service sectors during July and that a number of firms had linked this ‘to ongoing uncertainty pre- and post-EU referendum, with reports especially prevalent among service providers. The downturn in the services sector was also more marked than in manufacturing. In the manufacturing sector, output and new orders both fell for the first time since the first quarter of 2013. However, Markit report that new export business rose for the second month in a row and to the greatest extent for almost two years; this was principally linked to the sharp drop in the sterling’s exchange rate. The converse of the exchange rate effect was a steep rise in manufacturers’ input prices, mainly due to higher import costs with the rate of purchase price inflation hitting a five-year record, with the extent of the acceleration among the steepest recorded in the survey’s history. Compounders with heavy exposure to imported raw material costs will have been all too aware of the exchange rate effect.

Chris Williamson, Chief Economist at survey compiler Markit, noted that July had seen ‘a dramatic deterioration’ in the economy, with business activity slumping at the fastest rate since the height of the global financial crisis in early 2009. He added that the most promising feature of the survey was that manufacturing export growth had improved to its best level in two years as the weak pound helped drive exports although producers had also suffered from the effects of sterling’s weakness manifesting itself in rising import prices. Williamson concluded by saying that the survey was ‘signalling a 0.4 per cent contraction of the economy in the third quarter’, although much depended on whether the UK saw a further deterioration in August or if July represented what he described as a ‘shock-induced nadir’.

Carrs Billington Agriculture Swoops

Carrs Billington Agriculture (Sales) has reported its purchase, with effect from 1 June 2016, of 100 per cent of the share capital of Phoenix Feeds Ltd. The latter company was first incorporated in April 1992. The purchase price was not disclosed.

The business provides dairy feed and technical nutrition advice to farmers from its base in Blackburn in Lancashire. Being a small company, no detailed accounts are available from Companies House but, as of 30 June 2015, the company’s net assets amounted to £452,858, up from £433,703 or by 4.4 per cent compared with a year earlier.

Carrs Billington Agriculture (Sales) reported turnover of £246.97 million in the twelve months ending 29 August 2015, compared to £269.56 million in the previous twelve months. Pre-tax profits on ordinary activities were £4.28 million, compared with the previous year’s £3.73 million.

Quality Concerns

Recent European wheat prices have been on a roll, with Paris markets adjusting expectation to line up with the increasing evidence that French wheat suffered ‘serious damage’ from heavy rains across much of that country's major wheat growing regions. And, in the UK, recent articles in Farmers Weekly say that quality issues are starting to emerge with regard to the 2016 harvest.

Farmers Weekly report that, as more winter barley crops are harvested across southern England and Ireland, low grain quality is causing concern. While barley crops in the East are showing reasonable yields and quality, early harvests further west and also some in the South are seeing yields and quality down on recent seasons. Growers are blaming a lack of sunshine during the spring and summer for the pinched grains coming of the combines which are reflected in some low specific weights. Winter barley crops in Dorset and Kent in particular have reportedly suffered from the wet weather in June. England as a whole had 163 per cent of its ‘normal’ rainfall in June while sunshine was in short supply, averaging in England only 73 per cent of normal – ‘normal’ being defined as the average rainfall or sunshine for the years 1981 – 2010.

Meanwhile, growers in Cambridgeshire and Lincolnshire have reported heavy crop losses after what was described as a ‘violent’ hail storm ripped through central England on 20 July. Farmers Weekly reported that, in the south of Lincolnshire, hail had battered wheat crops at one farm, stripping the grain from the heads.

The combines have also started moving into oilseed rape and here, too, weather took a hand with oilseed rape crops in the Huntingdon area of Cambridgeshire taking a hammering from the unpredicted storm, shattering up to half the pods and putting an abrupt end to the harvest. One report claimed that the sudden change of weather ‘was very localised’ with 30 mm of rain falling in about a quarter of an hour.

However, there is little sign of severe weather effects having any great effect on world wheat prices, although this might be expected as we move towards the completion of the northern hemisphere harvest. The International Grains Council’s wheat sub-index closed out the third week of July at 156.75 compared with 162.44 a week earlier. (Index form January 2000 = 100) Soft Red Winter wheat FOB Gulf moved up to $179, a daily increase of $2 but only $2 above its 52-week low. There was also a slight further firming of French Grade 1 wheat at Rouen; here the data suggests that a weather effect may, in fact, be making itself felt in that prices have risen by more than $10 a tonne since the beginning of July.

18th July 2016

USDA July Production Supply & Distribution

The United States Department of Agriculture has recently updated its Production, Supply and Distribution (PSD) estimates for wheat, maize and soybeans for 2016-17.

USDA has boosted its projection of world wheat production in 2016-17 by 7.68 million tonnes or 1.1 per cent to 738.51 million tonnes; this would represent a new record. The increase reflects increased production in a number of countries. The Russian and Ukrainian harvests are boosted by a million tonnes compared to USDA’s June projection while the Argentine, Australian and Canadian harvest are each increased by 500,000 tonnes.

The largest increase, however, is attributable to the US where USDA has increased its estimate by 5 million tonnes or 88 per cent to 61.53 million tonnes. This reflects newly released area, yield, and production forecasts for winter wheat, durum, other spring wheat, barley, and oats by the National Agricultural Statistics Service (NASS). In the US, harvesting of the Hard Red Winter wheat crop is nearing completion with record yields reported.

In contrast, USDA has reduced the EU wheat projection by a million tonnes or 0.6 per cent to 156.5 million tonnes.

For maize, USDA has cut its projection of the worldwide maize harvest in 2016-17 by just over a million tonnes or 0.1 per cent to 1,010.74 million tonnes; were this to be achieved, it would represent the second largest maize crop on record, exceeded only by the 2014-15 harvest. This marginal reduction reflects reductions for Brazil, Canada, and EU which more than offsets a larger than expected crop for the United States. US maize production is projected higher on the larger planted area from the NASS Acreage report. However, end-of-season stocks relative to consumption remain high in historic terms, representing 76 Days Consumption Equivalent, compared with a ten-year average of 65 DCE.

USDA have increased their projection of world soybean production in 2016-17 by 2.25 million tonnes or 0.7 per cent, the bulk of which is attributable to increased US production, up by 2.18 million tonnes or 2.1 per cent on USDA’s June estimate. Canadian production is also up by 200,000 tonnes or 3.3 per cent. A 125,000 in production by other producers is reportedly due to lower Ukrainian production.

USDA are projecting end-of-season soybean stocks at 67.1 million tonnes, equivalent to 23 per cent of the projected soybean crush in 2016-17. This is slightly lower than the ten-year average and could indicate the prospect of firmer prices in 2016-17.

Economic Catch-up

The pound jumped nearly two per cent against the dollar after the Bank of England failed to cut UK interest rates, despite widespread speculation that it would move to calm fears over the impact of Brexit. The decision came as a shock; markets had put the chances of the MPC cutting rates at 80 per cent in the lead-up to the decision, thanks to volatility on markets across the globe in the wake of the EU referendum.

The pound rose 1.76 per cent against the dollar, at $1.3378, after it emerged the Bank's Monetary Policy Committee (MPC) had voted eight to one in favour of maintaining rates at 0.5 per cent. The single dissent came from MPC member, Gertjan Vlieghe, who voted to reduce Bank Rate to 0.25 per cent. Sterling rose 1.35 per cent against the euro, to €1.2014.

Meanwhile, the closely watched Markit/CIPS survey saw the UK construction sector experience its worst month for seven years in June. Tim Moore, Senior Economist at Markit, noting that construction firms were at ‘the sharp end of domestic economic uncertainty and jolts to investor sentiment’, said that trading conditions were always going to be challenging in the run-up to the EU referendum. However, he added that the extent and speed of the downturn in the face of political and economic uncertainty was ‘a clear warning flag’ for the wider economic outlook post-Brexit. Chris Williamson, Chief Economist at Markit, said that the PMI surveys indicated that the pace of UK economic growth had slowed to just 0.2 per cent in the second quarter of 2016 compared with 0.4 per cent in the first quarter, with a further loss of momentum in June as Brexit anxiety intensified. He said that a ‘further slowing, and possible contraction, looks highly likely in coming months as a result of the uncertainty created by the EU referendum’. Williamson noted that, with the June PMI data having already fallen into territory that would normally be associated with the Bank of England cutting interest rates, it was ‘unlikely’ that policymakers would wait for more data before ‘unleashing additional monetary stimulus’ – a clear hint that more policy action, in the shape of interest rate cuts or quantitative easing, was likely in the coming weeks.

New DEFRA Secretary

Andrea Leadsom has been appointed the new UK Secretary of State for DEFRA, replacing Liz Truss who has moved to Justice. She will thus be the guiding light during the process of developing a British Agricultural Policy.

She is reportedly in favour of lifting the fox hunting ban and, in the past, has spoken in favour of abolishing all EU subsidies to farmers. During the leadership campaign, Leadsom said cash for farmers should continue ‘in the short term whilst we think about what makes sense’, an off-the-cuff remark which may cause concern in the agricultural industry, given its reliance on subsidies.

12th July 2016

May 2016 Catch-up

DEFRA has recently published data relating to production of compounds, concentrates and blends in Great Britain during May 2016. Total production during May amounted to 827,300 tonnes, 31,500 tonnes or 4 per cent more than in May 2015.

Total production of feeds for cattle and calves in May 2016 amounted to 282,400 tonnes, 10,700 tonnes or 3.7 per cent less than in the corresponding month of 2015. It was also at a five-year low for the month under review.

This bore renewed testimony to the cash flow difficulties being experienced by many dairy farmers. At 147,000 tonnes during the month, production of compounds for dairy cows were 11,300 tonnes or 7.1 per cent lower than during May 2015. There was also a fall, albeit much smaller, in production of dairy blends.

Production of feeds for calves, at 12,000 tonnes was down by 2,600 tonnes or 7.8 per cent compared with the corresponding month a year earlier. There were very small increases year-on-year of feeds for non-dairy cattle.

Production of feeds for pigs, at 140,300 tonnes, was 6,900 tonnes or 4.7 per cent less than in May 2015. By far the largest contributor was pig grower feeds which, at 25,500 tonnes, were down by 6,700 tonnes or 20.8 per cent. There was also a 1,800 tonne or 5.2 per cent fall in output of breeding feeds for pigs. Conversely, there were small increases in output of link and early grower feeds and finishing feeds.

Total production of poultry feeds during May 2015 amounted to 310,600 tonnes, 44,700 tonnes or 16.8 per cent more than that reported in May 2015. It will be recalled, however that, in August 2015, DEFRA started adding retail sales of poultry feed manufactured by integrated poultry producers to the total poultry feed production data for Great Britain; the data for May 2016 and 2015 are, therefore, not directly comparable.

The effects of this development are clearly shown in that production of broiler feeds in May 2016 amounted to 147,800 tonnes, 30,400 tonnes or 25.9 per cent more than in May 2015. Another sub-sector affected by the change in data reporting is layer feeds. At 89,400 tonnes in May 2016, production of these feeds was 7,400 tonnes or 9 per cent more than in the equivalent month in 2015.

There were very small increases in the production of other poultry feeds with the exception of feeds for turkeys which, at 8,500 tonnes were down by a thousand tonnes or 10.5 per cent.

Production of feeds for sheep and lambs in May 2016 amounted to 51,200 tonnes, an increase of 3,900 tonnes or 8.2 per end over May 2015. By far the largest proportion of this increase came from increased production of compounds for growing and finishing sheep; at 33,100 tones, these were 6,300 tonnes or 23.5 per cent ahead of production in May 2015. There was also an increases, albeit much smaller in volume terms, in production of blends for growing and finishing sheep.

Conversely, there was a decline in the production of compounds and blends for breeding sheep. Both saw 1,500 tonne falls in output volume in May compared with a year earlier but the decline amounted to 11.5 per cent for compounds and a massive 53.6 per cent for blends.

There was a small increase in the production of horse feeds in May 2016 compared to a year earlier but, unusually, production of miscellaneous feeds in May 2016 was identical to production in the same month a year previously.

Cumulative production of compounds, blends and concentrates during the first five months of 2016 amounted to 4.73 million tonnes, 185,400 tonnes or 4.1 per cent more than in the equivalent months of 2015. It should be borne in mind, however, that production of poultry feeds during the period in question was 239,200 tonnes or 18 per cent more than a year earlier; this presumably reflects the statistical change made in DEFRA’s reporting arrangements.  Production of cattle and calf feeds was lower than in the equivalent period of 2015 with by far the bulk of the decline accounted for by declining production of compounds and blends for dairy cattle, while production of pig feeds was slightly higher. Production of feeds for sheep and lambs, at a cumulative output of 511,500 tonnes, was 19,500 tonnes or 4 per cent ahead of the first five months of 2015 with compounds for growing and finishing animals contributing the bulk of the increase.

Production of compounds, concentrates and blends in Northern Ireland was scheduled to be updated on 8th July for this will feature in the next issue of this e-letter. Also featured will be USDA’s latest update of their Production, Supply and Distribution (PSD) projections for grains and oilseeds for 2016-17.

Monetary Policy Committee Meets

The MPC has its next scheduled meeting on Thursday 14 July, amidst speculation that it could cut the current interest rate from its long standing 0.5 per cent to 0.25 per cent, 0.1 per cent or, even, to zero although the latter is reportedly not a solution favoured by Governor Mark Carney.

It is also reported that many City analysts expect Quantitative Easing – or printing new money – to be restarted in August. The measures are part of the Bank of England’s attempts to mitigate the economic effects of the Brexit vote.

Further Brexit Fall Out

At present under EU rules, certain foods are assigned the status of either PDO (Protected Designation of Origin) or PGI (Protected Geographical Indication). When something has PGI status, it means it must be manufactured in a certain place.

Certain well-informed sources report that the decision of the UK electorate to leave the EU, could place an important constituent of the Cornish diet in danger. The Cornish pasty has PGI status, which means that Cornish pasties must be made in Cornwall and manufactured according to a specific recipe.

 The Truro-based Cornish Pasty Association – yes, there really is such a body – is seeking clarification from the Government about what may happen, following the Brexit vote, raising the prospect that the loss of PGI status under EU regulations could mean that Cornish pasties could be manufactured ‘anywhere and anyhow’. The loss of PGI status would also affect a variety of meat products and cheeses.

30th June 2016

Brexit Fall-Out

There has been some recovery from the immediate impact of the Brexit vote on the sterling exchange rate, to around $1.35. However, this must be considered against a background that saw the pound fall from $1.50 to $1.37 on Friday, the day following the referendum, more over the weekend, and then from $1.34 to $1.32 on Monday. On Tuesday morning, it firmed slightly, rising from $1.32 to $1.33 in early trading and continued its small climb to stand close to $1.35 at the time of writing on Thursday.

Clearly, the fall in the value of sterling on foreign exchanges is going to have significant implications for raw material buyers, particularly as regards the cost of protein. Another aspect which will be of interest to Finance Directors will be the likely direction of interest rates. The next meeting of the Committee is scheduled for 14 July and presents an interesting prospect. On the one hand, the depreciation of sterling is likely to increase inflationary pressures. On the other hand, the Bank of England may come under pressure to stimulate the economy in the wake of any downturn following the Brexit vote. Some forecasters have suggested this could lead to a short-term interest rate cut to support the economy if recession hits, others suggest that sterling's fall will trigger higher inflation and thus force the Bank to raise rates longer-term to counter this.

It's also been reported that the Bank of England has injected £3.1 billion into British banks.

At present, the clever money appears to be not on an interest rate rise anytime soon but a rate cut. The chief UK economist at IHS Global Insight said that they expected the Bank of England to cut interest rates from 0.50 per cent to 0.25 per cent ‘before long’ and it could also very well resuscitate Quantitative Easing. It is clear that HIS Insight think that growth will become the main concern within the Bank of England. The Monetary Policy Committee will be prepared to ‘look through any near-term spike in inflation from a weakened pound, taking the view that the weakened growth outlook means it will be harder to hit the 2 per cent inflation target in two years' time.

As regards US interest rates, following the Federal Reserve’s decision not to raise interest rates at their June meeting, the market betting is just 7.7 per cent on a further interest rate rise before the end of 2016 – and a 22.7 per cent on a cut at the Federal Reserve’s September or November meeting.

It should be noted that, following the July 2016 meeting, the MPC will move to an eight meetings a year schedule.

Wynnstay Group Reports Half-year

The Wynnstay Group has reported its half-year results for the six months ending 30 April 2016.

Chief executive Ken Greetham, commenting on the results said that the Group was pleased to deliver results, which he described as ‘robust’ and very much in line with management expectations. However, he noted that these results had been achieved despite what he described as ‘a particularly challenging backdrop of poor output prices for farmers, which has affected the entire industry’. Nevertheless, the results had been underpinned by the Group's broad spread of activities across both the arable and feed sectors.

As regards Wynnstay’s agricultural activities, Wynnstay note that output prices for farmers remain below the realistic cost of production and that this was particularly evident in the dairy sector and has resulted in a UK-wide reduction in demand for feed products. The challenges faced by customers supplying the dairy market resulted in a reduction in demand for compound and blended feeds, although this was partly offset by an increase for sheep feeds. Reflecting the national trend, overall feed volumes were lower than the comparable period in 2015, which was strong, but outperformed the 2014 season. Pressure on margins during the period was partly offset by efficiency gains and a reduction in third-party manufacture. The Group continues to invest in its feed mills and plans are underway for a state-of-the-art packaging facility which will support distribution to its expanding network of retail stores.

Wynnstay reported that, as regards their subsidiary, Glasson Grain, sales of fertiliser gained momentum in the second quarter and the volume of both traded raw materials for feed and of specialist products had been ‘buoyant’. However, as anticipated, overall pressure on margins had reduced the contribution from the Glasson business compared to last year's strong performance.

Regarding arable products,

After a relatively slow start, demand for arable products was higher in the spring and the resultant spot market very active. Strong cereal and herbage seed sales helped drive total arable product volumes and sales above last year's level, although a late spring delayed demand for agrochemicals. Direct-to-farm fertiliser sales were also very strong in the second quarter, resulting in higher volumes in the first half year-on-year.

The large 2015 harvest contributed to an increase in the volume of cereals marketed through Wynnstay’s grain marketing businesses. In that there is still a significant volume of grain on farms, along with the anticipated 2016 harvest, significant opportunities are created for trading into the next financial year.

UK FEFAC Status

A possibly mischievous inquiry from a reader – what will be the status of the UK feed industry as regards participation in FEFAC activities after the UK’s departure from the EU?

Currently, FEFAC membership today consists of 25 national associations in 24 EU Member States as full members, as well as Associations in Switzerland, Turkey, Norway, Serbia and Russia with observer or associate member status. Does the Brexit vote mean that the UK will be relegated to observer or associate status, once Brexit is complete?

10th June 2016

Great Britain Reports April Feed Output

When looking at the data for April 2016 it should, as DEFRA emphasise, be noted that April 2016 is a five-week reporting period. Therefore, direct comparisons with April 2015 and earlier years ‘should not be made as these were four-week reporting periods’.

Taking the first four months of 2016, total production of compounds, blends and concentrates, at 3.9 million tonnes, was 157,000 tonnes or 4.2 per cent higher than in the same period of 2015. It was also the highest total recorded for the period in question since the data was first published in its current form in 1992 although, as will be discussed, this reflects a significant extraneous factor, apart from the five-week reporting period for April 2016.

The continuing recovery from the after-effects of the winter weather that characterised much of 2012 and 2013 is evident in the data for cattle and calf feed production which, at 1.38 million tonnes during the four months in question, was 79,800 tonnes or 5.5 per cent less than in the equivalent period of 2015. However, it also reflects the currently low prices for milk being experienced by dairy farmers. Production of dairy compounds and dairy blends during the period was, respectively, 44,600 tonnes or 6.4 per cent and 26,900 tonnes or 8.6 per cent less than in the same period of 2015. In contrast, there was a slight increase in compounds for non-dairy cattle although there was a near-ten per cent decline in the output of non-dairy blends during the period in question.

Production of feeds for pigs showed a 15,500 tonne or 2.6 per cent increase on the equivalent period of 2015. The reflected a very large increase in link and early grower feeds and in finishing feeds in both quantitative and relative terms. The latter increased by 11,900 tonnes or 4.1 per cent to its highest level in seventeen years.

Production of feeds for poultry, at 1.26 million tonnes, was 197,600 tonnes or 18.7 per cent higher than during the first four months of 2015 but this reflects the DEFRA survey whereby a number of integrated poultry producers have sold feed into the retail market. It is unlikely that this situation will unwind until August this year, a less-than-satisfactory situation. Predictably, the largest contributor to the increase was broiler feed.

Production of feeds for sheep, at 460,300 tonnes, was higher by 15,600 tonnes or 3.5 per cent than in the first four months of 2015 with the largest contribution being made by growing and finishing compounds.

As regards ‘other compounds, blends and concentrates’, thought largely to consist of feeds for fish, at 114,700 tonnes, this category was at its highest recorded level since records started to be kept in their present form.

May Weather Roundup

After an April which was characterised by mean temperatures across the UK of 0.9 °C below ‘normal’ - as defined by the average of the years 1981–2010, May offered some compensation in that, across the UK as a whole, temperatures averaged 0.9 °C above normal.

Wales in particular benefitted with average temperatures 1.2 °C to the good while temperatures in Scotland and Northern Ireland were each a degree above normal. However, Wales was modestly wetter than normal with 103 per cent of its usual May precipitation, although the rest of the UK saw rainfall at around 90 per cent of normal; Northern Ireland was especially dry.

It was sunnier than usual right across the UK with the country as a whole recording 115 per cent of normal; Scotland and Northern Ireland were particular beneficiaries with the latter having a fifth more sunshine than its usual quota during the month in question.  

Interest Rate Debate

Following the Monetary Policy Committee’s unanimous decision to hold UK Base Rate at 0.5 per cent, the markets’ attention turned to Washington where there was much speculation as to whether the anticipated June increase in the Federal Funds rate would actually take place.

In particular, financial markets were concerned by some unexpectedly unspectacular US employment data where the number of jobs created was at its lowest since 2010.  Federal Reserve Chair Janet Yellen, speaking in Philadelphia, gave a largely upbeat assessment of the US economic outlook and said that interest rate increases were on the way. However, in an omission that stood out to some investors, according to one source she ‘gave little sense of when’, backtracking on earlier statements that suggested that the FOMC was set further to tighten monetary policy at its June meeting.

International Grains Council

The International Grains Council has recently updated its Grain Market Report.

Following revisions for both wheat and maize, the projection for total world grains output (wheat and coarse grains) in 2016-17 has been increased by 10 million tonnes and, at 2,015 million tonnes, is up by 1 per cent on the 2015-16 harvest. If achieved, this would constitute the second biggest harvest on record.

Wheat prospects have been upgraded for the EU, the US and Russia. Maize figures are raised for the US and Argentina, but lowered for China and parts of sub-Saharan Africa, the latter reflecting the widespread drought in South Africa and neighbouring countries. IGC’s projection for global grains consumption has also been increased by 10 million tonnes to 2,009 million tonnes, up by 1 per cent compared with 2015-16; total consumption is thus expected broadly to match the record established in 2014-15. Following increases for feed and industrial uses, consumption of maize is seen as exceeding a billion tonnes for the first time.

Taking into account the increase in projected opening stocks, world 2016-17 end-of-season carryover is boosted by 2 million tonnes to a new peak of 474 million tonnes, with China likely to account for more than 40 per cent of the total. IGC has upgraded its trade forecast by 3 million tonnes to 318 million tonnes with shipments of maize now expected to be close to the record high projected for 2015-16.

26th May 2016

Compound Feed Prices

DEFRA have recently published their estimates of compound feed prices during the first quarter of 2016. Cattle and calf feed prices averaged £201 a tonne with feeds for sheep and lambs at £200. Compounds for pigs averaged £209 while average poultry prices stood at £219.

Probably the fairest way to set these prices in context is to compare then with prices in the equivalent quarter of 2015. In the first quarter of 2015, prices were, respectively, £215 and £209 while for monogastric rations, they were £237 and £242. Compared to prices twelve months earlier, prices in the first quarter of 2016 were, respectively, down by £14 and £9 for cattle and calves and for sheep and lambs, while prices for monogastric feeds were down by £28 and £23. The greater reductions in the price of monogastric rations reflects the higher protein contents characteristic of the latter and the increased cost of the feed ingredients required to deliver the appropriate protein content.

It is possible to set the decline in the cost of the compound feeds referred to above against a very crude measure of feed ingredient costs, namely the International Grains Council’s Grain and Oilseeds Index (GOI).

It we take the crude data generated and convert it into a quarterly index, then we find that the GOI in the first quarter of 2016 stood at 178.69 (2000=100) compared with 210.69 in the equivalent quarter of 2015. In the first quarter of 2016, the IGC sub-index stood at 162.65, compared to 205.00 in the first quarter of 2015, suggestive of a decline in feed material prices of the order of 15 per cent. Maize stood at 172.69 in the first quarter of 2016 compare with 185.69 a year earlier while soybeans stood at 190.69, down from 204.77 a year earlier.

It is instructive to remind ourselves of how far feed ingredient prices originally soared in the currently unwinding market.

In the first six months of 2013, cattle and calf prices reached £253 a tonne, a quarter higher than in the first quarter of 2016. In the third quarter of 2013, prices for feeds for sheep reached £258, 29 per cent higher than currently. Prices for pig compounds reached £291 in the first quarter of 2013 while, in the second quarter of the year, compounds for poultry reached £311. The year 2013 was, indeed, the ‘crunch’ year

Compare these prices with £126 paid for cattle and calf feeds in the second quarter of 2006 and, in the first quarter of 2006, £124 paid for sheep feeds along with £148 and £139 respectively for pig and poultry feeds.

Interest Rate Prospects

Latest scuttlebutt as regards interest rate prospects appears to be firming on a US rate rise at the June meeting of the Federal Open Market Committee, the body that sets the US Federal Funds rate. Some commentators continue to urge caution, however, saying that ‘a number of economic hurdles’ lay in the way of another rise.

The minutes from the April rate-setting meeting showed that most policymakers believed a rise would be ‘appropriate’ at the June meeting if the economic data and job market conditions continued to strengthen as inflation heads towards the 2 per cent target. A number of participants, however, also said they were concerned that the economic signals might not ‘be clear enough’ by the time of the meeting scheduled for 14 to 15 June. Amongst the overseas risks which could weigh against a rate rise was the UK referendum on its EU membership of the EU, with the potential to cause ‘market jitters’ in the run-up to the vote on 23 June.

There was some speculation that the markets regarded the 12th December rate rise as tending on the premature, against the background of concerns about Chinese growth and the low level of expectation about US inflation. It is understood that these concerns have eased. Overall it looks, barring the unexpected, that the FOMC will raise rates next month – according to economists the first of two likely rate rises in 2016.

There is, obviously, no automatic link between US and UK interest rates but the widespread expectation is that the Bank of England will be the next central bank after the US to raise rates on the grounds that the UK’s economic recovery is well ‘on track, with solid growth and a strong labour market.’ However, as regards the first UK rate rise, according to the markets, this is unlikely until early in 2017.

24th May 2016

Northern Ireland First Quarter Catch-Up

During the first three months of 2016, feed manufacturers in Northern Ireland produced a total of 604,800 tonnes of compounds, blends and concentrates, 20,300 tonnes or 3.2 per cent less than in the corresponding three-month period of 2015.

Production of cattle and calf feeds, at 320,000 tonnes during the three months in question, was 16,000 tonnes less than in the first quarter of 2015, down by 4.8 per cent. Within the category, the largest fall was in coarse mixes and blends for dairy cattle; at 64,200 tonnes, these were down by 14,100 tonnes or 18 per cent on the equivalent period of 2015. Coarse mixes and blends for beef cattle, at 67,000 tonnes, were 4,700 tonnes or 6.5 per cent less than the corresponding quarter of 2015.

At 50,200 tonnes production of feeds for pigs was just 40 tonnes more than in the equivalent quarter of 2015. This reflected a fall in output of feeds for very young animals – at 3,700 tonnes, production of feeds for pig starters and creeps was down by 600 tonnes or 13.4 per cent while output of link and early grower feeds, at 6,400 tonnes, was down by 300 tonnes or 4.1 per cent. Production of feeds for breeding pigs, at 8,500 tonnes, was down by 300 tonnes or 3.7 per cent. On the other hand, there were increase in output of grower and finishing feeds; the former up by 300 tonnes or 3.2 per cent and the latter up by 1,300 tonnes or 6.4 per cent.

At 184,900 tonnes output of feeds for poultry was 1,800 tonnes or 1 per cent less than in the first three months of 2015. This largely reflected a 6,100 tonnes or 5.5 per cent fall in production of feeds for broilers. However, according to the data, production of feeds for turkeys and other poultry, at 11,400 tonnes, were 9,000 tonnes or 11.4 per cent ahead of the first quarter of 2015.

Production of feeds for sheep and lambs, at 28,100 tonnes, was two thousand tonnes or 6.5 per cent less than in the first quarter of 2015. In volume terms, this largely reflected a 2,000 tonne or 23.4 per cent fall in output of coarse mixes and blends for sheep. Production of various lightly processed materials during the first quarter of 2016 was 1,000 tonnes or 4.5 per cent less that during the first quarter of 2015

It doesn’t look, on current appearances, that production of compounds, blends and concentrates in Northern Ireland during 2016 is set to break any records. On the basis of the first three months of 2016, production is ranked as fourth highest in Northern Ireland since 1996, the year when records started to be kept in their present form.

10th May 2016

Great Britain First Quarter Catch-up

Production of compounds, concentrates and blends in Great Britain during March 2016, at 1,108,700 tonnes, was at its highest for the month in question since records were first kept in their present form in 1992.

Feeds for cattle and calves, at 389,200 tonnes in March, was 31,100 tonnes or 7.4 per cent down on March 2015. In quantitative and proportionate terms, the greatest falls took place in production of dairy compounds and blends, with the former down by 16,200 tonnes or 8.2 per cent on the equivalent month in 2015 and the latter down by 9,800 tonnes or 10.9 per cent. Output of non-dairy blends, at 32,200 tonnes, was down by 4,300 tonnes or 11.8 per cent. The only sub-sector to show any growth was protein concentrates for cattle and calves, up by 1,400 compared with tonnes or 17.5 per cent; this may reflect an increased degree of home-mixing, itself driven by low milk prices and the unseasonably cold weather that characterised April, of which more later.

Output of feeds for pigs in March, at 167,500 tonnes, was up by 3,100 tonnes or 1.9 per cent on March 2015 and was at a fifteen-year high. The major growth area was in link/early grower feeds, at 13,900 tonnes up by 6,000 tonnes or 75.9 per cent; this was by some distance, the highest volume of these feeds since the sub-category was introduced in 1999. Output of grower feeds, at 30,300 tonnes, was down by 2,400 tonnes or 7.3 per cent; there was also a slight drop in the output of breeding rations and a slight increase in finishing feeds.

The data on poultry feeds are problematic as concerns comparisons. DEFRA has reviewed some Integrated Poultry Units which produce feed both for their own use and for retail sale. DEFRA has therefore ‘adjusted’ the data from August 2015 which has resulted in an increase in compound poultry feed production and a decrease in output by Integrated Poultry Units. As far as the data currently goes, output of 348,300 tonnes in March 2016 was ahead of the current figure for March 2015 by 50,800 tonnes or 17.1 per cent with the bulk of the increase, as expected, being attributed to increased production of broiler feed; at 182,100 tonnes, being 41,400 tonnes or 29.4 per cent ahead of the equivalent month in 2015. There were smaller increases in other poultry feed categories of which the most significant was increased production of feeds for laying hens; at 99,800 tonnes, 7,700 tonnes or 8.4 per cent ahead of March 2015.

There was a small decline in output of feeds for sheep and lambs compared to March 2015 which, however, masked a sharp fall in output of compounds and blends for breeding sheep down, respectively by 10,900 tonnes or 10.3 per cent and 1,500 tonnes or 22.1 per cent. In contrast, output of compounds for growing and finishing animals rose by 10,800 tonnes or 28 per cent.

There was a small fall in output of feeds for horses and a small increase in other feeds, up by 1,300 tonnes or 4.8 per cent on year earlier levels.

Total production of feeds during the first quarter of 2016 thus amounted to just short of 2.9 million tonnes, 22,800 tonnes or 0.8 per cent more than in the corresponding period of 2015 and the highest output for the period in question for twenty years. Production of cattle and calf feeds, on the other hand, at 1.05 million tonnes, was 82,700 tonnes or 7.3 per cent down on the corresponding quarter of 2015 with declines across the sub-sector with the exception of protein concentrates. The declines were especially marked in the case of dairy compounds and blends, although there was also a significant fall in output of non-dairy blends.

At 459,400 tonnes, output of feeds for pigs was 3,400 tonnes or 0.7 per cent up on the first quarter of 2015, largely due to an expansion in the output of link and early grower feeds. Production of feeds for sheep and lambs fell by 11,500 tonnes or 3.2 per cent to 345,600 tonnes, largely reflecting reduced output of feeds for breeding stock although output of compounds for growing and finishing animals increased by 16,800 tonnes or 16.4 per cent compared with the first three months of 2015.

Production of broiler feed during the first quarter of 2016, at 913,800 tonnes, was 116,500 tonnes or 14.6 per cent up on the equivalent quarter of 2015. However, the increase in feed production during the first quarter is largely attributable to a sharp rise in output of, principally, broiler feeds for reasons that have already been outlined. It seems unlikely that any basis for genuine comparison will be reached before August this year, making it twelve months since retail sales by integrated producers started to be included in the compound feed production database.

Weather Report

Having detailed the remarkable weather conditions that characterised the UK’s weather in January and, to a lesser extent, February this year, it is only fair to say that, as far as April was concerned, good riddance.

As it happens, the spring chill set in during March. Following January, when average UK temperatures were 0.9°C above normal, with England and Wales basking in average temperatures during the month of 1.1°C and 1.3°C above normal – as defined by the average of 1981-2010 – average UK temperatures were 0.9° below normal during April, with Scotland and Northern Ireland taking the worst hit – down respectively by 1°C and 1.3°C. This is not likely to have encouraged early grass growth.

At the time of writing, there had been a welcome change for the better as far as May was concerned; we shall see if the improvement is maintained.

Economic Round-up

After the 0.4 per cent increase in the Preliminary Estimate of Gross Domestic Production during the first three months of 2016, compared to the preceding quarter of 0.6 per cent, there are signs that the current quarter could see a further and, perhaps, sharper decline.

Markit’s Chief Economist noted that the slowdown in the service sector followed similar weakness in manufacturing and construction, making what he called a ‘triple-whammy’ of disappointing news on the health of the economy at the start of the second quarter. He said that the Markit/PMI surveys collectively indicated ‘a near-stalling’ of economic growth, down from 0.4 per cent in the first quarter to just 0.1 per cent in April. While some of the slowdown might be attributable to the early Easter, April also saw ‘an increase in the number of companies reporting that uncertainty about the EU referendum caused customers to hold back on purchases, exacerbating already-weak demand linked to global growth jitters and government spending cuts.’

As far as interest rates are concerned, there is considerable doubt, following poor economic data, as to when the Federal Reserve will next raise US rates. And there has also been speculation that, if the UK data is poor, the next move in interest rates could be down, rather than up, from the current record low of 0.5 per cent. Albeit that most informed opinion sees little prospect of any rise in UK interest rates until well on into 2017, there are, as yet, unconfirmed reports that the Bank of England has told banks to prepare for a rate cut in the event of a Referendum ‘Leave’ vote.

3rd May 2016

International Grains Council Update

The International Grains Council has just updated its previous Grain Market Report dated 1 April to its current projection dated 28 April.

Total projected world grain production – wheat and coarse grains – in 2016-17 has been increased from IGC’s last estimate of 1,996.7 million tonnes to 2,005.5 million tonnes, an increase of 0.4 per cent. This reflects rises in Canadian, EU and Russian output. IGC’s forecast of Chinese grain output has also been raised in 2016-17 from 351.2 million tonnes to 356.2 million tonnes. Output in the US has been reduced, from 421.5 million tonnes to 420.2 million tonnes.

Global wheat production in 2016-17, at 717.2 million, was 4.2 million tonnes higher than in IGC’s previous estimate. This reflected small increases in the EU and Russia and a rather larger increase in projected Chinese wheat output. IGC made a small reduction in US wheat production. The increase in EU and Russian wheat production is ascribed to ‘beneficial’ weather. IGC has increased its estimate of the 2016-17 maize crop by 5.1 million tonnes to 998.2 million tonnes; this reflects projected increases in a number of countries.

IGC’s projection of global grain consumption is a little higher than its previous estimate and is seen as expanding slightly to a shade under 2,000 million tonnes, second only to consumption of 2,008.7 million tonnes in 2014-15. The world end-of-season stock figure is lifted by 7 million tonnes to 472.1 million tonnes, up by 6.5 million tonnes; this includes a significant build-up of Chinese inventories. Global wheat consumption in 2016-17 has been scaled back slightly with reductions in both India and China; there are also marginal reductions in both EU and US wheat consumption. IGC’s projection of world maize consumption has been increased from the previous estimate of 991.5million tonnes to 995.8 million tonnes. In spite of what IGC call ‘strong demand’, a further build-up of grains end-of-season inventories is envisaged at the end of 2016-17 with those in the major exporters seen as increasing to a seven-year high, while China’s could exceed 200 million tonnes for the first time since 1999-2000.

Overall, a reasonably optimistic picture appears to be evolving for 2016-16 with a strong stock position in the face of any unforeseen developments.

Soybean Prospects

It seems likely that there will be some downgrading of world soybean production in 2015-16; this reflects what IGC describe as ‘challenging’ weather conditions in South America. With this in mind, IGC have reduced their 2016-17 global soybean projection by 1.4 million tonnes to 318.9 million tonnes. With continued growth in world consumption, end-of-season stocks could fall to a three-year low of 31.7 million tonnes compared to IGC’s last estimate of 32.6 million tonnes.

Feed Ingredient Price Developments

The abundant world supply situation moved grains and oilseed prices slightly lower in early April, before rallying strongly later in the month. The rally was driven by sharp gains in soybean and maize prices. IGC’s useful Grains and Oilseeds Index (GOI) rose by 7 per cent since IGC’s last report at the beginning of April. Wheat FOB quotations were mostly firmer with the GOI wheat sub-Index increasing by 2 per cent; this appears to have reflected a significant degree of speculative buying linked to short covering in US futures. The GOI maize sub-Index rallied by 9 per cent with export prices at their highest since July 2015. An additional factor was the activity of speculative funds covering some large net short positions; worries about weather in South also has a bullish effect. Weather worries also pushed soybeans higher while a strong spate of Chinese buying was an additional factor.

The next Grain Market Report is scheduled for 26 May; it will be reported upon in due course.

Economic Update

The consensus that the UK economy was slowing down in the first quarter of 2016 was confirmed with the release of the Preliminary Estimate of Gross Domestic Product during the first quarter of 2016 on 27 April. This showed growth of 0.4 per cent during the first three months of 2016, compared to 0.6 per cent during the last three months of 2015. Taking the main components of GDP, the services sector grew by 0.6 per cent in the first quarter, while construction fell by 0.9 per cent, agriculture by 0.1 per cent and production by 0.4 per cent

Prior to the publication of the Preliminary Estimate of GDP, GDP growth of 0.4 per cent was the consensus view of economists; however, in the run-up to the publication, economists at HSBC were more downbeat, forecasting that the growth rate halved in the first quarter of 2016, to 0.3 per cent. Markit/CIPS reported that their surveys for January through March pointed to GDP growth of 0.4 per cent.

21st April 2016

USDA’s Final Look at 2015-16

The United States Department of Agriculture has published its final assessment of Production, Supply and Distribution of the principal grains and oilseeds during the 2015-16 agricultural season.

In their April projection, USDA raised their estimate of world wheat production to 733.1 million tonnes, an increase of 828,000 tonnes over their March assessment. This reflected, to a very great extent, a 1.5 million tonnes increase to wheat production in the EU. USDA also raised its estimate of world maize production by 2.5 million tonnes, a reflection of improving prospects in South America, notably in Argentina.

USDA’s latest soybean forecast shows a modest 338,000 tonne increase over their March production, largely as a result of a reassessment of prospects in a range of minor producers. The major exporters, the US, Brazil and Argentina, were unchanged from USDA’s last assessment.

Northern Ireland Feed – First Nine Weeks

DARDNI has, finally, published data for feed production in Northern Ireland during February, allowing a comparison to be made between the first two months of 2016 with the equivalent period in 2015.

Total output of 397,900 tonnes was 14,300 tonnes or 3.5 per cent less than in the same period of 2015. Cattle and calf feed production, at 212,200 tonnes during the weeks in question, was 11,600 tonnes or 5.2 per cent less than in the equivalent period of 2015. The only sub-sector not to show a fall in output was compounds for calves where output, at 13,500 tonnes, was 1,200 tonnes or 9.4 per cent higher than in the equivalent period of 2015.

There were small falls in production of compounds for both dairy and beef cows and, interestingly, rather larger falls in production of coarse mixes and blends for both dairy and beef cattle. Production of dairy blends declined by 8,000 tonnes or 15.8 per cent when compared to the equivalent period of 2015 while production of beef cattle blends fell by 4,000 tonnes or 8.1 per cent.

The reasons for this decline in output of beef and dairy coarse mixes or blends are not immediately clear but production of both rations was at its lowest for the weeks in question since DARDNI started to present separate dairy and beef data in 2011. Northern Ireland was warmer than usual in January but only to the extent of 0.8°C; in February, temperatures were lower than normal.

Production of feeds for pigs was slightly higher than in the equivalent period of 2015, up by 500 tonnes or 1.4 per cent with the largest increases in growing and finishing rations. Poultry feed production was slightly lower, largely reflecting lower production of feeds for broilers. Production of feeds for sheep and lambs, perhaps reflecting the warmer weather in January, was 1,700 tonnes or 9.3 per cent less than in the same period of 2015.

DARDNI is expected to produce feed production data for Northern Ireland for March 2016 on 6 May.

Statistical Spat

DEFRA’s latest look at milk prices in the UK has caused an upwelling of statistical discontent.

Average farmgate milk prices in January 2016 had plummeted to a low of 23.09 pence a litre, leaving many dairy farmers in despair wondering how much lower they might go. Accordingly, there was initial rejoicing at February’s provisional figure of 25.57 pence a litre, an increase of 2.57 pence. However, it emerged that the ‘rise’ came about mainly because DEFRA chose to load the whole of Arla’s 2015 annual bonus, worth 0.78p for every litre produced by its members, on to the February 2016 price calculation. In fact, it is understood that most producers saw a price fall for the milk they delivered in February, resulting in producers and industry figures calling on DEFRA to revise its calculation which was variously described as ‘unrepresentative, unfair and unhelpful’. The NFU’s chief dairy adviser Siân Davies said that the figure, even though it might be ‘statistically right’ as ARLA members had indeed received the money with their February milk payment in mid-March, was completely misleading. She added that no price increase had been announced by any UK milk buyer and ‘if that’s the figure going to the EU, it’s not representative of the UK.’

Another commentator responded by pointing out that, at 25.5 pence a litre, the industry did not have a problem. True, some farmers would be losing money ‘but it would not be in the crisis it is in.’ Another dairy analyst, branding the figure as ‘absurd’ said that it could not be allowed to stand – ‘they don’t reflect reality and they are giving the wrong message to consumers’. It was pointed out that, although milk production had slowed down, buyers were still using the threat of the spring flush to pressure farmgate prices.

Economic Round-up

In the week prior to the Monetary Policy Committee’s April meeting on 14th April, the bets were solidly on a nine-nil decision to hold Bank Rate at 0.5 per cent, an outcome that was duly fulfilled.

The Consumer Price Index in the year to March rose by 0.5 per cent, compared to an increase in the year to February of 0.3 per cent. This means inflation is now at its highest level since December 2014; however, it remains below the Bank of England's 2 per cent target.

The preliminary estimate of GDP growth in the first quarter of 2016 is due shortly. Recent Markit/CIPS surveys covering the manufacturing, construction and services sectors have all pointed to a slowdown in UK growth; on average, economists now expect GDP to slow to 0.4 per cent in the first quarter of this year, down from 0.6 per cent in the last quarter of 2015.

11th April 2016

GB Feed Latest

With the publication of data for February 2016, it is now possible to analyse feed production of compounds, blends and concentrates in Great Britain for the first two months of the year. Total production of manufactured feeds, at 1,787,300 tonnes during the period in question, was just 500 tonnes less than in the corresponding period of 2015. In this connection, it should be noted that DEFRA’s latest statistics have been updated with final 2015 data for those smaller companies which are only surveyed annually.

It may also be noted that total production of compounds, blends and concentrates during the period being reviewed was 3.8 per cent higher than the average of the preceding five years.

In contrast with this overall picture of stable production, output of cattle and calf feeds, at 62,900 tonnes, was 50,400 tonnes or 7.1 per cent less than in the corresponding weeks of 2015. The warmer-than-usual weather in January is likely to have played a significant part in this. Temperatures across the UK in January were 0.9 °C warmer than normal, this being defined by the average of the three decades running from 1981 through 2010. England and Wales were also warmer than normal in February although Scotland and Northern Ireland were, respectively, 0.5 °C and 0.3°C cooler. However, England and Wales were cooler than normal in March; it remains to be seen whether this had any effect on demand for feed.

During the first two months of the year dairy feeds, in particular, were hit with output of dairy compounds down by 18,800 tonnes or 5.7 per cent compared to the equivalent period of 2015. Output of dairy blends fell by 15,900 tonnes or 10.4 per cent. There was also a sharp decline in production of non-dairy blends, down by 9,200 tonnes or 14.4 per cent. Output of calf feeds fell by 7,000 tonnes or 19.8 per cent.

There was a very small increase in output of feeds for pigs during the period under review, of just 600 tonnes or 0.2 per cent. In contrast, production of poultry feeds, at 565,900 tonnes, was 66,100 tonnes or 13.2 per cent higher than the volume recorded for the equivalent period of 2015. However, it must be noted that DEFRA have reviewed some Integrated Poultry Units which produce feed both for their own use and for retail sale. As a result of this review, DEFRA have adjusted the poultry feed data from August 2015, resulting in an increase in retail compound poultry feed production and a decrease in poultry feed produced by Integrated Poultry Units.

Predictably, given the warmer weather, there was an overall fall in output of feeds for sheep and lambs, down by 13,500 tonnes or 6.7 per cent compared with the corresponding weeks of 2015. Output of compounds for breeding sheep fell by 17,200 tonnes or 14.8 per cent while production of blends for breeding animals fell by 2,800 tonnes or 26.7 per cent to 7,700 tonnes. In contrast there was a 5,100 tonne increase, equivalent to 8 per cent, in output of compounds for growing and finishing sheep together with a 1,300 tonne increase in output of growing and finishing blends to 9,800 tonnes, equivalent to an increase of 15.3 per cent compared to the same period of 2015.

During the first two months of 2016, there were small declines in output of feeds for horses and in miscellaneous feeds, the latter believed to consist largely of feeds for fish.

DEFRA will publish estimates of compound feed production in March 2016 on 5 May, allowing the analysis to be extended to the first quarter of 2016.

Economic Catch-up

The announcement, that the UK’s Gross Domestic Product had increased during the last quarter of 2015, not by 0.5 per cent, as suggested by the two previous estimates (the Preliminary Estimate and the Second Estimate) but by 0.6 per cent as measured by the Quarterly National Accounts, took not a few people by surprise as there had been widespread speculation that the UK economy was slowing down under the influence of uncertain world economic conditions and the UK’s strong exchange rate.

Household and government consumption supported growth on the quarter, while investment and net trade slowed GDP growth over this period. The household saving ratio continued its recent decline to 3.8 per cent during the final three months of 2015, lower than during the economic downturn. This reflected stronger growth in aggregate household consumption than in incomes; in other words, UK households are saving less.

Chris Williamson, Chief Economist at Markit, which compiles the Markit/CIPS surveys commented that the upturn in the pace of service sector growth in March had been ‘insufficient’ to prevent the Purchasing Managers Index (PMI) surveys from ‘collectively indicating a slowdown in economic growth in the first quarter’, adding that the surveys pointed to a 0.4 per cent increase in GDP during the first quarter of 2016, down from 0.6 per cent in the final quarter of 2015. Williamson concluded that ‘with the PMI already in territory traditionally associated with the Bank of England choosing to loosen policy, interest rate hikes seem a long way off.’

A very recent announcement by the Office of National Statistics reports that total production output is in the UK is estimated to have decreased by 0.5 per cent in February 2016 compared with the same month a year ago, the largest fall since August 2013. The largest contribution to the fall came from manufacturing, which decreased by 1.8 per cent.

4th April 2016

First IGC Look at 2016-17

The International Grains Council has just divulged its first thoughts on supply and demand prospects for 2016-17, the oncoming agricultural marketing year.

IGC report that the world will see ‘another season of ample grain availabilities’ next season, despite forecasting a decline in production; however, the decline was not enough to force a fall in what IGC described as ‘heavy’ global stocks.

IGC estimates the world grain harvest in 2016-17 at 1.997 billion tonnes; this takes it back to below 2 billion tonnes for the first time in four years. Global production of that order, down by a modest 9 million tonnes year-on-year, would remain in line with consumption. This would indicate that global end-of-season grain inventories, which were forecast closing out the 2015-16 at a 29-year high of 465 million tonnes, would ‘probably remain at elevated levels’ according to IGC.

The production forecast included a first estimate for world maize output of 993 million tonnes, representing a rise of 21 million tonnes year-on-year. This total is the third largest harvest on record and, if realised, would be sufficient to lift world end-of-season stocks during 2016-17 by a further 2 million to their highest level for many years.

IGC has upgraded its previous estimate by 2m tonnes, taking it to 713 million tonnes, a drop of 21 million tonnes year-on-year; however, this figure is only marginally behind consumption, resulting in only a small reduction in world end-of-season over the season. IGC also noted that it was expecting a decline in sowings of barley and sorghum, arising from what it described as ‘slowing demand’ for these grains from China. This was the result of planned domestic policy changes aimed at increasing demand for maize and running down that country's huge maize stocks.

IGC reports that initial projections for soybeans in 2016-17 point to a marginally smaller world outturn, albeit still much larger than the prior five-year average. After likely reaching a high in the previous season, end-of-season stocks could fall in 2016-17 following declining production by major exporters although remaining at what IGC describe as ‘comfortable’ levels.

All-in-all, IGC note that preliminary projections for 2016-17 point to another season of what they describe as ‘ample global grains availabilities’. Although a small drop in production is assumed, with a recovery in the maize harvest outweighed by declines for wheat, barley and sorghum, large opening stocks will keep overall supplies at record levels While consumption is seen as staying strong, end-of-season stocks could match the 29-year high reported in 2015-16.

US Prospective Planting Prospects

Data released by the US National Agricultural Statistics Service (NASS), Agricultural Statistics Board shows maize planted area for all purposes in 2016 at an estimated 93.6 million acres, up 6 per cent from last year. If realized, this would represent the highest planted acreage in the US since 2013, and the third highest planted acreage in the United States since 1944.

The area planted to soybeans for 2016 is estimated at 82.2 million acres, down by less than 1 per cent from last year’s total. Compared with last year, planted acreage intentions are down or unchanged in twenty-three of the thirty-one estimating States.

Wheat appears to have taken the heaviest hit. The all wheat planted area for 2016 is estimated at 49.6 million acres, down 9 per cent from 2015. The 2016 winter wheat planted area, at 36.2 million acres, is down 8 per cent from last year and down 1 per cent from the previous estimate. Of this total, about 26.2 million acres are Hard Red Winter, 6.60 million acres are Soft Red Winter, and 3.37 million acres are White Winter.

UK GDP Update

The most up-to-date estimate of the UK’s Gross Domestic Product (GDP) in the final quarter of 2015, the Quarterly National Accounts for the three months in question, has recently been released by the Office of National Statistics. It shows that, in volume terms, GDP is estimated to have increased by 0.6 per cent between the third and fourth quarters of 2015, revised upwards by 0.1 percentage points from the 0.5 per cent Second Estimate of GDP published on 25 February 2016.

Production output decreased by 0.4 per cent in the final quarter of 2015 compared with the preceding quarter, revised up 0.1 percentage point from the previously published estimate. Construction output increased by 0.3 per cent in the final quarter of 2015, revised up by 0.7 percentage points from the previously published estimate. The dominant service industries increased by 0.8 per cent in the fourth quarter, revised up by 0.1 percentage points from the previous estimate, and marking the twelfth consecutive quarter of positive growth. 

According to the Markit/CIPS index for March 2016, The opening quarter of 2016 saw the UK manufacturing sector register one of its weakest performances during the past three years. The seasonally adjusted Markit/CIPS Purchasing Managers’ Index posted 51.0 in March, only a couple of ticks higher than February’s 34- month low of 50.8. This left the quarterly average at the relatively subdued level of 51.6, equalling the lowest recorded since the PMI first moved back above the neutral 50.0 mark early in 2013.

24th March 2016

USDA March Update

The United States Department of Agriculture has updated its forecast of world production, supply and distribution for wheat and maize as well as for soybeans and soymeal.

USDA has chopped its estimate of world wheat production in 2015-16 by 3.45 million tonnes or 0.5 per cent. Apart from a 480,000 tonne increase in the anticipated EU wheat crop, the reduction reflects a 2.41 million tonne or 2.7 per cent downgrade in the Indian wheat crop together with a 1.5 million tonne or 5.8 per cent reduction in estimated Australian production; the reduction would have been larger except for an increase in forecast yields. The reduction in the Indian projection reflects what are euphemistically described as ‘updated government statistics

It should be noted that, at 732.3 million tonnes, global wheat production in 2015-16 is still projected to remain at a record level, despite USDA’s current reduction. Estimated end-of-season wheat stocks, at 237.59 million tonnes are equivalent to 123 Days Consumption Equivalent (DCE), their highest since 2001-02 and, in absolute volume terms, at a record high.

In its March projection, USDA has trimmed its forecast of global maize production by 440,000 tonnes, proportionately a very small amount. The largest reduction occurs in South Africa where production is lowered 0.5 million tonnes reflecting the continuing drought which has reduced area and yield prospects further. El Niño appears to be implicated here. Philippines maize production and India millet production are each lowered by 0.3 million tonnes on lower yields as the result of the dry conditions.

In passing, it is worth noting that, out of current world end-of-season maize inventories of almost 207 million tonnes, 54 per cent are located in China, having nearly doubled in just 5 years. The build-up in stocks has been attributed to a price support regime intended to make China more self-sufficient. Each year, the government establishes minimum purchase prices to encourage maize planting and, when market prices fall below the set level, the government buys maize and stores it in its reserves. As a result, USDA point out that China is struggling with both massive inventories together with domestic prices that are well above world levels.

USDA’s update of its global soybean production, supply and distribution projection suggests a very small reduction in projected 2015-16 volumes of which a miniscule reduction of 20,000 tonnes is attributable to US growers. The balance is made up of a reduction of 282,000 tonnes produced by ‘other’ countries, equivalent to a reduction of 1.4 per cent of USDA’s February projection for this disparate group.

World end-of-season soybean stocks, at 78.87 million tonnes, are a record despite being reduced by 1.55 million tonnes or 1.9 per cent compared with USDA’s February projection, largely reflecting substantial reductions in projected Argentine and Brazilian end-of-season stocks. Nevertheless, they are also seen as high in historical terms, even though, at 28 per cent of the season’s crush, they have fallen back slightly from the 29 per cent of the 2014-15 season. USDA have upgraded their projection of 2015-16 soybean meal production, up by 1.7 million tonnes or 0.8 per cent.

On past appearances, in April USDA will do one final projection of production, supply and distribution prospects for 2015-16 before turning their attention to the prospects for the 2016-17 season in May. This is likely to be preceded by the International Grains Council’s April issue of its Grain Market Report which will be IGC’s first look at 2016-17.

New Season Prospects

Feed ingredient buyers will soon, if indeed they have not already done so, be turning their minds as to what the prospects are for the 2016-17 run.

The previous twelve months have been marked by soaring grain and oilseed production accompanied by plunging prices, trends only modestly interrupted by what weather forecasters have called the strongest El Niño in recent years. This has allowed feed manufacturers in the UK significantly to trim prices to the benefit of their livestock farmer customers, increasingly cash-strapped as a result of market over-supply, a situation exacerbated by the Russian import embargo, retaliation for the sanctions imposed as a result of Russian actions in Ukraine. In a January statement, Ken Greetham, Wynnstay Chief Executive said that in the light of continuing low farmgate prices and what he described as ‘subdued farmer sentiment’, Wynnstay’s view of the outlook for the financial year ending in October 2016 had become more cautious, while Chairman Jim McCarthy, said that farmgate prices still showed little sign of the expected recovery and continued to impact farmer incomes.

Milk prices, have, of course, been at the root of many feed industry customers gloom over the past year or so. Fonterra, the world’s largest milk exporter, while it expressed confidence that dairy prices would revive ‘later this year’, acknowledged what it described as the ‘unprecedented pressure’ on farmers stemming from the weak prices, adding that the ‘imbalance’ between buoyant dairy supply and soft Chinese import demand had ‘brought prices down to unsustainable levels for farmers around the world’.

Fonterra’s Chief Executive said that dairy prices were expected to lift later in the current calendar year. This was, as one commentator observed, a more upbeat attitude than some other market players, including the Head of Ireland's Kerry Group who was recently quoted as saying that he was ‘surprised’ that anybody was talking about an improvement in dairy prices in 2016.

Meanwhile, growth in EU milk output will slow after the boost resulting from the removal of milk quotas a year ago which prompted, according to one report, an increment of more than ‘a billion litres of additional milk’. Fonterra thinks that EU milk production growth will revert its normal growth of about 1 per cent a year while the EU Commission has forecast EU milk output growth slowing to 1.4 per cent in 2016, down from 2.3 per cent in 2015; growth will further decelerate to 0.7 per cent in 2017.

As for feed ingredient supply prospects, it appears that we shall have to wait until 1 April for the first substantive look at supply and demand for grains and oilseeds in 2016-17 when the International Grains Council publishes its Grain Market report. This will be followed by USDA’s latest update of its Production Supply and Distribution (PSD) Report; however, this is likely to confine itself to a final look at 2015-16.

Interest Rates

Finance Directors will have noted that the Bank of England’s Monetary Policy Committee meeting ending on 17 March, voted unanimously to maintain Bank Rate at 0.5 per cent. The Committee also voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

The UK has thus moved into its eighth year of record low interest rates with the markets pushing back expectation of a UK rate rise until well into 2017. Governor Mark Carney has specifically excluded the possibility of the MPC going into negative interest rate territory although he has not ruled out a further interest rate cut or more quantitative easing.

Meanwhile, the Federal Open Market Committee (FOMC), meeting in Washington D.C. on 15 – 16 March maintained the Federal Funds target range at between 0.25 to 0.5 per cent. It marks the second meeting that the Federal Open Market Committee has put rates on hold after raising them in December for the first time since the 2008-9 recession.

It is understood that one member of the FOMC wanted to increase the interest rate range to 0.5 per cent to 0.75 per cent. The FOMC said that the committee currently expected that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labour market indicators would continue to strengthen – ‘however, global economic and financial developments continue to pose risks.’

7th March 2016

Great Britain Feed Update

DEFRA has just published its first monthly estimate of compounds, concentrates and blends production in Great Britain in 2016. Production of compounds, blends and concentrates in January 2016 amounted to 881,700 tonnes, 11,800 tonnes or 1.3 per cent less than in the corresponding month of 2015.

Production of cattle and calf feeds, at 330,500 tonnes, was 29,200 tonnes or 8.1 per cent less than in January 2015. There were substantial year-on-year falls across the product range with the single and marginal exception of protein concentrates for cattle and calves. At 154,700 tonnes, production of compounds for dairy cows was 11,400 tonnes or 6.9 per cent less than in January 2015 while production of blends, at 68,700 tonnes, was down by 10,500 tonnes or 13.3 per cent less. The reduction in production of feeds for beef cattle was less and most marked in output of blends for beef cattle; at 27,200 tonnes during January 2016 these were down 4,100 tonnes or 13.1 per cent.

At 140,200 tonnes, production of feeds for pigs was 3,500 tonnes or 2.4 per cent less than in January 2015. In volume terms, the most notable decline took place in the production of breeding pig rations, down by 2,600 tonnes or 7.5 per cent. There was also a significant decline in percentage terms in output of starter and creep feeds, down 11.6 per cent although this only represented a decline of 500 tonnes.

Production of poultry feeds, at 284,100 tonnes, was up by 29,800 tonnes or 11.7 per cent compared with the equivalent month of 2015; it must however, be borne in mind that DEFRA has ‘reviewed some IPU's (Integrated Poultry Units) which produce both feed for their own use and feed for retail sale’ and has adjusted the data from August 2015. This has resulted in an increase in compound poultry feed production and a decrease in IPU feed. By far the most important change in production in January 2016 compared to a year earlier was in production of broiler feed; at 148,200 tonnes, production was up by 27,800 tonnes or 23.1 per cent on January 2015.

Production of feeds for sheep and lambs in January 2016, at 87,100 tonnes, was 6,100 tonnes or 6.5 per cent less than in January 2015. The bulk of this was accounted for by lower output of breeding sheep compounds, at 37,200 tonnes down by 8,400 tonnes or 18.4 per cent; again this was attributable to the relatively mild weather conditions that characterised the month. Production of horse feeds was down by 600 tonnes or 3.9 per cent while production of miscellaneous feeds, thought to consist largely of fish feeds, was down 2,200 tonnes or 8 per cent to 25,200 tonnes.

Data for February is scheduled to emerge on 7 April.

These data should be seen against the prevailing weather conditions during January.

Temperatures were 0.9 °C warmer than normal as defined by the twenty-nine-year average running from 1981 to 2010; in England and Wales, temperatures were, respectively, 1.1 °C and 1.3°C warmer than normal while the UK average was dragged down by relatively less warm temperatures in Scotland and Northern Ireland, although the latter were still above average. It was wet, with rainfall across the UK amounting to 152 per cent of normal; Wales was especially damp.

NWF Acquisition

The NWF Group PLC, has recently announced that it has acquired Jim Peet (Agriculture) Limited, the ruminant feed manufacturer established in 1977 and which currently supplies over 50,000 tonnes of compound and blends to farmers across the North of England and South-West Scotland. No information about what NWF paid for the acquisition has been made available

The business produces a range of dairy, beef and sheep compounds and blends from two production sites: one at Longtown, near Carlisle and the second at Aspatria, near Wigton. It is thus highly complementary to NWF’s feed manufacturing activities and delivers strategically important manufacturing facilities. Until their 2012-13 financial year, Jim Peet (Agriculture) Ltd submitted small company statutory accounts. Their latest, medium company accounts for the twelve months ending 30 September 2014, show sales of £13.46 million, down by 26.06 per cent on the preceding twelve months. Pre-tax profits amounted to £91,000, down from £341,000 or by 73.3 per cent. The downturn in sales and profitability was attributed to the ‘mild weather conditions which resulted in lower amounts of feed being purchased by the farming sector in the region’.

Milk Price Gloom

The crisis in the dairy sector where producers are receiving, in some cases, substantially less than the cost of producing the stuff, will have impacted upon dairy farmers’ feed suppliers in terms, as the January production data suggests, of lower volumes to say nothing of prices for cattle and calf feeds which, in the final quarter of 2015 averaged, according to DEFRA, £203, 6.9 per cent less than in the corresponding quarter of 2015.

Outgoing NFU dairy board chairman Rob Harrison says the next few months will be extremely tough and that ‘everyone must pull together for the sake of the future of the industry’. His call came after a number of further milk price reductions were announced.

GDP Prospects

There is considerable speculation as to what the Preliminary Estimate of the UK’s Gross Domestic Product will show for the first quarter of 2016. The data is scheduled to emerge on 27th April.

Amid talk of a slowing-down of the economy as a result of the worsening global outlook, data has emerged for February from the Markit/CIPS survey which shows the rate of expansion in all three main sectors of the economy expanding at an increasingly slower rate. In February, the UK Manufacturing PMI was at a 34-month low while growth in Construction output hit a 10-month low, led by the weakest rise in housing activity since June 2013. Finally, the UK Services sector grew at its weakest in nearly three years in February.

1st March 2016

IGC Reports

The International Grains Council has updated its Grain Market Report for February 2016.

Total output of grains, (wheat and coarse grains) has been increased by 10 million tonnes to 2.002 billion tonnes. This will be the third year successive year in which world grain output will have exceeded 2 billion tonnes. The revised total is just short of the record grain output of 2.039 billion tonnes recorded in the 2014-2015 season.

The additional 10 million tonnes of grain output are largely accounted for by increased output of maize, although there is also a 1 million tonne increase in projected wheat production. At 969.4 million tonnes, maize production has been increased by just under 10 million tonnes compared to IGC’s January estimate. Production in Brazil and Argentina is up by a collective 4.1 million tonnes. Chinese production has been increased by 4.6 million tonnes compared to IGC’s January estimate. However, it will be noted that maize production in 2015-16, at 969.4 million tonnes, is expected to total 46.3 million tonnes less than in the 2014-15 season.

The outlook for global soybean production in 2015-16 is little changed from IGC’s January projection; at 321 million tonnes, it is in line with the previous season’s peak. With consumption seen as reaching a record high of 321 million tonnes, world end-of-season stocks are forecast at a record 44.3 million tonnes. The major exporters’ stocks (the US, Brazil and Argentina) are expected to increase by almost 28 per cent, more than offsetting declines in other nations, mainly in China where some destocking looks to be on the cards after the large purchases of recent seasons.

IGC have made their first tentative estimates of grain supply and demand in 2016-17.

Large end-of-season stocks will help to cushion the impact of a projected 21 million tonne decline in 2016-17 wheat production. Although only a small drop in the area planted to wheat is projected, IGC believe that average yields may not be as high as in the 2015-16 season. As regards maize, IGC are looking for a 1 per cent increase in the global area planted to the crop in 2016-17, including increases in the US, the Confederation of Independent States, South America and Africa. The resulting small increase in production is seen as being entirely absorbed by higher usage, but end-of-season stocks are projected to contract only slightly, remaining in excess of 200 million tonnes.

As regards prices, market attention was focused on generally bearish fundamentals, current weakness in non-grain markets and concerns about world economic prospects. IGC’s indicative Grain and Oilseeds index slumped by 3 per cent since the January Grain Market Report to its lowest in more than seven years. Against a backdrop of ample exportable surpluses, currently low ocean-going freight rates, and mostly favourable early prospects for 2016-17 northern hemisphere winter crops, buyers’ interest remained slight; IGC believe that some importers are waiting for a further downturn in prices. Losses in soybean values were particularly pronounced, as harvesting gathered pace in Brazil; recent beneficial weather has bolstered expectations for huge crops across South America. Average wheat, barley and maize quotations were also lower.

Economic Update

The Office of National Statistics has issued its Second Estimate of Gross Domestic Product for the UK during the last quarter of 2015.

The UK’s Gross Domestic Product is estimated to have increased by 0.5 per cent between the third and fourth quarters of 2015, unrevised from the Preliminary Estimate of GDP published on 28 January 2016.

Between 2014 and 2015, GDP in volume terms increased by 2.2 per cent, unchanged from the previous estimate. Between Quarter 4 2014 and Quarter 4 2015, GDP in volume terms increased by 1.9 per cent, again the same as previously published estimate.

The most reliable estimate of GDP growth during the last quarter of 2015, the Quarterly National Accounts, will be issued towards the end of March.

As regards interest rates, the markets’ consensus as to when the Bank of England will raise Bank Rate have shifted dramatically in recent months. At the start of last year, expectations were that rates would start to rise in the second half of 2015 but weak economic data and the sharp fall in the rate of inflation pushed this expectation back. The markets then started to price in the first rise to the first half of 2016 but new concerns about the world economy, largely driven by events in China, now mean that that the markets are looking for the first rise in interest taking place in late 2018 or, even, in 2019.

23rd February 2016

Northern Ireland Reports

Feed production statistics for December 2015 have emerged from the Department of Agriculture and Rural Development in Belfast, allowing a provisional estimate of feed production to be made for the year as a whole.

It will be noted that, in common with the rest of the United Kingdom, the last three months of 2015 were unusually warm, culminating in December when average temperatures in Northern Ireland were 2.5°C above ‘normal’, as defined by the thirty-year period running from 1981 to 2010. It was also extremely wet during the last two months of the year.

In December, total production of compounds, blends and concentrates in Northern Ireland amounted to 204,600 tonnes, 12,600 tonnes or 5.8 per cent less than in the corresponding month of 2014. This was the fourth successive year when output topped 200,000 tonnes.

Production of feeds for cattle and calves amounted to 108,000 tonnes, 6,400 tonnes or 5.6 per cent less than in the corresponding month of 2014. The fall was across the entire product sector with the largest decline taking place in production of compounds for dairy cows, at 40,600 tonnes down by 3,700 tonnes or 8.4 per cent. This probably reflects a partial weather effect although it is extremely likely that the prevalence of low milk prices affected dairy farmers’ decision-making. There was also a 1,200 tonne or 5.2 per cent fall in the output of coarse mixes and blends for dairy cattle. And there were smaller falls in the output of compounds and blends for beef cattle.

Output of feeds for pigs, at 17,400 tonnes in December 2015, was 1,700 tonnes or 8.9 per cent less than in the corresponding month of 2014 with the largest decline being recorded in finishing feeds; output of breeding feeds was also lower. Production of poultry feeds, at 67,200 tonnes during December, was 3,100 tonnes or 4.5 per cent lower than in December 2014 with the largest fall, in both quantitative and proportional terms taking place in output of broiler feeds, at 36,300 tonnes, down by 3,700 tonnes or 9.2 per cent. Production of feeds for sheep and lambs, at a relatively small 4,200 tonnes during December 2015, was down by 700 tonnes or 15.1 per cent; this seems likely to be a largely weather-related effect. There were also falls in the output of miscellaneous lightly-processed materials such as maize and barley meals.

Taking the year as a whole, production of compounds, concentrates and blends in Northern Ireland during 2015 amounted to just over 2.25 million tonnes, down by 59,600 tonnes or 2.6 per cent.

Output of feeds for cattle and calves in 2015 amounted to 1.15 million tonnes, 61,300 tonnes or 5.1 per cent less than in the preceding year. The largest fall in volume-related terms was in output of dairy compounds; at 487,100 tonnes, these were lower by 31,400 tonnes or 6.1 per cent than in 2014. There were also substantial volume falls in both coarse mixes and blends for dairy and for beef cattle; the former down by 11,700 tonnes or 4.7 per cent and the latter down by 16,100 tonnes or 6.6 per cent. This would appear to reflect the relatively benign weather conditions of 2015 in comparison with the two preceding years. Cattle and calf feeds constituted 51 per cent of total feed output in 2015.

Output of pig feeds in Northern Ireland during 2015, at 197,100 tonnes, was 17,100 tonnes or 9.5 per cent higher than in 2014. The largest increase was in output of finishing feeds which, at 79,500 tonnes, were 11,300 tonnes or 16.6 per cent ahead of 2014. There were smaller volume increases in grower and breeding feeds although these respectively amounted to increases of 7.9 per cent and 12.2 per cent. The only category of pig feeds to show a decline was link and early grower feeds, at 25,000 tonnes down by 2,000 tonnes or 7.3 per cent. Output of pig feeds in 2015 accounted for 8.7 per cent of total feed production in Northern Ireland.

At 770,000 tonnes in 2015, production of feeds for poultry was 8,600 tonnes or 1.1 per cent lower than in the preceding year, accounting for 34.2 per cent of total feed production in Northern Ireland during the year. The largest decline in volume terms was in ‘turkey and other poultry feeds’ which, at 56,800 tonnes, were lower than in 2014 by 7,800 tonnes or 12 per cent and at a six-year low. There was also a 2,700 tonne or 0.6 per cent decline in output of broiler feed which predictably, at 446,200 tonnes in 2015, accounted for the largest proportion of feeds for poultry.

Output of feeds for sheep and lambs, at 62,400 tonnes in 2015, was 4,900 tonnes or 7.3 per cent less than in the weather-hit 2014 with the largest decline, 2,800 tonnes or 10.3 per cent being recorded in the production of compounds for breeding sheep. Output of feeds for sheep and lambs accounted for 2.8 per cent of total feed production in Northern Ireland in 2015.

There was a small decline in production of lightly processed feeds, at 74,000 tonnes, down by 1,900 tonnes or 2.5 per cent. These materials constituted 3.3 per cent of total feed output in the province during 2015.

Latest on Interest Rates

Speculation that interest rates would not start to increase until 2017 has been heightened by disappointing US manufacturing figures, described as the worst since 2013. It is expected that the data is likely to persuade the Federal Reserve to keep interest rates on hold at its March meeting.

3rd February 2016

First Eleven Months Northern Ireland

Output of compounds, concentrates and blends in Northern Ireland during the first eleven months of last year amounted to 2.05 million tonnes, 47,000 tonnes or 2.2 per cent less than in the corresponding period of 2014. It is, however, worth bearing in mind that this total was the third largest for the eleven months in question, being exceeded only by the weather-driven totals of 2013 and 2014.

Output of feeds for cattle and calves, at just over 1.04 million tonnes, was 54,900 tonnes or 5 per cent less than in the corresponding period of 2014. The major declines occurred in output of dairy compounds, down by 27,700 tonnes or 5.8 per cent and in coarse mixes or blends for beef cattle, down by 15,300 tonnes or 7 per cent. There was also a decline of 15,300 tonnes or 7 per cent in production of coarse mixes or blends for dairy cattle. However, while production of cattle and calf feeds during the first eleven months of 2015 was lower than in the corresponding period in 2012, 2013 and 2014, it should be remembered that 2015 constituted the fourth successive year in which production for the period in question exceeded a million tonnes. It may be noted that production of cattle and calf feeds during the period under review amounted to 50.8 per cent of total feed production.

Production of feeds for sheep and lambs, at 58,200 tonnes during the first eleven months of 2015, amounted to 58,200 tonnes, 4,100 tonnes or 6.7 per cent less than in the corresponding period of 2014. In proportionate terms, the greatest declines were in compounds for breeding sheep, down by 2,500 tonnes or 5.9 per cent and coarse mixes and blends, down by 1,100 tonnes or 5.9 per cent.

In that ruminant production is most likely to be affected by weather conditions, it may be noted that mean temperatures in Northern Ireland for the first nine months of 2015 were, with the exception of April, below ‘normal’ as defined by the average of 1981- 2010. In common with the UK as a whole, mean temperatures in October 2015 were 0.5°C warmer than normal while in November, temperatures in the province were 2°C warmer than normal. The first nine months of 2015 were marked in Northern Ireland by heavy rain in May, July and August while only half ‘normal’ rainfall characterised September. There was a similar deficit in October although, in common with the rest of the UK, rainfall in Northern Ireland during November was well above average.

At 179,700 tonnes, production of feeds for pigs amounted to 8.8 per cent of total feed production. Production of 179,700 tonnes during the period under review was 18,800 tonnes or 11.7 per cent higher than in the equivalent period of 2014. The total represents a sixteen year high. It may be significant that total pig numbers in 2014 also reached a sixteen year high, amounting to more than a half-million head for the first time since 1998

Of the increase, 12,400 tonnes was accounted for by increased output of finisher feeds, up by a fifth on the corresponding period of 2014. There was also a significant increase in production of feeds for breeding pigs, up by 4,000 tonnes or 14.8 per cent.

Poultry feed production in Northern Ireland, at 703,100 tonnes, was down by 5,500 tonnes or 0.8 per cent when compared to the first eleven months of 2014. By far the largest proportion of the decline was attributable to an 8,400 tonne or 14.2 per cent fall in output of turkey and other poultry feeds; all other subsectors in the poultry category recorded increases albeit they were very small with the exception of chick rearing feeds, up by 1,800 tonnes or 8.7 per cent when compared to the equivalent period of 2014.

Overall, however, production was at its second highest since records started to be kept in their current form in 1996 and it will be noted that output of poultry feeds constituted 34.3 per cent of all feed production in Northern Ireland during the eleven months under review.

IGC Updates

The International Grains Council has updated its supply and demand projections for the 2015-16 run.

Total grain production has been reduced by 4 million tonnes compared to IGC’s last, November projection of 1,996 million tonnes (IGC does not report in December) down by 2 per cent from last season’s record output. This is mainly due to poorer maize harvests in South Africa and India with the result that the global maize crop is cut by 8 million tonnes to 959 million tonnes, a 5.3 per cent fall compared with 2014-15. This is only partly offset by higher output figures than previously for wheat and barley.

A more detailed analysis will be included in the next edition of this E-letter.

Economic Catch-up

The Office of National Statistics has made its first attempt at measuring how the UK’s Gross Domestic Product grew in the final quarter of 2015.

In the Preliminary Estimate of GDP in the final quarter of 2015, published on 28 January, the ONS estimated GDP to have increased by 0.5 per cent in the 4th quarter of 2015 compared with growth of 0.4 per cent in the preceding quarter. Output increased in two of the main industrial groupings within the economy in the fourth quarter. Services increased by 0.7 per cent and agriculture increased by 0.6 per cent. In contrast, production decreased by 0.2 per cent, while output in the construction sector decreased by 0.1 per cent.

Prior to this, Bank of England Governor Mark Carney had, single-handedly, devalued sterling against the US dollar by, according to one report, more than half-a-cent by stating that now was not the time to raise interest rates. In mid-July last year, Carney said the decision on whether to raise interest rates from their current record low of 0.5 per cent ‘would likely come into sharper relief around the turn of the year’. Speaking at the Peston lecture, held to mark the 50th anniversary year since the founding of the School of Economics and Finance at Queen Mary University of London, he said that the year had turned, and that, in his view, the decision proved straightforward: ‘now is not yet the time to raise interest rates’. His remarks were echoed by another member of the Monetary Policy Committee, Kristin Forbes, who said that pay growth was not moving fast enough to lift inflation, albeit it was likely to ‘pick up soon which will be a good time to raise interest rates’.

Inflation in the year to December 2015, as measured by the Consumer Price Index, rose by 0.2 per cent in the year to December 2015, compared with a 0.1 per cent rise in the year to November 2015. Although this is the first month since January 2015 for which the rate has exceeded 0.1 per cent, this continues the trend since early 2015 of the rate being very close to zero.

Movements in transport costs, particularly air fares and, to a lesser extent, motor fuels were the main contributors to the rise in the rate. Downward pressures from prices for alcohol and tobacco along with food and non-alcoholic beverages partially offset the rise.

At their January meeting, the US Federal Reserve left interest rates on hold.

19th January 2016

USDA Updates Grain and Oilseeds Forecast

The United States Department of Agriculture has updated its forecasts for grains and oilseeds during the 2015-16 run.

Global wheat production is up by 455,000 tonnes or 0.1 per cent to a new record. This reflects larger-than-previously projected crops in the EU, Pakistan, and Russia. The 1.03 million tonne reduction in ‘Others’ reflects lower projections of wheat production for, inter-alia, Brazil, down by 400,000 tonnes on the December forecast, and Uruguay, down by 700,000 tonnes. Both these reductions are based on updated government statistics and reflect crop damage from excessive rain, possibly an El Niño intervention.

USDA has cut its estimate of global maize production in 2015-16 by 5.94 million tonnes or 0.6 per cent. This is primarily driven by a large cut to South Africa’s drought-hit crop, down by 4 million tonnes or one-third and a 1.33 million tonne or 0.4 per cent reduction in projected US production.

In South Africa, continued heat and dryness during December further reduced prospects for area and yields, particularly in the western producing areas where satellite imagery suggests that much of this year’s crop may not have been planted. In the US, USDA has reduced its December estimate of the area planted to maize and the latter’s yield per harvested acre.

As regards end-of-season wheat stocks, USDA has increased these by 2.17 million tonnes or 0.9 per cent. Expressed as Days Consumption Equivalent (DCE), total end-of-season wheat stocks stand at 119 DCE, two days up on USDA’s December estimate and the highest since 2001-02. For maize, USDA has reduced its previous estimate of global end-of-season stocks by 2.92 million tonnes or 1.4 per cent, a day less than in the 2014-15 season but well above the average level of cover during the preceding ten years.

USDA has reduced its previous, December projection of global soybean production of 320.11 million tonnes by 1.1 million tonnes or 0.3 per cent. This reflects a 1.4 million tonne or 1.3 per cent reduction in the US soybean crop, reflecting lower estimated yields and harvested area; South African soybean production is also reduced. These reductions more than offset larger production in China, up by half-a-million tonnes or 4.3 per cent on December’s projection.

USDA’s projected world production of soybean meal has been increased by 1.29 million tonnes or 0.6 per cent; this largely reflects increased production in Argentina and China. End-of-season oilseed meal inventories, at 11.48 million tonnes, are projected to rise by 218.000 tonnes or 1.9 per cent compared to USDA’s December forecast. These represent 5.3 per cent of estimated global consumption, a lower proportion that during the 2014-15 season but well above the average of the preceding ten years.

Overall, then, a bearish outlook for both the grains and oilseeds under review. However, USDA will produce its first estimate of supply and demand prospects for 2016-17 in May – just four months away – and markets will be watching closely to see the extent to which lower prices may potentially discourage production during next season.

Wheat Prospects 2016-17

Recent USDA data for US sowings of winter wheat saw wheat futures jumping as it was reported that winter sowings of the grain had fallen far more than the markets had expected.

US farmers planted 36.61 million acres of wheat for the 2016 harvest, a drop of 2.85 million acres from last season. USDA said that this was the biggest decline in six years, far exceeding the fall of 141,000 acres which investors had expected. The decline in winter wheat sowings leaves the US winter wheat area at its lowest since 2010 - and at the second lowest since World War I.

Winter wheat sowings typically account for some 70 per cent of US wheat plantings.

When broken down, the data shows sowings of Soft Red Winter wheat, the type traded on the Chicago Exchange, at 6.72 million acres, down some 5 per cent on the 2015 total and the third lowest figure on USDA data going back thirty years. However, an even bigger drop was seen in plantings of Hard Red Winter wheat, the variety traded on the Kansas City Exchange. At 26.5 million acres, plantings of HRW wheat were down by 9 per cent on 2015 and, by some distance, the lowest in thirty years.

Northern Ireland Feed Catch-up

The Department of Agriculture and Rural Development in Northern Ireland (DARDNI) has recently published feed production data for November 2015.

Total production was down by 9,000 tonnes or 4.7 per cent compared with November 2014. This reflected declining production of feeds for cattle and calves, in total down by 7,000 tonnes or 6.8 per cent to 95,700 tonnes compared with the same month a year earlier. These data largely reflected falls in output of dairy compounds and blends, down respectively by 4,300 tonnes and 2,400 tonnes, equivalent in both cases to a decline of 10.8 per cent. Production of compound feeds for beef cattle also declined but by a relatively small 500 tonnes or 4.1 per cent.

Production of pig feeds during November 2015, at 16,400 tonnes was 900 tonnes or 5 per cent lower than in November 2014; to set this figure in context, output of pig feeds in November 2015 constituted just 9 per cent of total production.

Poultry feeds, on the other hand, at 61,600 tonnes, constituted 33.7 per cent of feed output in Northern Ireland although, in volume terms, this represented a small decline on November 2014, down by 600 tonnes or 0.9 per cent.

Total output of feeds for sheep and lambs, at 2,800 tonnes in November 2015 represented just 1.5 per cent of total output. Compared to November 2014, the total was down by 300 tonnes or 9.3 per cent; the decline was largely attributable to reduced output of growing and finishing compounds and coarse mixes and blends.

A detailed summation of feed production in Northern Ireland during the first eleven months of 2015 will appear in the next issue of this E-letter; meanwhile, total production of feed during the first eleven months of 2015, at 2.05 million tonnes, was 47,000 tonnes or 2.2 per cent less than in the same months of 2014.

Interest Rates

As expected, at its meeting ending on 13 January 2016, the Monetary Policy Committee voted by a majority of 8 to 1 to maintain Bank Rate at 0.5 per cent, the sole dissenter being, once again, Ian McCafferty who preferred to increase Bank Rate by 25 basis points.

21st December 2015

Soybean Update

The United States Department of Agriculture has recently revised its November projection of global supply and demand for soybeans during the 2015-16 run.

Worldwide production has been reduced by 907,000 tonnes or 0.3 per cent compared to USDA’s November projection. This largely reflects a 1.5 million tonne reduction in the projected Indian soybean crop. Reports from New Delhi say that Indian soybean yields are likely to fall this year as the first back-to-back drought in three decades parches crops, offsetting an increase in the area under soybean cultivation. The result, according to USDA, is likely to be a fall in soybean output to below 2014-15 levels.

Rains in India were 16 per cent below average over the four-month monsoon season running from June to September due to the prevailing El Niño weather pattern, which can lead to scorching weather across Asia and East Africa but heavy rains and floods in South America. This follows a 12 per cent shortfall in rainfall in 2014, making this only the fourth time India has seen drought in successive years in more than a century.

The fall in the drought-hit Indian soybean crop, according to USDA, was only partially offset by increases in the Canadian and ‘other’ country soybean crops. After taking projected crush into account, USDA believe that end-of-season stocks will fall by 278,000 tonnes or 0.3 per cent; this, however, will leave end-of-season soybean stocks as a proportion of global crush at 30 per cent, above the ten-year average of 28 per cent.

There will be no update of the extensively revamped Grain Market Report of the International Grains Council’s projection of soybean supply and demand until January 2016 as the IGC takes its annual break.

Interest Rate Outlook

The Federal Reserve, the US’s central banker, duly raised its Federal Funds rate at its meeting on 15-16 December, an increase which one observer described as ‘the most anticipated rate rise ever’.

The Federal Open Market Committee said, in a statement, that information received since the FOMC last met in October suggested that US economic activity had been expanding ‘at a moderate pace’. Household spending and business fixed investment had been increasing at what the FOMC described as ‘solid rates’ in recent months and the housing sector had improved further. On the other hand, net exports had been ‘soft’; this probably reflected the strength of the dollar against other world currencies, making products produced in the US less competitive.

Recent labour market indicators, including ongoing job gains and declining unemployment, showed further improvement, confirming that under-utilization of labour resources had diminished appreciably since early 2015. Critically, inflation had continued to run below FOMC’s 2 per cent longer-run target; this partly reflected falls in energy prices and in prices of non-energy imports (the latter reflecting the strength of the US dollar) some survey-based measures of longer-term inflation expectations had edged down.

Overall, and taking into account domestic and international developments, FOMC saw the risks to the outlook for both economic activity and the labour market as balanced. Inflation was expected to rise to 2 per cent over the medium term as the transitory effects of declines in energy and import prices dissipated and the labour market strengthened further.

Given the economic outlook, and recognizing the time it took for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the Federal Funds rate from its existing rate of between zero and 0.25 per cent to between 0.25 to 0.5 per cent.

As one commentator put it, the ‘0.25 per cent move up in the Fed Funds rate has set a marker that the Bank of England's rate-setters will be measured against.’ Inflation in the UK turned positive again in November at 0.1 per cent; there is thus little current pressure on the Bank of England’s Monetary Policy Committee to start raising rates. In their December meeting the MPC, with an 8-1 majority, duly kept Bank Rate on hold with only Ian McCafferty dissenting. The consensus on UK interest rates has been shifting in recent months with current market opinion citing the first rise during the first half of 2016; some observers, however, are looking to the first quarter of 2017. More on this in the next issue of this E-letter.

15th December 2015

Northern Ireland Feed Output

Output of compounds, blends and concentrates in Northern Ireland during October 3015 amounted to 193,100 tonnes, 9,000 tonnes or 4.5 per cent less than in the same month a year previously.

At 96,900 tonnes, production of cattle and calf feeds was 6,200 tonnes or 6 per cent lower than in October 2014 with falls across the species board; declines in year on year output of feeds for dairy cattle were the most marked with dairy compounds down by 8.7 per cent year-on-year and coarse mixes or blends for dairy cattle down by 8.5 per cent. This may not be unrelated to weather conditions in the Province which were significantly warmer than normal.

Output of pig feeds was slightly up on year-earlier levels with falls in feeds for young animals counter-balanced by increases in growing and finishing feeds. Output of poultry feeds, at 69,100 tonnes, was two thousand tonnes or 2.7 per cent lower than in October 2014 with falls across the product range with the exception of chick rearing diets; broiler feeds were down by 1,900 tonnes or 5 per cent.

Sheep feed output was 200 tonnes or 6.5 per cent less than in the corresponding month a year earlier.

Output of compounds concentrates and blends in Northern Ireland during the first ten months of 2015 totalled 1.87 million tonnes, 37,900 tonnes or 2 per cent less than in the same period of 2014.

Output of cattle and calf feeds in the Province, at 945,500 tonnes was down by 47,900 tonnes or 4.8 per cent on the equivalent period a year earlier. Production of dairy compounds, at 410,800 tonnes, was lower by 23,300 tonnes or 5.4 per cent and coarse mixes or blends for beef cattle, at 181,800 tonnes, was lower by 15,300 tonnes or 7.8 per cent. Coarse mixes and blends for dairy cattle, at 197,000 tonnes also recorded a decline on year earlier levels, being down by 8,100 tonnes or 4 per cent.

Output of feeds for pigs, at 163,300 tonnes showed a sharp increase in the first ten months of 2015 compared to the same period a year previously. The increase was particularly marked in output of finishing feeds, at 66,000 tonnes up by 13,000 tonnes or almost a quarter compared with the first ten months of 2014. Production of poultry feeds, on the other hand, at 641,500 tonnes, was down by 4,900 tonnes or 0.8 per cent, largely as a result of declining production of feeds for turkeys and other poultry feeds - not including broilers.

  Feeds for sheep and lambs, at 55,400 tonnes during the first ten months of 2015, were 3,900 tonnes or 6.5 per cent less than in the corresponding months of 2014 with falls across the product line; the decline in output of compounds for breeding sheep was particularly marked with output down by 2,500 tonnes or 10.1 per cent.

If the years 2013 and 2014 are excluded, the first ten months of 2015 represent the highest level of feed output in Northern Ireland since records started to be kept in their present form in 1996. However, it seems unlikely that 2015 will turn out to be a record year, particularly in view of the average temperatures during November which, in common with the rest of the UK, were significantly higher than normal albeit that sunshine was in short supply.

USDA Projections

The United States Department of Agriculture has updated its Production, Supply and Distribution projections for grains and oilseeds during the 2015-16 marketing year.

World wheat production has been upgraded by 1.95 million tonnes or 0.3 per cent compared to USDA’s November assessment; this reflects higher than projected wheat harvests in Canada and the EU and raises global wheat production in 2015-16 to a new record. However, while world wheat production and consumption are forecast at a record, stocks continue to build. Although lower wheat prices are stimulating additional demand, the latter, according to USDA, is not enough to offset what they describe as ‘burdensome’ supplies. Projected world end-of-season wheat inventories, at 229.86 million tonnes are also at a record and stand at a comfortable 117 Days Consumption Equivalent (DCE), their highest since 2001-02.

USDA has trimmed its estimate of world maize production by a million tonnes or just 0.1 per cent compared to its November projection, with reductions for India and South Africa more than offsetting gains for Canada. Projected world end-of-season maize inventories, at 211.85 million tonnes, are at a record level and are equivalent to 79 DCE, equal to 2014-15 and at their highest since 2002-03.

USDA has reduced its projection of global soybean production this month, with a lower estimate for India more than offsetting higher crops in Canada, Ukraine, and Russia. More on this in the next edition of this E-letter.

Interest Rate Latest

The Bank of England’s Monetary Policy Committee voted, as expected, to maintain Bank Rate at 0.5 per cent, unchanged since March 2009, and to maintain the stock of purchased assets financed by the issuing of central bank reserves at £375 billion.

The vote was 8 – 1 in favour of the proposition with Ian McCafferty the sole dissenter, preferring to increase Bank Rate to 0.75 per cent. The decision marks the eighty-second consecutive month at which Bank Rate has remained at a record low.

All eyes will now turn to the US Federal Reserve which meets on 15th and 16th December. Following remarks by Chair Janet Yellen and her colleagues, there is widespread expectation, unlike the outcome of the Fed’s October meeting, that rates will increase from their record low of 0.25 per cent, if only by a whisker. One commentator, noting that the ground had been carefully prepared for a rate increase, remarked that this would be the ‘least surprising rate hike in living memory’.

8th December 2015

Great Britain Feed Update

At 879,500 tonnes in October 2015, production of compounds, concentrates and blends in Great Britain was 16,100 tonnes or 1.9 per cent greater than in the same month a year previously.

Production of feeds for cattle and calves, at 339,100 tonnes, was down by 25,100 tonnes or 6.9 per cent compared to October 2014. There were declines across the board with the exception of protein concentrates, up by 500 tonnes or 8.2 per cent. It seems likely that demand for prepared feeds was affected by the weather which, taking the UK as a whole, was 0.5°C warmer than normal; it was also significantly drier than usual with the UK receiving only 57 per cent of its normal rainfall.

There was a marginal fall in output of feeds for pigs, down by just 300 tonnes or 0.2 per cent, largely due to declines in production of finishing feeds and feeds for breeding stock. Production of link/early grower and grower feeds, on the other hand, increased compared to October 2014. Output of feeds for poultry, at 302,000 tonnes, was 36,700 tonnes or 13.8 per cent higher than in October 2014; it is also worth noting that retail production of poultry feeds was at its highest recorded level for October since records started to be kept in their present form. The year-on-year increase was very largely attributable to increased output of broiler feeds which, at 140,300 tonnes, were 26,400 tonnes or 23.2 per cent higher than in October a year earlier; it should, however, be noted that the increase reflects statistical changes made to the collection of data by DEFRA which have lumped integrated producers’ sales into the retail market.

Possibly also reflecting the weather in October, output of feeds for sheep and lambs was down by 1,900 tonnes or 6.6 per cent compared with the same month a year previously with the main reductions occurring in output of breeding sheep compounds.

Taking the first ten months of 2015 as a whole, output of compounds, blends and concentrates in Great Britain amounted to 8.96 million tonnes, 218,700 tonnes or 2.5 per cent more than during the corresponding months of 2014. The total is the highest recorded for the period in question since 1992.

Latest Crop Reports

The next update of the United States Department of Agriculture’s estimate of grains and oilseeds supply and demand is due to be published on 10 December and will be reported on in the next issue of this E-letter. The International Grains Council does not update its Grain Market Report in December.

In its December 2015 crop report, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) has lowered its estimate for Australian wheat production to 24.0 million tonnes, down 5 per cent from its September estimate, but still 1 per cent higher than in 2014-15. Hot, dry conditions from the strongest El Niño in 20 years persisted across the country, though it is reported that adequate subsoil moisture has prevented any significant yield decreases. Untimely rains in late October and November slowed the harvest, but ABARES said the rain ‘did not hurt overall crop quality’.

As of the end of November, the harvest in Argentina, which exports an average of 75 per cent of its annual wheat production, was 20 per cent complete, significantly behind last year’s 31 per cent. The heavy rains that delayed harvest for much of November have also resulted in some quality downgrading according to the Argentina Grain Exchange. The International Grains Council (IGC) expects Argentina to harvest 10.4 million tonnes, 25 per cent less than 2014-15 and reflecting a lower planted area. The same heavy rains that delayed the Argentine wheat harvest have also affected Brazil’s southern wheat growing regions, resulting in potential loss of yield as well as quality downgrades.

Fed to Start Interest Rate Rises?

The odds are shortening on the Federal Reserve raising US interest rates at their meeting on 16 December. The federal funds rate has remained near zero since December 2008. The shortening odds on a rate rise reflect robust expansion in US employment and extensive briefing by Janet Yellen, the Fed’s Chair and her colleagues. Earlier in December she had said that economic conditions were ripe for the Fed to start raising its benchmark interest rate in December, a move that appears all but inevitable barring a sharp change in the economic weather.

Meanwhile, in the UK, the Second Estimate of growth in Gross Domestic Product during the third quarter of 2015 remained unchanged from the Preliminary Estimate at 0.5 per cent. This tends to confirm the view that the UK economy has slowed down since the second quarter of 2015 when GDP grew by 0.7 per cent. However, Markit data suggests, as Chief Economist Chris Williamson observed, that ‘The survey data so far are pointing to 0.6 per cent GDP growth in the fourth quarter’.

23rd November 2015

USDA Updates Soybean Outlook

The United States Department of Agriculture has updated its projected Production, Supply and Distribution estimate for soybeans and soybean meal in 2015-16.

Total world soybean output has been revised upwards by 523,000 tonnes or 0.2 per cent compared to USDA’s October projection. The major upward revision is US production; this is up by 2.55 million tonnes compared to October’s projection, an increase of 2.4 per cent and reflects a further upwards revision of average yield, from 47.2 bushels per harvested acre to 48.3 bushels. India’s soybean crop is reduced by 1.5 million tonnes or 13.6 per cent, to 9.5 million tonnes, on lower projected yields as a result of ‘inconsistent’ rainfall during the growing season. Together with late-season heat, this has resulted in below-average yields for a third consecutive year.

USDA has made significant reductions in end-of-season inventories in both Argentina and Brazil. The former is believed to represent farmer sentiment as regards the political outlook following national elections in that country and, in particular, the likelihood that export taxes could be reduced, allowing Argentine growers to offload part of their substantial soybean stockpiles. Brazil’s exports are also set to benefit from the depreciating value of the real.

As a result of these factors, US end-of-season stocks are likely to rise by around 1.1 million tonnes or 9.4 per cent; there will also be smaller increases in EU and Chinese end-of-season inventories. USDA’s estimates of world end-of-season inventories as a proportion of total crush have been falling ever since their initial assessment in May; however, at 30 per cent of the latter, the current ratio is still above the average for the last decade, contributing to the overall bearish outlook on the major commodity exchanges.

IGC November Estimate

The International Grains Council has revised its October Grain Market Report – a week earlier than scheduled.

At 1,996.1 million tonnes, forecast grain production in 2015-16 is 2.7 million tonnes less than in IGC’s October projection with reduced grain production in the US contributing significantly to the lower total. IGC have raised their projection of world wheat output by a net 300,000 tonnes. There are minor reductions in EU wheat production compared to IGC’s October projection and a 1.5 million tonne or 5.5 per cent increase in Ukrainian wheat production. World maize production has been reduced by 2.4 million tonnes; this reflects a significant downwards adjustment in Chinese production counteracted by a 4.5 million tonne or 1.3 per cent increase in US maize production. South African maize output has also been scaled down by a million tonnes, equivalent to a reduction of 8 per cent.

Compared with their October estimate, IGC have slightly increased total grain consumption for 2015-16, reflecting greater use for food and reduced usage for industrial and animal feed takeup. The effect of this is to reduce world end-of-season grain stocks by 600,000 tonnes; nevertheless, the latter remain at a historically high level. However, IGC point out that China’s share of world end-of-season grain stocks could be the biggest in fifteen years, with inventories there ‘largely inaccessible’ to the global grain market.

Northern Hemisphere winter wheat sowing for the 2016-17 season is almost complete with conditions mostly good; however, IGC reports that concerns persist about dryness in some parts, especially Ukraine. IGC estimate that, after incorporating assumptions for spring wheat plantings and the next southern hemisphere crops, the world harvested wheat area for the 2016-17 season is projected at 221.8 million hectares, down by almost 1 per cent on the current season.

Against a backdrop of tentative prospects for a marginal expansion of harvested area, together with above-average yields, IGC estimate that global soybean production in 2015-16 could match last season’s peak. While growing demand for soybean products is expected to contribute to a 3 per cent rise in consumption, end-of-season inventories are still seen as edging up to a new high as accumulation in the major exporters compensates for declines elsewhere, primarily in China.

Economic Update

The rate of inflation in October 2015, as measured by the Consumer Price Index, fell by 0.1 per cent in the year to October 2015, the same fall as in the year to September 2015. Upward price pressures for clothing and footwear and a range of recreational goods were offset by downward price pressures for university tuition fees, food, alcohol and tobacco. This resulted in no change to the overall rate of inflation.

Most livestock products in October 2015 showed percentage falls against retail prices of a year earlier; the exceptions were largely to be found amongst the better cuts of beef. Average beef prices were, in fact, just 1 per cent higher in October 2015 than a year earlier. In contrast, home-killed lamb and pork were, respectively, 1.6 per cent and 2.4 per cent cheaper than in October 2014 while bacon was down by 6.4 per cent. Poultry was down by 7.7 per cent, continuing a trend in place since August 2014. Butter was down by 8.1 per cent on year-earlier levels while cheese was 3.1 per cent cheaper; eggs were down by 8.6 per cent.

Towards the end of November, the Office of National Statistics will publish the Second Estimate of the UK’s Gross Domestic Product during the third quarter of 2015. This will update the Preliminary Estimate published on 27 October which estimated GDP as having increased by 0.5 per cent in the third quarter, compared with GDP growth of 0.7 per cent in the second quarter of 2015.

Meanwhile, what does the negative inflation rate mean for interest rate prospects? An emerging view appears to be that interest rates will not move at least until mid-2016 and, perhaps, not during the whole of next year. The Bank of England’s Inflation Report suggested that this path for rates would be the most likely and should see inflation returning to the 2 per cent target without risking the economy's recovery. This has widely been interpreted as meaning that there will be no move in Bank Rate until, at the earliest, well into 2016, even if the US Federal Reserve raises rates at its December meeting; the odds on the latter appeared to be shortening at the time of writing, following the publication of the minutes of the Federal Reserve’s October meeting.

9th November 2015

First Nine Months Great Britain

At 972,700 tonnes in September 2015, production in Great Britain of compounds, blends and concentrates represented the highest total for the month since records started to be kept in their present form in 1992.

On first sight, there appears to be a problem with the DEFRA records of feed production in September. While the commentary states that ‘Animal feed production was up 5.1% for pigs, 1.3% for Poultry and 1.3% for Cattle and down 3.8% for sheep in September 2015 compared to September 2014’, all these figures are correct with the exception of poultry. According to the DEFRA dataset, production of poultry feeds in September 2015 was 359,200 tonnes compared to 308.900 tonnes in the same month a year earlier, an increase in September 2015 of 50,300 tonnes or 16.3 per cent, rather than the 1.3 per cent referred to in the commentary.

The explanation appears to lie in that, in September 2015, the data for poultryfeed includes retail sales by integrated poultry units. This follows a review of some of the latter which produce feed both for their own use and feed for retail sale. DEFRA has adjusted the data from August and this has resulted in an increase in compound poultry feed and a decrease in feed from integrated units.

Otherwise, production of cattle and calf feed in September 2015 was 4,300 tonnes or 1.3 per cent ahead on that of a year earlier. As well as an 8,700 tonne or 59.6 per cent increase in production of feeds for calves, this reflected falling output of compounds for both dairy and non-dairy cattle; the former was down by 4,500 tonnes or 2.5 per cent and the latter was down by 4,200 tonnes or 8.6 per cent compared to September 2014. Conversely, output of both dairy and non-dairy blends increased, the former by 2,500 tonnes or 4 per cent and the latter by 1,600 tonnes or 5.6 per cent

Total output of pig feeds in September 2015 was up by 8,500 tonnes or 5.1 per cent on a year earlier. This largely reflected feeds for fattening animals; those for breeding stock fell by 1,600 tonnes or 4.3 per cent. There were, in particular, sharp percentage increases in output of starter and creep feeds as well as link and early grower diets.

Output of feeds for sheep and lambs fell compared to output in September 2014, by 1,100 tonnes or 3.9 per cent. The fall in output was across all sub-sectors with the exception of blends for growing and finishing, up by 2,000 tonnes or 39.2 per cent on year-earlier output.

There was a sharp increase in the production of feeds in the other compounds, blends and concentrates category; as previously observed, this category of feeds is dominated by fish feeds.

Taking the first nine months of 2015 as a whole, total output of compounds, blends and concentrates in Great Britain, at 8.08 million tonnes, was 202,600 tonnes or 2.6 per cent ahead of the equivalent period of 2014. It will, however, be borne in mind that the data for 2015 includes significant adjustments for poultry feeds which, in the first nine months of 2015, were 137,500 tonnes or 5.5 per cent ahead of the equivalent period of 2014 with the bulk of the increase concentrated in broiler, layer and breeding/rearing feeds.

Third Quarter Feed Prices

Compound feed prices in the DEFRA voluntary survey have continued to fall on year-earlier levels. At an average £215 during the third quarter of 2015, cattle and calf compounds were £14 or 6.1 per cent down on year-earlier levels while feeds for sheep were down by £23 or almost 10 per cent. Feeds for pigs were down by £10 or 4 per cent while poultry feeds saw prices falling by £22 or 8.3 per cent.

Monetary Policy Committee Meets

At their meeting on 4 November, Governor Mark Carney invited the Committee to vote on the propositions that Bank Rate should be maintained at 0.5 per cent and that the Bank of England should maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

Regarding Bank Rate, eight members of the Committee voted in favour of the proposition. Ian McCafferty voted against the proposition, preferring to increase Bank Rate by 25 basis points to 0.75 per cent. Regarding the stock of purchased assets, the Committee voted unanimously in favour of the proposition. Governor Mark Carney subsequently observed that the current state of the UK and world economies suggested that the first rise in interest rates would not take place until well into 2016.

Meanwhile Federal Reserve Chair Janet Yellan has told the US House of Representatives Financial Services Committee that a December rate rise was still ‘a live possibility’.

3rd November 2015

International Grains Council Updates GMR

The International Grains Council has recently published its October update to its Grain Market Report (GMR).

With the Northern hemisphere harvest approaching completion, compared to IGC’s September GMR, total grain production in 2015-16 (wheat and coarse grains) has been increased by 2.4 million tonnes to 1,998.8 million tonnes, only 1.3 per cent below last season’s record. Total EU grain production has been increased from 305.1 million tonnes to 307.8 million tonnes, an increase of almost 0.9 per cent on IGC’s September GMR. There are also smaller increases for Canada and Russia although Ukrainian grain production has been slightly reduced.

Projected world wheat production in 2015-16 has been reduced from IGC’s previous GMR of 727.1 million tonnes to 725.9 million tonnes. IGC has reduced its estimate of US wheat production from 58.5 million tonnes to 55.8 million tonnes; Argentine and Australian production has also been reduced, the latter reflecting El Niño concerns. IGC’s projection of EU production of common wheat has been raised from September’s estimate of 147.9 million tonnes to 149.7 million tonnes, an increase of 1.2 per cent.

IGC’s estimate of world maize production in 2015-16 has been raised from September’s estimate of 966.9 million tonnes to 969.7 million tonnes. Much of the increase is attributable to higher US output, up by 2.3 million tonnes to 342.3 million tonnes. Brazilian production has also been increased from IGC’s September estimate, up from 78 million tonnes to 81.4 million tonnes. There are reductions in projected South African and Ukrainian maize output.

IGC point out that while total output of grains is projected to be slightly below last season’s high, large opening inventories mean that total supplies in 2915-16 will reach a new peak. Grain consumption is forecast to be marginally up at 1,991.4 million tonnes. World population growth is increasing demand for food while use as feed is projected only fractionally lower than last season’s record. IGC note that, while industrial use is also predicted to increase, projected annual growth is much slower than in previous years with consumption of grains being led by world demand for starch rather than ethanol.

IGC are looking for a further small increase in grain end-of-season stocks in 2015-16 to a twenty-nine year high. However, much of this year’s increase is expected to be in China, with grain end-of-season stocks in the major exporters slightly lower. The estimate for grain inventories in major exporting countries, whose stocks tend to be more influential where world pricing is concerned, was cut to 142 million tonnes, suggesting that a small year-on-year decrease was likely.

IGC has increased its estimated soybean production for Argentina and Brazil but has marginally reduced its US projection. Total world production in 2015-16 is estimated at 319.1 million tonnes, up from IGC’s previous estimate of 317.2 million tonnes and 2.4 million tonnes less than in the previous season’s peak output. End-of-season stocks are projected to increase by just 4 per cent to 49.1 million tonnes, a new record.

IGC report that planting of winter wheat for the 2016-17 harvest is ‘well advanced’. A small fall in the area is envisaged, but the total area will still likely be above the average of the previous five years.

Farm Business Income 2014-15

DEFRA has recently published the latest edition of Farm Business by type of farm in England for the farm year 2014-15.

The edition provides survey results of Farm Business Income for 2014-15, which covers the 2014 harvest and includes the 2014 Single Payment which is included within total farm output and therefore contributes to Farm Business Income. It should be borne in mind that these data replace the forecast estimates which were published on 29 January 2015.

All data relates to a March - February year.

In 2014-15, average Farm Business Income was lower across all farm types except grazing livestock farms. On lowland grazing livestock farms, average incomes increased by 23 per cent albeit from a low base whilst, on Less Favoured Area (LFA) grazing livestock farms, average incomes were similar to the previous year. On dairy farms, lower average incomes were driven by lower output from milk production. Milk prices fell gradually throughout the year but for the six months March through August, they were higher than for the same period in 2013. This, together with increased volumes, partially offset the lower average price for the year as a whole.

Average incomes on pig and specialist poultry farms fell due to reduced output for pig and poultry meat.

It should be borne in mind that the pound sterling exchange rate was stronger against the euro and this meant that receipts from the Single Farm payment were lower. Additionally, this had a negative impact on prices as domestic production had to compete with cheaper imports and alternative suppliers for export markets.

A more detailed analysis of the results will be published on 10 December 2015 in Farm Accounts in England, including percentile analysis of the results as well as results on a regional basis; this will be reported upon in the January – February edition of Feed Compounder magazine.

Forecasts of income by farm type for the year ending February 2016 and covering the 2015 harvest will be published in January 2016.

Rate Rise Hint?

The Federal Open Market Committee, the body that sets interest rates in the US, left rates on hold at their meeting on 27-28 October, but the tone of their discussions was significantly different from that of their September meeting.

Whereas the latter went on at some length about the fragility of the global economy, their October meeting was conspicuous by the absence of such warnings. Some market observers interpreted this change of tack as a warning that the Fed might move in December. However, other observers point out that all the other indicators at the Fed’s disposal in the final three months of the year are likely to be lacklustre, giving the Fed no justification for an immediate rate increase, particularly if oil prices remain low and the global economy looking fragile.

UK Market watchers were betting on the November meeting of the Monetary Policy Committee voting for ‘no change’ with MPC Member Ian McCafferty being the only likely dissenter.

26th October 2015

Soybean Outlook

The United States Department of Agriculture has recently published its latest, October assessment of world soybean supply and demand prospects during the 2015-16 run.

USDA has upgraded its September projection by 880,000 tonnes or approximately 0.3 per cent. Its US projection has been cut by 1.29 million tonnes and there is also a 500,000 tonne reduction in projected Indian output. The reduction in forecast US production reflects a combination of higher yields only partly offsetting a reduction in projected harvested area. US soybean yields are forecast at 47.2 bushels per acre, up 0.1 bushels from the September forecast. Harvested area is reduced by 1.1 million acres to 82.4 million, a far bigger reduction than markets had been expecting.

 The most radical reassessment relates to Brazil where production has been adjusted upwards by 3 million tonnes, giving Brazil a projected soybean crop of 100 million tonnes for the first time. USDA puts the increase in Brazilian production down to an increased area planted to soybeans, the result of the weakness in recent months of the Brazilian real. The latter reflects what market observers have described as ‘astute’ handling of both input costs and output prices. However, and as always, weather is playing its usual role with rain in particular being excessive in some soybean growing regions and inadequate in others.

Projected world soybean output in 2015-16 of 320.5 million tonnes constitutes a record. Projected end-of-season stocks of 85.1 million tonnes are equivalent to 31 per cent of the projected soybean crush in 2015-16, just short of the 32 per cent recorded in 2006-07 and 2010-11.

USDA are currently projecting world output of soybean meal at 214.6 million tonnes during the 2015-16 run, also a record. Although estimated end-of-season stocks of 11.7 million tonnes are expected to be below last season’s record level, they are still projected at 5.5 per cent of consumption, high in historic terms.

Milk Price Outlook

Many compounders’ Annual Reports and Accounts which have become available in recent months have alluded to the difficulties being experienced by their dairy farming customers as a result of high costs and low milk prices. The depressed state of milk prices is attributed to oversupply, reinforced by the Russian embargo on dairy products imported from the EU.

One measure of the state of world supply and demand for dairy products is the fortnightly Global Dairy Trade (GDT) Price Index, a weighted average of percentage changes in dairy commodity prices and which is run by the New Zealand-based co-operative Fonterra. In August, it was reported that ‘Freefalling milk prices seem to have finally found a bottom’, as prices on the Global Dairy Trade auction site bounced by 15 per cent in their first increase since early in March.

However, at the auction on 20 October, the weighted average price fell by 3.1 per cent with butter decreasing by 11.1 per cent and Cheddar down by a more modest 2.2 per cent. Both skim milk powder and whole milk powder fell by 4.5 per cent and 4.6 per cent respectively.

Dairy farmers and their feed suppliers will be concerned by this unexpected development and will be watching the auction of 3 November with especial attention.

Economic Update

Figures expected this week are expected to show the UK economy slowing down compared to the 0.7 per cent growth in GDP recorded in the second quarter of 2015, although it will still be an improvement compared to the first quarter’s 0.4 per cent. The consensus of expectations is for either 0.5 per cent or 0.6 per cent. The slow-down reflects weakness in the manufacturing and construction sectors of the economy.

International Grains Council Update

The October edition of IGC’s Grain Market Report will be issued on 29 October and will be discussed in the next issue of this E-letter.

20th October 2015

USDA Update

The United States Department of Agriculture’s latest, October update to its supply and demand forecasts for wheat, maize and soybeans was published at midday on Friday 9 October Eastern Standard Time. This is equivalent to 5 PM in London; not, perhaps, the most convenient time of the week from the UK analyst’s point-of-view.

Be that as it may, USDA’s latest update has increased estimated world wheat production during the 2015-16 run by 1.18 million tonnes or 0.2 per cent to 732,786,000 tonnes; a new record and, incidentally, the second successive year in which world wheat production has reached record levels.

The increase reflects a slightly higher average world yield to a record 3.26 tonnes / hectare. Compared to USDA’s September outlook, estimated production in 2015-16 has been increased by a million tonnes apiece for Canada and, surprisingly in view about El Niño concerns, for Australia. EU production has also been upgraded by 1.13 million tonnes or 0.7 per cent while production in Ukraine has been increased by 500,000 tonnes or 1.9 per cent.

The most significant reduction in forecast production is for the United States where USDA has reduced its estimate of US wheat output in 2015-16 by 2.29 million tonnes or 3.9 per cent.

Taking into account a very small net increase in world wheat consumption during the 2015-16 run, USDA is predicting end-of-season wheat stocks equivalent to 117 Days Consumption Equivalent (DCE). This is the highest ratio of end-of-season wheat stocks to consumption since the 2001-02 season and compares with the previous ten year average of 98 DCE.

As regards maize, USDA is currently forecasting world output in 2015-16 at 972.6 million tonnes, almost 5.5 million tonnes or 0.6 per cent less than in USDA’s September assessment and 36 million tonnes less than in the current record established during the 2014-15 season.

Since their initial estimate 989.8 million tonnes in June, USDA has consistently been reducing its estimate of world maize output. USDA’s current assessment includes 1 million tonne upgrades for Brazil and a 2 million tonne upgrade for Ukraine. Argentina (and Ethiopia) each take a million tonne hit compared to USDA’s September projection. A range of other, smaller producers share a collective cut of just over a million tonnes and US maize output has also been downgraded by 762,000 tonnes.

USDA reckons that, due to reduced availability, total world take-up of maize will be 4.8 million tonnes less than envisaged in the September projection.  World end-of-season stocks of maize are reckoned to be the equivalent of 70 DCE, lower than in the preceding 2014-15 season but well above the preceding ten-year average of 63 DCE.

USDA has also updated its prospects for soybean supply and demand; more on this in the next issue of this e-letter.

ForFarmers UK Ltd Reports

ForFarmers UK Ltd (largely BOCM Pauls or even, if you go back that far, BOCM Silcock) has recently submitted its Report and Accounts for the twelve months ending 31 December 2014.

The company, which acquired HST Feeds and Wheyfeed Holdings Ltd during the course of its financial year, made pre-tax profits of £13.95 million in the year to December 2014, equivalent to 2.5 per cent of sales, its best pre-tax profit ratio since 2010. Turnover declined by 8.5 per cent compared with the preceding year as declining commodity prices translated into lower prices for finished feeds. However, the company’s Gross Profit Ratio, expressed as Cost of Sales as a proportion of turnover, at 13 per cent was at its highest in four years.

The company’s operating profit ratio, at 2.9 per cent in 2014, was sharply up on the 1.3 per cent recorded in 2013 but the latter reflected an exceptional administrative item relating to ‘provision against trading receivables’ and amounting to £7.6 million. In fact, an operating profit ratio of 2.9 per cent is well ahead of the company’s performance over the past decade.

Altogether, a satisfactory year for what is widely regarded as the UK’s largest feed manufacturer.    

Economic Update

Inflation, as measured by the Consumer Price Index, fell by 0.1 per cent in the year to September. In August, prices were unchanged compared to twelve months previously. Falls in the prices of transport, principally fuels, together with the price of food and non-alcoholic beverages were the main drivers behind the reduction in the inflation rate, repeating the pattern noted in August.

Meanwhile, the debate about when interest rates will rise goes on. Andrew Sentence, a former member of the Monetary Policy Committee and, currently, a senior economic adviser to PwC, argues that ‘a rate rise is long overdue’, citing in support his view that the UK economy is already operating close to capacity. An alternative view, propounded by Ruth Miller of Capital Economics is that, while financial markets ‘have probably gone too far in pushing back expectations for the first increase in rates until the first quarter of 2017’, a rise before the second quarter of 2016 seems ’unlikely’.

The futures market for federal funds in the US is now pricing in March 2016 as the likely lift-off date. In a late intervention, Kristin Forbes, another member of the Monetary Policy Committee, said that UK interest rates would rise ‘sooner than later’ and that pessimism about the state of the global economy was ‘overdone’, fuelling speculation that she might join fellow MPC member Ian McCafferty, who has voted for higher rates at recent meetings of the MPC.

13th October 2015

Great Britain Feed Production – August

DEFRA has recently published data on production of compounds, concentrates and blends in Great Britain during August 2015.

Total production amounted to 834,900 tonnes, 29,800 tonnes or 3.7 per cent more than in the corresponding month of 2014. It is also noteworthy that this was the largest total volume of compounds, concentrates and blends produced in August since the data was first presented in its current form in 1992.

Poultry feeds appear to have been the major contributor to this development. At 325,000 tonnes in August, output of poultry feed was 42,900 tonnes, 15.2 per cent more than in the corresponding month of 2014. The total for August 2015 was by some distance the largest recorded total poultry feed production for the month in question. There were steep increases in the output of layer, broiler and breeding and rearing feeds (up, respectively, by 11.8, 7.4 and 42.7 per cent on August 2014) and, in all three categories, representing the highest-recorded level of production for the month.

There were increases in output of pig grower and finisher feeds in August compared to the corresponding month of 2014. In contrast, output of cattle and calf feeds was 17,600 tonnes or 5.8 per cent lower than in Augst 2014 with particularly sharp falls being recorded for dairy and beef compounds; smaller declines were recorded for blends.

There was also a 2,500 tonne decline in production of feeds for sheep and lambs compared to August 2014. Production of ‘other compounds, concentrates and blends’ of which feeds for fish is thought to represent a major component, increased by 2,500 tonnes or 5.9 per cent.

The sharp rise in poultry feed production in August compared with the corresponding month of 2014 needs explanation. DEFRA statisticians have been working on the so-called ‘integrators’. Hitherto, it has been assumed that integrated poultry units produced feeds solely for their own use. This is not the case; some integrators produce feeds both for their own use and for retail sale. Accordingly, the data for integrated production has been ‘adjusted’ to reflect this fact and this has resulted in a sharp increase in compound poultry feed in August 2015 compared with the corresponding month of 2014 and a decrease in feeds produced by integrated poultry feeds.

In addition, DEFRA has revised the dataset back to July 2006 to take account of data incorrectly reported as integrated poultry feed production.  This data is now included in the retail production of compound poultry feeds.

The data for August feed production in Great Britain is thus not quite what it seems. We shall be looking at the consequences of this revision in more detail in subsequent issues of this newsletter.

Northern Ireland Feed Production – August

Feed production in Northern Ireland during August 2015 was ‘prepared’ on 1 October – it is not clear whether ‘prepared’ means ‘published’ – by the Department of Agriculture and Rural Development. In any case, the data preceded that published by DEFRA by a margin of several days.

In August 2015, feed manufacturers in Northern Ireland turned out 152,400 tonnes of feeds, 7,400 tonnes or 4.7 per cent less than in the corresponding month of 2014. To put this in context, this was the third highest figure for August since 1996, being exceeded only by the 159,900 tonnes reported for August 2014 and the weather-driven 156,800 tonnes produced in August 2012.

There were tonnage reductions in August in all sectors with the exception of pigs where production of feeds increased by a thousand tonnes or 7.2 per cent compared with August 2014. Feeds for cattle and calves, at 71,300 tonnes in August 2015, were down by 5,800 tonnes or 7.5 per cent on the corresponding month of 2014. There was a small fall in production of sheep and lamb feeds. Output of poultry feeds fell by 3,000 tonnes year on year to 59,500 tonnes, a decline of 4.7 per cent with the bulk of the decline reflecting falling output of broiler feeds. However, barring August 2014, it was still the highest output of poultry feed for the month in question since data started to be presented in its present form in 1996.

Cumulatively, output of all feed in Northern Ireland, at 1,507,600 tonnes during the first eight months of 2015, was 29,900 tonnes or 1.9 per cent less than in the corresponding period of 2014. Nevertheless, barring production in the two preceding years, the total for the first eight months of the year was the highest on record. 

Economic Pointers

There seems to be general agreement that the UK economy was slowing down in the third quarter of 2015, compared with the 0.7 per cent GDP growth reported during the previous three months.

 The performance of the UK manufacturing sector was ‘lacklustre’ in September, rounding off one of its weakest quarters during the past two years, according to the Markit/CIPS UK Manufacturing PMI®. While the seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® signalled ‘a sharp and accelerated expansion of overall business activity’, the Markit/CIPS UK Services PMI® reported that ‘the dominant UK services sector continued to experience a slowing rate of growth at the end of the third quarter’.

Chris Williamson, Markit’s Chief Economist, noted that the UK’s rate of economic growth had slowed to a two-and-a-half year low in September. He said that that survey data indicated that GDP growth had slowed to 0.5 per cent in the third quarter, but that the UK economy had entered the fourth quarter of 2015 ‘at a pace down to just 0.3 per cent.’

The National Institute of Economic and Social Research, a think tank, estimated that the UK’s GDP grew by 0.5 per cent in the three months ending September, following growth of 0.7 per cent in the preceding quarter. NIESR said that this ‘slight softening’ in the third quarter was expected to be ‘temporary’.

The Bank of England’s Monetary Policy Committee duly voted 8 to 1 against any increase in Bank Rate with the only dissenter being Ian McCafferty, given his view that building domestic cost pressures were likely to come to outweigh the dampening influence of the appreciation of sterling, causing inflation to overshoot the 2 per cent target in the medium term.

30th September 2015

International Grains Council Update

The IGC’s September Supply and Demand assessment for 2015-16 reflects increased total output of wheat and coarse grains by 8.7 million tonnes to 1,996.4 million tonnes compared to its August assessment. This figure is just 1 per cent less than the record harvest gathered in 2014-15.

Apart from improved prospects in a number of minor producers, there were significant gains in the EU, Russia and Ukraine compared to IGC’s August assessment.  Much of the increase reflected an upgrade in the outlook for wheat production which, according to the IGC, is ‘expected to be a third successive record’. IGC also note that sorghum is forecast to hit a two-decade peak while barley is seen 7 per cent above its five-year average. The outcome of all this is that, although output is projected lower year-on-year, the total availability of grains will be boosted to a new high by large opening inventories.

IGC say that ample grain supplies will ‘underpin’ a small rise in global grain consumption, to a new record of 1,986 million tonnes. IGC expects the use of grains for food to broadly match the continuing growth in the world’s population. Demand for grains in feeds is expected to increase slightly with falling demand for maize, notably in the EU, counterbalanced by higher demand for wheat, sorghum and oats. In the industrial sector, IGC thinks that higher use of grains for starch manufacture will account for much of the projected increase in the sector but that expansion ‘is likely to be limited by only moderately rising global economic activity’.

The outcome of the various aspects of IGC’s latest assessment of world grain supply and demand seems likely to boost end-of-season stocks to 455.7 million tonnes compared to the IGC’s August assessment of 447 million tonnes, an increase of 8.7 million tonnes or 1.9 per cent. Crucially, however, when related to projected consumption of grains, end-of-season grain stocks are estimated to represent almost 84 Days Consumption Equivalent (DCE), slightly up on the 82 DCE of IGC’s August assessment. Global grain stocks are projected to reach levels which will represent a twenty-nine year high. End-of-season inventories of wheat are also forecast at record levels with inventories of barley, sorghum and oats also expected to increase; however, a small decline is envisaged for maize.

 Overall, another bearish assessment although one that will not be unwelcome to the feed industry.

IGC Soybean Update

IGC has only recently been tasked with the job of looking after the oilseed market. In their September assessment, IGC have marginally downgraded their estimate of world soybean production in 2015-16 by 400,000 tonnes, only slightly lower than the previous season’s record outturn. Key northern and southern hemisphere producers are expected to harvest above-average crops.

The strong harvest prospect, combined with the large inventories carried in from the South American crop means that total supplies for the 2015-16 run are expected to remain at very high volumes. This means, not only that total take-up, at 351.1 million tonnes is expected to be at a historically high level but also that end-of-season soybean inventories seem likely to rise by 5 per cent compared with the August projection. What is not clear, however, is the effect of the slowdown in the Chinese economy; this will bear careful watching over the next few months.

Price Moves

According to the International Grains Council’s September update, its Grain and Oilseeds (GOI) price index showed little change over the month, ‘staying close to five-year lows’. The increase over August of less than one per cent reflected a firming of some grain and oilseed export prices but there was little evidence of any common factors working across world markets.

In the US, while average wheat prices were firmer compared to those of late August, maize and soybeans values were steady. The recent advances in wheat appear to have been partly linked to speculators’ short covering of US futures, as well as concerns about dry weather in some countries. IGC note, nevertheless, that ‘sentiment across most markets was, however, weighed by bearish fundamentals, as well as worries about the world economy and how demand for commodities might be affected’.

Using data provided by HGCA, and taking the average of closing Friday FOB values for the month, the two bellwether wheats, Hard and Soft Red Winter, respectively eased and firmed to $220.25 and $209.50. Maize, at 167.07 in August, moved to $174.40 in September while there were no quotes for soybeans in advance of the imminent US harvest.

Economic Catch-up

Following its decision to leave the benchmark federal funds rate unchanged at its September meeting, the Federal Reserve Open Market Committee (FOMC), the body that actually sets the rate, is next scheduled to meet on 27-28 October. The next meeting of the Monetary Policy Committee is scheduled for 8 October. This column would not bet on any announcement of higher interest rates by the MPC in the absence of an announcement to that effect by the FOMC; it looks therefore that the earliest date for an announcement of an increase in Bank Rate would be at the meeting scheduled for 5 November – a not inappropriate date for an increase if you think about it!

Federal Reserve Chair Janet Yellan has recently maintained that the US is ‘on course’ to raise interest rates before the end of 2015. A more complex view is expressed by ‘the markets’ which, according to one source, are expecting the first increase in UK interest rates in August 2016. However, if the proposed UK referendum on continued EU membership appeared to result in anything but a definitive vote to remain, this might generate enough uncertainty to postpone any decision until the end of 2016 or, even, into early 2017.

However, the Wall Street Journal reported that according to a revised reading from the US Commerce Department last Friday, U.S. Gross Domestic Product rose by a seasonally adjusted annual growth rate of 3.9 per cent in the second quarter, in contrast to a ‘paltry’ 0.6 per cent in the first quarter; this duly fuelled market speculation that the Fed might raise rates at its December meeting. However, the Centre for Economics and Business Research, a consultancy, upgrading its forecast of a rate rise in February 2016, took the view that, following the signs of a growing global economic slowdown, interest rates were unlikely to rise before May or August 2016. But the Bank of England’s Chief Economist, Andy Haldane, in a speech given at the Portadown Chamber of Commerce, Northern Ireland, suggested that UK interest rates might have to be cut further from their record low level, as ‘he highlighted signs that the global financial crisis is entering a third phase of turmoil’. Make of that what you will.

24th September 2015

USDA Issues Grain and Oilseed Update

The United States Department of Agriculture has published its September update of worldwide supply and demand for the principal grains and oilseeds.

USDA currently sees world wheat production rising to 731.6 million tonnes, 5 million tonnes or 0.7 per cent higher than its previous, August estimate and a total exceeding the record established in 2014-15. While Canadian and Indian wheat production has been cut, the former by 1.5 million tonnes or 5.7 per cent, production of wheat in the EU has been revised upwards by 6.3 million tonnes or 4.3 per cent compared to USDA’s August assessment. Production in Russia and Ukraine has also been revised upwards by a million tonnes apiece equivalent, respectively, to increases of 1.7 per cent and 3.9 per cent.

Predictably, USDA sees consumption of wheat in India falling by 1.06 million tonnes, but EU consumption is viewed as increasing by a million tonnes compared to USDA’s August assessment. The net effect results in a 5.09 million tonne boost in world end-of-season inventories of which 60 per cent will end up in the EU; at first sight, a fairly bearish prospect as regards prices. As regards the level of forecast end-of-season inventories, USDA’s latest estimate for wheat puts these at 116 Days Consumption Equivalent, up by three days on their August estimate

However, with respect to maize, USDA has cut its estimate of world maize output by 7.51 million tonnes, a large figure at first sight but, actually equivalent to a reduction compared to USDA’s August assessment of 0.8 per cent. The bulk of the reduction is accounted for by a cut of 4.26 million tonnes in the EU’s maize output, equivalent to a reduction of 6.8 per cent on USDA’s August estimate. However, there is also a 2.6 million tonne reduction of estimated US maize production, equivalent to a decline of 0.7 per cent compared to a month earlier.

USDA’s current estimates of world maize supply and demand would seem, in contrast to that of wheat, to be on the bullish side. Against the 7.51 million tonne reduction in production, consumption is set to decline by just 2.32 million tonnes; the result is a significant rundown in world end-of-season inventories. These are forecast to decline by 5.4 million tonnes of which the US will account for 3.08 million tonnes; Brazil and the EU will account for the lion’s share of the remainder. However, it should be borne in mind that world stocks relative to estimated consumption are estimated to fall relative to USDA’s August assessment by two Days Consumption Equivalent to 70 DCE, still relatively high.

USDA’s latest update of soybean supply and demand during the 2015-16 run saw estimated world production fall by just 437,000 tonnes from their August assessment. This incorporated two features: a 513,000 tonne upgrade of US prospects and a 950,000 tonne downgrade in ‘other’ production of which a sizeable chunk was accounted for by reduced Canadian output. However, taking a variety of other factors into account, USDA currently expects to see world end-of-season inventories fall by 1.9 million tonnes or 2.2 per cent with the declines most marked in the world’s principal soybean and soymeal exporters, Argentine, Brazil and the US.

Interest Rates

As predicted in the last issue of this newsletter and elsewhere, the Federal Reserve Bank decided, at its September meeting, to reaffirm ‘its view that the current 0 to 0.25 per cent target range for the federal funds rate remains appropriate’. The decision was carried by eight members to one

After discussing a number of relevant issues, the meeting opined that it would take ‘a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 per cent. However, the Committee also noted that even after employment and inflation ‘are near mandate-consistent levels’, economic conditions might, for some time, justify keeping the target federal funds rate at below levels that the Committee viewed as ‘normal in the longer run’.

One interpretation of this somewhat arcane statement is that US interest rates are likely to remain at low levels, even after US employment and inflation rates have returned to ‘normal’. The Bank of England’s Monetary Policy Committee – and the feed industry’s Finance Directors – might possibly like to take note.

19th August 2015

USDA Update

The United States Department of Agriculture has recently released its latest, August projection of world supplies and demand for grains and oilseeds during the 2015-16 run.

USDA has increased its projection of 2015-16 wheat output by 4.59 million tonnes compared to its July assessment. This reflects substantial upgrades to the Russian and Ukrainian wheat crops; the Turkish harvest is also increased by a million tonnes or 5.4 per cent. The so-called Black Sea wheat exports – Russia, Ukraine and Kazakhstan – are, once again, projected at record levels.

In contrast, the Argentine and Canadian wheat crops have been downgraded. There is also a small reduction of 323,000 tonnes or 0.6 per cent in the US wheat crop. Russian and Ukrainian maize harvests have also been upgraded but there are substantial downgrades of both the Chinese maize harvest (down by 4 million tonnes or 1.75 per cent) and the EU crop (down by 3.52 million tonnes or 5.4 per cent). The Brazilian crop has been increased by 2 million tonnes or 2.6 per cent compared to USDA’s July assessment.

Taking wheat consumption into account demonstrates that world end-of-season stocks are projected at 113 Days Consumption Equivalent, slightly higher than in USDA’s previous assessment. End-of-season maize inventories have also been increased, from 70 DCE in July to 72 DCE in August, increasingly bearish from the speculators’ point-of-view. 

USDA’s latest projection on world soybean supply and demand will be discussed in the next issue of this E-letter.

UK Cereals Outlook

According to the latest AHDB data, the UK’s 2014 wheat harvest amounted to 16.61 million tonnes, exceeded only by the whopping UK wheat harvest of 17.23 million tonnes in 2008.

The UK 2014 wheat harvest was characterised by average yield of 8.6 tonnes per hectare, which was actually higher than the 2008 crop which yielded 8.3 tonnes. The result is what AHDB call a ‘surplus available for either export or free stock’ of 3.73 million tonnes for the cereals year 2014-15. This data was published on 15 May this year and reflected a substantial increase in end-of-season stocks compared to previous years.

The trade had clearly, as so often, anticipated this development and the November LIFFE 2015 contract fell in both April and May. On receipt of bad weather news in the EU and in a number of other far-flung wheat producers, the November contract firmed by £5 in June and edged up further in July. However, in August, on 10 August to be exact, trade sources suddenly suggested that the UK was heading for ‘a bumper harvest’ running at possibly in excess of 16 million tonnes of wheat, contributing a further boost to already high end-of-season stocks. One trader was quoted as saying that ‘Yields are just off the scale this year’, adding that there were reports of wheat yields regularly exceeding 12 tonnes a hectare.

The result could be what one source said could be ‘horrible prices’. Nearby LIFFE futures reacted immediately, falling by over £4 as the week progressed, although they showed signs of stabilising as the weekend approached. MATIF wheat futures did likewise, falling from €190 to €182.25.

While this may be good news for compounders, planning on a substantial fall in feed wheat costs, UK farmers who produce a substantial volume of feed wheat – LIFFE wheat is classed as feed grade – may be hoping that the European maize crop, forecast in some quarters to be as low as 60 million tonnes, will point buyers of feed maize in the direction of ‘other feed grains’, in other words, towards UK feed wheat. While it is true that Ukrainian maize constitutes an obvious alternative, current data suggests that this crop has also been hit by high temperatures.

Initial indications from the feed wheat and feed barley markets were that UK growers had taken note of the supply situation. The feed industry will be watching with interest as the harvest rolls on to completion.

NWF Reports Final 2015 Results

The NWF Group has recently reported its Feed Division results for the year ending 31 May 2015.

The Division has made a strong recovery from its annus horribilis – or whatever the Latin is for first six months – when, on sales of £68 million amounting to 258,000 tonnes of feeds, it made an operating profit of £100,000, equivalent to 0.15 per cent of sales, down from 2.05 per cent in the equivalent six months a year earlier. Although NWF only states total sales and operating profit, leaving operating cost to be inferred, and does not state Cost of Sales or Gross Profit, the dire first half it is understood to have been the resultof utilising higher priced forward-bought commodities as feed prices were reduced’, an experience that is unlikely to have been unique to NWF.

NWF Feed Division’s second half was markedly better with operating profits of £1.7 million and an operating profit ratio of 2.21 per cent, still lower than the average of the preceding five years. The group’s Feed Division will be watched with interest as its 2015-16 year proceeds; given its bellwether status in the ruminant sector, it is likely to point to where the sector as a whole is heading.

Cargill Acquires EWOS

Cargill has entered into an agreement with owners Altor Fund and Bain Capital Europe to acquire EWOS, a global leader in salmon nutrition, for €1.35 billion (US$1.5 billion). The transaction, which is subject to regulatory approvals, is expected to be completed before the end of the year.

The deal, the second aquaculture acquisition Cargill has announced in as many months, gives Cargill entry into the salmon market and makes Cargill's animal nutrition business a leading player in the growing salmon feed industry which, as industry observers have pointed out, is one of the most advanced and professionally managed segments in global aquaculture. The deal means that Cargill will acquire seven feed manufacturing facilities: three in Norway, and one each in Chile, Canada, Scotland and Vietnam. It also brings Cargill two R&D centres appropriately located in Norway and Chile.

According to the latest available data, EWOS produces more than 1.2 million tonnes of salmon feed.

No Deflation

Despite speculation that the July Consumer Price Index would show prices unchanged from a year earlier or, even, slightly lower, the index rose by 0.1 per cent compared to zero in the previous month.  Upward pressures were partially counteracted by falling prices for food and non-alcoholic beverages.

Weather Roundup

In contrast to April where average temperatures across the UK were 0.5 °C warmer than normal – as defined by the average of 1981-2010 – temperatures have been distinctly on the cooler side.

May saw average UK temperatures 0.8°C lower than usual while June saw then down by 0.4°C. July saw average UK temperatures down by 0.7°C with Northern Ireland down by 1.3°C while Scotland was also down by a chilly 1°C. May and July were also, in case you didn’t notice, significantly wetter than usual, with Scotland and Northern Ireland having almost twice their normal precipitation in May.

It remains to be seen what effect these disparities had on demand for feed; more on this in due course.

11th August 2015

International Grains Council Latest

In its July assessment of world grain and oilseed supply and demand, IGC has increased its estimate of total world grains output in 2015-16 by 4 million tonnes compared to its June assessment. Production is estimated to reach 1,970 million tonnes, only 2 per cent less than in the 2014-15 record.

Weather conditions, as is often the case, have reduced harvest prospects in some regions, especially in the EU (wheat and maize) and Canada (wheat, barley and oats) but these reductions have been counteracted by gains elsewhere, mainly for maize in China and sorghum in the US.

Canadian wheat production in 2015-16 has been reduced by 2 million tonnes compared with IGC’s June assessment while EU production is down by a modest 300,000 tonnes. US wheat production has been revised upwards by an identical amount. Overall, IGC’s estimate of wheat production is down by a million tonnes to 710.3 million tonnes. As regards maize, estimated output has been increased from 962.7 million tonnes in IGC’s June assessment to 966 million tonnes currently, with China up by 5 million tonnes to 225 million tonnes. EU maize production has been reduced by 700,000 tonnes to 66.9 million tonnes. As far as stocks are concerned, wheat end-of-season inventories are currently projected at 200.7 million tonnes, equal to 103 Days Consumption Equivalent while maize end-of-season stocks of 194.9 million tonnes are at 73 DCE; both these figures are high in historic terms.

IGC is looking for a marginal increase in the area planted to soybeans but with major producers showing reduced yields per hectare, production is set to fall from IGC’s June estimate of 316.4 million tonnes to its current estimate of 316 million tonnes. However, world end-of-season soybean stocks of 47.7 million tonnes are still projected at record levels, largely due to increased US end-of-season inventories.

Overall, then, a picture characterised by abundant supplies of the major grains as well as oilseeds – and the prospect of correspondingly competitive raw material prices continuing during the 2015-16 marketing year.

First Half Great Britain Feed

Production of livestock feeds in Great Britain in June 2015, at 890,600 tonnes, was at its highest recorded level for the month since records started to be kept in their present form in 1992. Production was 11,800 tonnes or 1.3 per cent higher than in June 2014.

At 314,400 tonnes, production of cattle and calf feeds was at its highest level for June since data started to be published in its current format. However, this largely reflects a 7,300 tonne or 55.3 per cent reported increase in calf feed output over the level of June 2014. Apart from an 800 tonne or 1.3 per cent increase in the output of dairy blends, outputs of all feeds for adult cattle was lower than in June 2014.  

Output of feeds for pigs, at 160,400 tonnes, was 1,600 tonnes or 1 per cent higher than in the same month a year previously. This was largely driven by higher output of grower feeds, up by 2,100 tonnes or 6.6 per cent; there were also increases in the output of finishing and breeding diets. Output of link and early grower feeds was slightly lower. Output of feeds for poultry, at 327,100 tonnes, was 2,900 tonnes or 0.9 per cent up on the level of June 2014. This reflects higher output of layer feeds (up by 5,600 tonnes or 6.5 per cent) and poultry breeding and rearing feeds (up by 4,500 tonnes or 18.6 per cent); there was also increased output of chick rearing feeds. Output of total poultry feed during the month in question was at its highest level since records started to be kept in their present form.

At 35,900 tonnes, output of feeds for sheep and lambs was at its second highest recorded level for the month in question, being exceeded only by the 42,000 tonnes recorded in June 2013. The increase in output of blends for growing and finishing sheep was particularly strong. There were also reported increases in the output of horse feeds, up by 2,300 tonnes or 20.5 per cent compared with June 2014, and ‘other’ feeds, largely thought to consist of fish feeds, up by 3,600 tonnes or 10.1 per cent.

Taking the first six months of 2015 together, total output of compounds, blends and concentrates of 5.45 million tonnes was 81,600 tonnes or 1.5 per cent higher than in the same period of 2014.

There was a decline in cattle and calf feed production amounting to 12,800 tonnes or 0.6 per cent during the first half of 2015. Within this total, there were significant declines in the output of non-dairy cattle compounds and blends as well as protein concentrates. Output of dairy compounds was also lower than in the first half of 2014, down by 8,500 tonnes or 0.8 per cent although output of dairy blends, at 436,200 tonnes, was higher by 17,000 tonnes or 4.1 per cent.

Overall production of feeds for pigs during the first six months of 2015, at 888,300 tonnes, was 2,200 tonnes or 0.2 per cent less than in the corresponding six months of 2014. This reflected falling output of feeds for very young animals and finishing feeds, partially counterbalanced by increased output of grower diets. Production of poultry feeds, on the other hand, at 1.66 million tonnes, was 27,300 tonnes or 1.7 per cent ahead of the first six months of 2014. Layer feeds were 23,100 tonnes or 4.7 per cent ahead while broiler feeds were 19,900 tonnes or 2.7 per cent ahead. Turkey feeds, on the other hand, saw output during the first half of 2015 decline by 10,800 tonnes or 16 per cent.

Production of feeds for sheep and lambs during the first half of 2015, at 541,700 tonnes recorded an increase of 47,000 tonnes or 9.5 per cent. This was largely accounted for by higher output of compounds and blends for breeding animals although there was also a 4,300 tonne or 18.6 per cent increase in production of grower/finisher blends.

Production of horse feeds during the first half of 2015, at 94,200 tonnes, was 8,600 tonnes or 10 per cent ahead of the same period of 2014. Production of ‘other’ compounds, blends and concentrates, at 187,200 tonnes, was 13,700 tonnes or 7.9 per cent ahead of the equivalent figures for 2014.

Markit/CIPS Update

While the Markit/PMI manufacturing index for July recorded a slight increase, to 51.9 from 51.4 in June (a number over 50 indicates expansion), the deterioration in the services sector, from 58.5 in June to 57.4 in July is, as Chris Williamson, Markit’s Chief Economist observed, ‘the latest in a stream of signals that the economy has slowed as we move into the second half of the year. The fall in the services PMI follows signs of ongoing weakness in manufacturing and a renewed slowing in the construction sector’.

Williamson added that despite the dip in the PMI in July, the service sector continued to act as ‘the main driver of economic growth’. The survey data pointed to GDP growth easing from 0.7 per cent in the second quarter to 0.6 per cent in the third quarter of 2015, adding that this would ‘do little to deter hawks at the Bank of England from voting for higher interest rates’.

In fact, only one member of the Monetary Policy Committee voted for an increased Bank Rate, despite speculation that two, or even three, members might break ranks and vote for an increase. While there had been widespread discussion of a possible increase in interest rates during the last quarter of 2015, the balance of opinion now seems to be shifting back to an increase during the first quarter of next year.

29th July 2015

Northern Ireland Feed Update

Delayed by late returns of survey data and onset of the holiday season, feed production data for Northern Ireland in May has recently been published. This shows that, in the month in question, production of 172,000 tonnes of livestock feeds was just 200 tonnes or 0.1 per cent higher than in the same month of 2014. However, and barring the weather-hit outcome for May 2013, total production of feed in May 2015 was at its highest level for the month since records began to be kept in their present form in 1996.

Production of cattle and calf feeds, at 87,300 tonnes in May 2015, was just 500 tonnes or 0.5 per cent higher than in May of the preceding year. There was a 700 tonne decline in output of coarse mixes and blends for beef cattle, down by 4.4 per cent year-on-year and a 500 tonne or 1.1 per cent decline in output of compounds for dairy cows. Production of non-CMR calf feeds, at 5,200 tonnes, was at its highest level for May since records started to be kept in their current form.

Turning to monogastric rations, at 14,900 tonnes, production of feeds for pigs was at its highest since 2000 and was 2,000 tonnes or 15.2 per cent up on the total for May 2014. In contrast, output of poultry feeds was down by 2,600 tonnes or 4.1 per cent compared to May 2014 with falls across the product spectrum; broiler feed, down by 1,100 tonnes or 2.9 per cent was particularly affected.

Production of feeds for sheep and lambs at 4,400 tonnes in May 2015 was 300 tonnes or 6.6 per cent less than in May of the preceding year.

Taking the first five months of 2015, total production of livestock feeds, at 1.01 million tonnes was 9,400 tonnes or 0.9 per cent less than in the corresponding period of 2014.

At 535,100 tonnes, production of cattle and calf feeds was 26,900 tonnes or 4.8 per cent less in the first five months of 2015 than in the same period of 2014 with falls across the product spectrum with the single exception of non-CMR calf feeds. There was a particularly sharp decline in output of coarse mixes and blends for beef cattle; at 107,500 tonnes, these were down by 13,700 tonnes or 11.3 per cent. Dairy compounds also saw output fall by 8,800 tonnes or 3.9 per cent to 218,200 tonnes, while compounds for beef cattle, at 56,300 tonnes, were down by 3,900 tonnes or 6.5 per cent.

Output of feeds for pigs, on the other hand, at 83,000 tonnes, was up by 13,800 tonnes or 19.9 per cent. Production rose across the board with the exception of link and early grower feeds; growth was particularly strong in the finishing feed sector where output rose by 8,900 tonnes or 36.2 per cent compared to the first five months of 2014. Output of poultry feeds also increased albeit more modestly; production rose by 7,100 tonnes or 2.3 per cent with the bulk of the increase accounted for by higher output of broiler feeds, at 194,100 tonnes, up by 12,200 tonnes or 6.7 per cent, although this was partially counteracted by lower output of turkey and other poultry feeds. Poultry feed output was at its highest recorded output for the five months in question.

Production of feeds for sheep and lambs in Northern Ireland during the first five months of 2015, at 43,400 tonnes, was a thousand tonnes or 2.3 per cent less than during the first five months of 2014 with the largest absolute decline taking place in compounds for breeding animals. It is significant that, at 43,400 tonnes total output, production of sheep and lamb feeds during the period in question was slightly less than the average of production since 1996; in other words, this species sector does not seem to be displaying any positive signs of long-term growth.

On the basis of the first five months of 2015, therefore, it would not seem that, despite a strong performance by poultry feeds, the current production record in Northern Ireland of 2.32 million tonnes established in 2013, is going to be broken this year.

Economic Catch-Up

Following the disappointing 0.4 per cent growth in Gross Domestic Product in the first quarter of 2015, the Preliminary Estimate of Gross Domestic Product growth in the second quarter of 2015 was awaited with particular interest.

According to analysts polled by the Wall Street Journal, the U.K.'s Gross Domestic Product was projected to rise by 0.7 per cent in the three months to June 2015, a significant improvement on the 0.4 per cent growth recorded during the first quarter. Improved second-quarter GDP growth was viewed as being ‘primarily the consequence of a pickup in services activity.’ Healthy consumer spending in the second quarter was also expected to contribute to the recovery in GDP growth. Conversely, however, the prospects for stronger economic growth could be affected by the manufacturing and construction sectors, combined with the current strength of sterling and the Eurozone’s troubles.

 The WSJ poll was in line with polls conducted by Reuters. Interestingly, the minutes of the July meeting of the Monetary Policy Committee reveal that ‘the central expectation of Bank staff was for growth of 0.7 per cent in both the second and third quarters’.

In the event, the Office of National Statistics has just announced that GDP in the second quarter of 2015 increased by the widely trailed 0.7 per cent. Of this, the service sector accounted for 0.7 per cent while the production sector accounted for a surprisingly strong 1 per cent. Output from the construction sector was flat while the contribution from the agricultural sector was negative at 0.7 per cent.

Meanwhile, while the latest, July minutes of the Monetary Policy Committee indicate that, for all members, the policy decision, to keep Bank Rate and Quantitative Easing unchanged, was ‘clear cut’, there was a strong hint that this unanimity, intact since January 2015, was unlikely to continue for very long, perhaps breaking down as soon as the Monetary Policy Committee’s next meeting on 5 August. Then, it will become apparent who, and how many, of the MPC’s members, have elected to break ranks.

22nd July 2015

Checking the Checkout

Compounders and other suppliers of livestock feeds will be well aware that in the final analysis it is what happens at the supermarket check-out which, amongst other factors, eventually decides what livestock farmers can pay for their feed.

The latest available estimate of inflation, in the form of the Consumer Price Index (CPI) relates to the twelve months ending in June 2015. In the twelve months to June 2015, the Office of National Statistics reported that the ‘The CPI 12-month rate (the amount prices change over a year) between June 2014 and June 2015 stood at 0.0 per cent’. The OFS appears to take a dim view of its readers’ ability to understand English; it goes on to say that ‘This means that a basket of goods and services that cost £100.00 in June 2014 would still have cost £100.00 in June 2015.’

Although prices overall did not change between June 2014 and June 2015, there were changes in some of the sub-groups and the ONS noted that ‘Falls in clothing and food prices were the main contributors to the change in the rate along with smaller rises in air fares than a year ago’. As regards food prices, this raises the question of what was happening to the prices of livestock products.

There are two sources of data in this regard. The first is price data expressed in index form for the main categories of livestock products: beef, pork, butter, milk and so on. These data suggest that, in the year to June 2015, the retail prices of beef fell slightly, by 0.5 per cent compared a year earlier. Lamb prices, on the other hand, were 2 per cent higher. The prices of pork, bacon and poultry were all slightly lower; pork was down by 1.6 per cent, bacon by 1.3 per cent and poultry by 6 per cent. Butter was down by 4.1 per cent while cheese prices dropped by a more modest 1.7 per cent. Eggs, on the other hand, saw prices at retail drop by 5.3 per cent while milk, that bellwether at the heart of the debate over farmgate prices versus what the supermarkets are asking, saw retail milk prices 5.4 per cent down on the levels of June 2014.

If you prefer specific livestock product prices rather than broad index-based indicators, then ONS publish the ‘average retail prices of selected products’. The humble pint of milk cost 44 pence in June 2015, two pence less than in June 2014. A dozen Size 4 eggs would have cost you £2.28 in June this year as against £2.49 a year previously. An oven-ready fresh or chilled roasting chicken? £3.14 a kg in June as against £3.35 in June 2014. At 4.78 a kg, pork sausages in June were 20 pence cheaper than a year earlier.

There were some exceptions to the general trend. Home-killed rump steak, at £16.27 a kg, was 12 pence a kg more expensive while home-killed topside of beef, at £11.57 a kg, was a whopping 75 pence more expensive. Home-killed best beef mince, on the other hand, at £7.79 a kg, was 26 pence cheaper than in June 2014.

Raw Material Price Update

Weather-related concerns together with the strong dollar have dominated prices in May and June and the first half of July. Taking the average of the first three weeks of July, values for both Hard and Soft Red Winter wheats FOB Gulf were, respectively, $249 and $238, $13 and $20 ahead of average June values. However, the trend during July for both Hard and Soft Red Winter wheats has been downwards as the Northern Hemisphere harvest has loomed into view.

Average US soybean values broke through the $400 mark during the first three weeks of July but were easing as the month progressed.

El Niño

Over the lifetime of this column, El Niño has surfaced from time-to-time and with generally unfavourable consequences for the feed industry in terms of rising raw material costs. 

One source defines El Niño as ‘an irregularly occurring and complex series of climatic changes affecting the equatorial Pacific region and beyond every few years, characterized by the appearance of unusually warm, nutrient-poor water off northern Peru and Ecuador, typically in late December. The effects of El Niño include reversal of wind patterns across the Pacific, drought in Australasia, and unseasonal heavy rain in South America’.

The reason for this column’s interest in this meteorological phenomenon is because of the effects it can have on crop development, notably in the southern hemisphere. In March, the National Oceanic and Atmospheric Administration (NOAA) in the US announced that ‘The long-anticipated El Niño has finally arrived’ but that ‘due to the weak strength of the El Niño, widespread or significant global weather pattern impacts are not anticipated’. In May, however, the Australian Bureau of Meteorology begged to differ, saying that the developing El Niño bore significant similarities to the ‘strong’ El Niño of 1986-87. In an ‘El Niño advisory’ published in early July, NOAA warned that ‘There is a greater than 90% chance that El Niño will continue through Northern Hemisphere winter 2015-16, and around an 80% chance it will last into early spring 2016’. And, as this edition of the E-letter was being written, the Washington Post, noted that the current El Niño event, on the brink of attaining ‘strong’ intensity, ‘has a chance to become the most powerful on record’.

We shall see. However the current event develops – and the science of predicting that development is still imperfect – it looks as if something dramatic weather-wise is in the wings. The only two ‘super’ or ‘very strong’ El Niño events in the historic record occurred in 1982-83 and 1997-98. The forecasters’ consensus is for a ‘strong’ event but doesn’t specify how strong. Watch this space.

Earlier Interest Rate Hike?

Remarks by Bank of England Governor Mark Carney and Federal Reserve Chair Janet Yellen have fuelled speculation that interest rates could rise this year rather than, as widely predicted, in the first six months of 2016.

Carney, speaking in Lincoln, said that a rise in interest rates was ‘moving closer’ in the coming months. This was because there were signs that the UK economy was ‘growing faster that its historic trend’. Official data showed that average weekly wages before bonuses rose at an annual rate of 2.8 per cent, the fastest since early 2009.

Yellen told Congress that the Federal Reserve remained on course to raise interest rates in 2015, pointing out that the ‘robust’ labour market and signs that the inflation rate was increasing made a rate rise necessary. She did not say when rates would rise but many rate-watchers were inclined to bet on September.

15th July 2015

USDA Updates Grain Supply and Demand

The United States Department of Agriculture has issued its latest, July update for the major agricultural commodities.

As regards wheat, USDA has raised its estimate of world consumption in 2015-16 by 405,000 tonnes to just short of 722 million tonnes. This reflects increased estimates of production amounting to 4 million tonnes in Russia, Kazakhstan and Ukraine as well as a 740,000 tonne increase in projected US output. Projected reductions in output included a 2.8 million tonne fall in the EU along with a 1.5 million tonne fall in Canada.

Estimated world wheat consumption in 2015-16 has been reduced by 5.36 million tonnes compared to USDA’s June assessment. Apart from a 1.4 million tonne increase in Indian consumption, the major item contributing to the decline is a 5 million decline in estimated Chinese take-up, a decline that is largely unexplained in USDA’s current commentary. However, the reduction in projected Chinese consumption must be a factor in the estimated increase of 17.15 million tonnes in projected Chinese end-of-season stocks, an increase of almost 24 per cent on USDA’s June projection.

It is also possible that last month’s IGC Grains Conference in London may have had some effect on USDA’s July deliberations. It will be recalled that world crop data officials were to hold meetings with their Chinese counterparts over opening up access to China’s grains data, including the ‘state secret’ of information on inventories. The latter represent one of the largest ‘statistical mysteries’ in world markets; they are seen as ‘adding significant structural uncertainty to world prices’. It seems at least possible that the substantial revision to Chinese stocks since USDA’s June assessment may reflect new insights gained at the conference.

Overall, world end-of-season wheat stocks relative to consumption have increased by 1.74 million tonnes or 8.6 per cent compared with USDA’s June assessment. Wheat inventories in July were estimated as being equivalent to 113 Days Consumption Equivalent; the preceding ten-year average was 98 DCE suggesting that, from the speculators point-of-view, USDA’s current prediction for wheat stands in the bears’ camp.

In contrast, USDA’s July assessment of the world market for maize shows overall 2015-16 production falling by 2.19 million tonnes or 0.2 per cent compared to their June assessment. This reflects smaller crops in the US and the EU more than offsetting higher production in Brazil and China. USDA’s July assessment reinforced existing price trends; quotes for maize from all origins had, in any case, risen sharply after USDA’s Grain Stocks report implied higher-than-estimated usage and the Acreage Report, both published on 1 June, showed smaller area planted and harvested. Since the release of the June WASDE reports, U.S. maize quotes have risen strongly, supported both by the USDA reports and concerns over excessive rain in parts of the U.S. Corn Belt.

Brazilian maize output has been revised upwards by 2 million tonnes or 2.7 per cent compared to USDA’s June assessment and Chinese output has been increased by a million tonnes or 0.4 per cent. In contrast, EU maize output has been cut by 2.37 million tonnes or 3.5 per cent compared to USDA’s June outlook while US output has been reduced by 2.54 million tonnes or 0.7 per cent.

After taking changes in world usage, estimated end-of-season maize inventories have been revised downwards from USDA’s June assessment of 195.19 million tonnes to 189.94 million tonnes. Relative to US consumption, maize inventories are estimated to be equivalent to 49 DCE, compared to 55 DCE in USDA’s June assessment, a shift that would appear to favour the bulls. However, world end-of-season stocks, at 70 DCE, are well above the average for the preceding decade of 62 DCE which appears likely to ameliorate any potential upward price pressure.

As regards grains prices during the first two weeks of July, the bellwether Hard and Soft Red Winter wheats FOB Gulf appeared to be reflecting concerns about weather. During the first and second week of July, average prices were, respectively, $253.75 and $242; these compare with the averages for June of $236.25 and $218.40. IGC’s Grains and Oilseeds Index also showed firmly during the first two weeks of July, breaking back to 211.00 compared with an average for June of 196.75 (2000 = 100).

Soybean Outlook

USDA’s July prognostication of world soybean supply and demand in 2015-16 suggests that estimated world end-of-season soybean stocks as a proportion of the total world crush will, according to the available data, be at their highest level since records became available in their present form in 1964-65.

The bearish tone of this assessment is likely to be boosted by the upgrade to the US soybean crop, due to higher acreage, up by 952,000 tonnes or 0.9 per cent. However, it needs to be borne in mind that falling harvests of both rapeseed and sunflower seed combined with continued strong demand are forecast to drive stocks ‘down to levels not seen in years’. When measured as a percentage of demand, rapeseed stocks are projected to shrink to their lowest level in over a decade, whereas sunflower seed stocks could fall to their lowest in more than fifteen years. This appears likely to be supportive of soybean and meal prices.

Economic Catch-up

The Consumer Prices Index in the year to June 2015 was 0.0 per cent, down from 0.1 per cent in the year to May 2015. Falls in clothing and food prices were the main contributors to the change in the rate along with smaller rises in air fares than a year ago. Food prices were down by 2.2 per cent. There were no large upward effects to offset the change.

Northern Ireland Feed Update

Once again, and despite being scheduled for an update on 3 July, no production statistics for feed output in the Six Counties in May had emerged by the time that this edition of the E-letter was ready for broadcast. Subject to the data being available, these statistics will be analysed in the next issue of this E-letter.

8th July 2015

Feed Material Prices

The average of closing Friday prices according to the International Grains Council during June showed UGC’s indicative Grains and Oilseeds Index at 196.75; in the first week of July it rose sharply to 211.

This reflected substantial increases across the board. In the first week of July, FOB Gulf prices for Hard Red Winter wheat hit $254 as against an average of $237 in June. EU standard wheat rose to $222 at Rouen ($201.25) while US No. 3 Yellow Maize rose to $194 FOB Gulf ($173). US Soybeans FOB Gulf rose to $415 in the first week of July ($388 during June). Reflecting these developments, IGC’s sub-indices for wheat, maize and soybeans rose substantially in the first week of July compared to their June averages.

AHDB’s schedule of international prices showed the two indices of ‘world’ prices – Hard and Soft Red Winter wheats FOB Gulf – the former averaged $236.25 in June and surged to $253.90 in the first week of July while the latter, which averaged $218.40 in June jumped to $244.90 in the first week of July while maize FOB ex-Gulf, which had been easing slowly downwards during the first half of 2015, jumped from $172.23 in June to $193.20 as the trade moved into July.

Quotations for US #2 yellow soybeans during the first week of July 2015 were conspicuous by their absence, although Argentine Up-River values firmed in the first week of July by almost $30 a tonne or by just over 8 per cent. The absence of US quotations may have reflected the impact of rains which have reportedly left US farmers an area nearly half the size of Belgium to plant with soybeans, with the ‘ideal sowing window’ closed.

El Niño on Horizon

Our old friend El Niño appears to be making one of its periodic appearances.

A recent Rabobank report is quoted as saying that El Niño 2015 is ‘underway’ and looks set to disrupt production of wheat, coffee and sugar, leading to ‘volatile’ prices. The most immediate area of concern to feed manufacturers will be wheat.

Australia appears to be first in the firing line. Australian wheat production accounted for 11.3 per cent of world wheat exports in 2014-15 – 17.3 million tonnes out of 152.9 million tonnes. Dry and warm conditions mean that production typically declines by a quarter in El Niño years. Rabobank went on to comment that a significant contraction in Australian wheat output in 2015-16 would require additional Northern Hemisphere wheat to meet exporters’ demands. It would also limit availability of high protein wheat which, Rabobank thinks, is in particularly tight supply at the international level.

USDA is currently forecasting the 2015-16 wheat crop at 26 million tonnes, 2 million tonnes up on the estimated outturn in 2014-15. USDA’s next, 10 July revision will bear watching to see how USDA views the prospects for an El Niño event.

Northern Irish Feed Update

Despite being scheduled for an update on 3 July, by the time that this edition of the E-letter was ready for distribution, no production statistics for feed output in the Six Counties in May had finally emerged.  Subject to the data being available, these statistics will be analysed in the next issue of this E-letter.

Food Poisoning Report

Salmonella, beef masquerading as lamb in lamb kebab and undeclared milk in United Biscuit’s waffles have featured in recent Food Standards Agency announcements. All these announcements resulted in product recalls.

2nd June 2015

Northern Irish Catch-Up

Northern Ireland has, at last, produced its feed production data for March, allowing analysis for the first quarter of 2015 - but has also already produced data for April. This is remarkably quick off the blocks, given that Great Britain is not scheduled to produce data for April until 4 June, just too late for this issue of the e-letter. April data for Great Britain will, accordingly, be analysed in the next issue of this e-letter.

Production of all feed in Northern Ireland during April, at 215,000 tonnes, was 2,300 tonnes or 1.1 per cent less than during April 2014. The principal fall in output occurred in cattle and calf feeds; at 110,100 tonnes, these were down on year-earlier data by 9,800 tonnes or 8.1 per cent with declines across the board with the exception of non-CMR calf feeds.

Production of pig feeds rose by 3,600 tonnes compared with April 2015, up by almost a quarter on the level of April 2014. The increase was particularly marked as regards finishing feeds; at 7,900 tonnes, these were up by 2,600 tonnes or a massive 48.1 per cent on output in April 2014, albeit that pig feed is a very small part of the Northern Irish product mix. Production of poultry feeds increased by 4,000 tonnes or 5.9 per cent in April 2015 compared with the same month a year earlier; this was entirely due to increased output of broiler feeds, up by 5,500 tonnes or 13.8 per cent to 71,000 tonnes, the highest April output on record. Production of feeds for sheep and lambs were virtually unchanged in April 2015 compared with the same month in 2014, with gains in output of growing and finishing compounds for sheep being counteracted by falling production of breeding sheep diets.

Taking the first four months of 2015 cumulatively, total output amounted to 838,600 tonnes, 13,300 tonnes or 1.6 less than in the same four months of 2014. Again, the biggest loser was output of feeds for cattle and calves – at 444,400 tonnes, down by 30,700 tonnes or 6.5 per cent on the same period of 2014. In volume terms, the falls were particularly significant in dairy compounds and in coarse mixes and blends for beef cattle; these alone accounted for declines in output amounting to 23,700 tonnes.

Output of pig feeds did rather better with output, at 68,100 tonnes being 11,800 tonnes or 21 per cent ahead of the same period of 2014; predictably, the bulk of the increase was provided by higher output of finisher diets. Output of poultry feeds, at 257,800 tonnes, was up by 9,700 tonnes or 3.9 per cent compared with the same four months of 2014 with the bulk of the increase being contributed by a 13,300 tonne or 9.2 per cent increase in output of broiler feeds; output of turkey and ‘other’ poultry feeds fell by 4,500 tonnes or 28.1 per cent over the same period.

It is worth remembering, when considering changes in output of feeds in Northern Ireland that output is dominated by production of cattle and calf feeds. In 2014, these accounted for 52.4 per cent of all production, with poultry feeds accounting for a further 33.7 per cent. Pig feeds accounted for a modest 7.8 per cent while feeds for sheep and lambs accounted for just 2.9 per cent of total output. The remaining 3.3 per cent of output was accounted for by lightly processed or straight feeds.

Economic Roundup

The Markit/CIPS Purchasing Managers Index® (PMI®) data for manufacturing were published on 1 June. According to City AM, these were expected to show a score of 52.5 for May, ‘up from the relatively weak score of 51.9 in April, which showed only slight growth in the sector.

In the event, PMI® – a summary indicator of overall manufacturing sector health – increased to 52.0 in May, slightly lower than markets had expected but up from a revised reading of 51.8 in April (previously reported as 51.9).

Commenting on the outcome, Rob Dobson, Senior Economist at survey compilers Markit noted that expectations of a broad rebound in UK economic growth during the second quarter of 2015 had been ‘called into question’ by the latest data, adding that manufacturing looked to be on course to act as a minor drag on the economy with the sector being ‘hit by a combination of the strong pound and weak business investment spending.’

City AM noted, on 1 June, that the service sector was expected to deliver a score of 59.5 in May, largely unchanged from April. The construction sector was predicted to be at 55, up from April’s figure of 54.1 Comment on the actual performance of the construction and service sectors will follow in the next issue of this e-letter.

The Second Estimate of the UK’s Gross Domestic Product in the first quarter of 2015 was published on 28th May, following the Preliminary Estimate, published a month earlier. The UK’s GDP in volume terms was estimated to have increased by 0.3 per cent between the last quarter of 2014 and the first quarter of 2015, unrevised from the previous estimate of GDP. GDP was estimated to have increased by 2.8 per cent in 2014, compared with 2013, again unrevised from the previously published estimate.

19th May 2015

USDA Updates

The United States Department of Agriculture has published its first look at cereal and oilseed supply and demand in the 2015-2016 run.

USDA is predicting total world wheat production of 718.93 million tonnes in 2015-16, 7.52 million tonnes or just over 1 per cent less than the estimated record 2014-15 outturn. Of the eight major exporters, Australia and the US are the only two where wheat production is expected to increase in 2015-16 while production in Argentina, Canada, EU, Kazakhstan, Russia, and Ukraine is projected to decline. However, large opening stocks will compensate for any production downturn and exportable supplies are still seen as ‘ample’.

China’s wheat production is projected at a record 130 million tonnes and exceeds domestic consumption for the third year in succession.

Worldwide end-of-season wheat stocks are seen as rising marginally to 203.3 million tonnes as world production exceeds consumption for the third successive year. End-of-season inventories are also projected to rise marginally relative to consumption. In 2014-15, projected end-of-season stocks were the equivalent of 103 Days Consumption Equivalent; for 2015-16, they are projected at 104 DCE.

USDA is looking for maize production to fall by 6.29 million tonnes or 0.6 per cent in 2015-16 compared with the previous growing season. US production in 2015-16 has been cut to 346.2 million tonnes compared to 361.1 million tonnes in 2014-15, reflecting a lower harvested area and a return to trend yields; in 2014-15, these were projected at 171 bushels per acre against the average achieved in the previous decade of 150 bushels per acre. Production in Brazil, Ukraine and the EU is also projected lower in 2015-16 than in the previous season.

USDA is projecting end-of-season maize inventories worldwide at 191.9 million tonnes, slightly down on 2014-15 but still equal to 71 DCE; relatively high compared to the average of the previous decade of 62 DCE.

For soybeans in 2015-16, USDA is looking for world output of 317.3 million tonnes, virtually unchanged on 2014-15; however, this reflects a 3 per cent fall in US output compared with 2014-15 as well as falls in Chinese and Argentine output. What really spooked markets was the projected end-of-season stocks figure for the US; at 500 million bushels or 13.61 million tonnes, this was almost 13 per cent above market expectations.

World end-of-season stocks as a percentage of projected world crush amounted to 36 per cent; this compares with the average for the preceding decade of 28 per cent.

Overall, this would appear to be a positive report from the point-of-view of raw material buyers with supplies of grains and oilseeds relative to demand expected to be ample. It will be borne in mind that these data are very preliminary and represent USDA’s best guess at this early stage. Updates to USDA’s current first guess at 2015-16 will follow in due course.

Total Incomes from Farming

DEFRA has recently released the first estimate of Total Income from Farming (TIFF) for the UK for 2014. A second estimate, incorporating data becoming available later in the year will be published on 26th November 2015.

DEFRA estimates that TIFF fell between 2013 and 2014 by £247 million in real terms, a decline of 4 per cent, to £5,379 million. This is 1.2 per cent lower than its value in 2011, the last year not directly affected by the weather. The 2014 value was driven by increased production - offset by lower prices and reduced payments resulting from a less favourable €/£ exchange rate.

The picture for livestock is mixed with the value of milk increasing by £331 million to £4,602 million while the value of livestock primarily for meat decreased by £311 million to £7,455 million. Milk production was at its highest level since 1987 achieved by an increase in the dairy herd coupled with higher yields encouraged by the good grazing conditions. The average price of milk in calendar year 2013 was 31.6 pence per litre compared to 31.5 pence per litre in 2014; milk volumes were strong in the first half of 2014 but fell significantly in the second half of the year.

The decline in the value of livestock primarily for meat was largely due to a £311 million decrease in the value of cattle meat to £2,582 million, reflecting the decline in price compared to the record high prices reported in 2013. Pig meat values changed little; at £1,270 million, this reflected higher production offset by lower prices. The value of mutton and lamb production increased by £66 million to £1,112 million; this reflected both higher output and profitable prices.

The value of poultry meat fell by £66 million to £2,260 million in 2014, easing compared to the growth seen in the last decade. Production fell by 2.9 per cent although prices remained largely stable.

Economic Round-up

According to the latest PMI® survey data from Markit and CIPS, both the manufacturing and construction sectors saw growth slow in April with the manufacturing sector showing a marked slowdown and the construction sector reporting the weakest increase in new business since June 2013. However, Chris Williamson, Chief Economist at Markit, which compiles the survey, said that fears of the economy slumping amid election jitters were ‘allayed’ as an upturn in service sector activity helped to offset sharp slowdowns in both manufacturing and construction. Adding that the PMI surveys suggested that the economy was showing ‘robust growth momentum’, expanding at a rate of 0.8% at the start of the second quarter, Williamson said that, as such, it looked as if the economy had ‘rebounded’ from the weakness seen at the start of 2015.

The Bank of England’s latest Inflation Report notes that market interest rates imply that Bank Rate is expected to rise from early 2016, but only to 1.4 per cent in three years’ time. The Economist newspaper observed that ‘with inflation expected to remain close to zero until later this year, the consensus about when the central bank (of England) might raise interest rates has moved to the middle of 2016.’ Confirming widespread speculation inflation, as measured by the Consumer Price Index, fell by 0.1 per cent in the year to April with the largest contribution to the decline coming from air and sea fares. According to the Office of National Statistics, this was the first fall in annual inflation since official records began in 1996 and the first time since 1960 based on comparable historic estimates.

The Second Estimate of GDP growth in the first quarter of 2015 will be released on 28 May; it remains to be seen whether the Preliminary Estimate released on 28 April of 0.3 per cent was an under-estimate.

El Niño – It’s Official

Both the Japan Meteorological Agency and the Australian Bureau of Meteorology (BoM) have said that an El Niño weather pattern emerged in the spring, and was likely to continue into the autumn.

Of concern to raw material buyers will be the potential effects of El Niño on world grain and oilseed crops. The Australian BoM notes that the event is frequently associated with below-average winter and spring rainfall over eastern Australia and above-average daytime temperatures over the southern half of the country. It has already been reported that Australian growing conditions ‘look quite challenging for the winter crop’, currently being planted.

Other weather conditions typically associated with El Niño include dryness in parts of eastern South America. In the US, El Nino is associated with cool and wet weather in many major growing areas which could resolve drought in southern states and boost Midwest maize yields - albeit potentially damaging the quality of crops such as wheat. One commentator notes that ‘heavy, recurring showers in the Great Plains and Midwest may be an early consequence of a strengthening El Niño’, adding that El Niño was ‘a heavy rainmaker for the central US.’

12th May 2015

Quarterly Update

DEFRA has recently released figures for the production of compounds, concentrates and blends in Great Britain during March.

Total output during the month amounted to 1.11 million tonnes, 32,900 tonnes or 3.1 per cent up on March in 2014. According to records going back to 1992, this was the second highest total for the month in question, being exceeded only by the weather-driven total for March 2013.

Output of feeds for cattle and calves, at 423,000 tonnes, was up by 4,100 tonnes or 1 per cent more than in March 2014. Again, this is a fairly substantial total, exceeded only by that recorded in 2013 and, stretching back into the mists of time, by the 434,400 tonnes produced in 1996. The principal area of expansion was in dairy blends, up by 8,900 tonnes or 10.8 per cent compared with March 2014; there was also a small increase in output of dairy compounds, up by 1,800 tonnes or 0.9 per cent. However, output of feeds for non-dairy cattle were down by 5.5 per cent compared with March 2014 with the bulk of the decline taking place in the blends sub-sector.

Production of feeds for pigs, at 161,600 tonnes, was up by 5,300 tonnes or 3.4 per cent on production in March 2014 with the bulk of the increase accounted for by increased output of grower and finishing feeds. Output of poultry feeds, at 298,200 tonnes, was marginally higher than a year earlier, up by just 700 tonnes or 0.2 per cent. This reflected increases in the output of broiler and layer feeds; production of other classes of poultry feeds fell with the decrease being most marked in turkey feeds, down by 4,500 tonnes or 29.6 per cent.

Production of feeds for sheep and lambs in March 2015 amounted to 159,700 tonnes, 17,800 tonnes or 12.5 per cent more than in March 2014. The bulk of this arose from increased output of compounds for breeding sheep; at 101,300 tonnes, production was 13,300 tonnes or 15.1 per cent up on output achieved in March 2014. There were also large percentage increases in blends for both breeding and finishing sheep although the absolute increases were very small.

There was a 2,800 tonne or 15.9 per cent increase in output of feeds for horses to 20,400 tonnes.

The arrival of data for March 2015 means that data for Great Britain during the first quarter of 2015 can be assembled. Cumulative production in Great Britain during the first quarter of the year amounted to 2.89 million tonnes, 59,700 tonnes or 2.1 per cent higher than in the first quarter of 2014. This was the third highest total recorded since records began to be kept in their present form in 1992, exceeded only by output in 2013 and 1996.

Production of cattle and calf feeds during the first quarter of 2015, at 1.14 million tonnes, was slightly lower – by 500 tonnes – than in the first quarter of 2014. This reflected falling production of non-dairy compounds and blends together with protein concentrates. These countered increases in production of compounds and, in particular, blends for dairy cattle; at 245,900 tonnes during the first quarter, output of the latter was higher by 15,000 tonnes or 6.5 per cent compared with the same quarter of 2014. Production of dairy compounds was also higher but by only 1,400 tonnes or 0.3 per cent.

Production of pig feeds during the first quarter of 2015 was also slightly lower than in the first quarter of 2014, falling by 5,300 tonnes or 1.2 per cent. This reflected falls in production of pig starters and creeps as well as link and early grower feeds; output of finisher and breeder feeds also fell. The only area showing any growth was grower feeds; at 96,300 tonnes, these were up by 5,600 tonnes or 6.2 per cent.

Output of poultry feeds, at 800,100 tonnes, was 20,400 tonnes or 2.6 per cent ahead of the first three months of 2014 with the increase concentrated in the broiler sub-sector – up by 21,200 tonnes or 6 per cent – and the layer sub-sector – up by 10,500 tonnes or 4.3 per cent. Turkey feeds showed the largest decline in both absolute and percentage terms; at 28,100 tonnes, production of turkey feeds in the first quarter of 2015 was down by 4,200 tonnes or 13 per cent compared with a year earlier.

Production of feeds for sheep and lambs of 368,200 tonnes was 32,200 tonnes or 9.6 per cent up on the first quarter of 2014, an increase which made sheep and lamb feeds the largest contributor to the overall increase of 59,700 tonnes. Increased production of compounds and blends for breeding sheep accounted for the majority of the increase; blends in particularly showed strongly in the first three months of 2015, increasing by 11,400 tonnes or by 80 per cent compared with production in the first three months of 2014.

There were also significant increases in production of horse feeds and other miscellaneous feeds during the first quarter of 2015.

Turning to the prevailing weather conditions, average temperatures in March were unexceptional, based on the average for 1981 to 2010. Wales and Northern Ireland were on the cold side while Scotland was slightly warmer than usual. Scotland was wet but, when rainfall for the rest of the UK is accounted for, the UK as a whole had average rainfall during the month. In common with the preceding two months of the year, the UK enjoyed more sunshine than usual during March.

Looking forward to the April feed production figures, temperatures in the UK as a whole were 0.5 ° C warmer than normal as defined by the 1981 – 2010 average, driven by higher than normal temperatures in England and Wales. It was a dry month with the UK as a whole receiving barely two-thirds of its normal rainfall; England and Wales received less than half. The UK as a whole was also very sunny with the country enjoying 143 per cent of its ‘normal’ sunshine.

Northern Ireland’s feed production statistics for March are not yet available; these will be discussed in the next issue of this e-letter.

Economic Catch-up

It seemed less than likely, in the wake of the General Election, that the Bank of England’s Monetary Policy Committee would make any changes to interest rates or asset purchases at their May meeting and so it proved to be the case. Indeed, given the sharp decline in the rate of inflation at the end of 2014, a rise in interest rates in 2015 is looking increasingly unlikely. One respected forecaster has recently changed its bet on the first rise in interest rates, now projecting the first increase to take place in the early summer of 2016 rather than, as earlier envisaged, late in 2015.

28th April 2015

International Grains Council Update

IGC has issued its April update for grain and oilseeds supply and demand in the 2015-16 run.

Total world grain output is projected at 1,947 million tonnes, 10 million tonnes higher than in IGC’s March projection but still 3 per cent lower than the record output in 2014-15. Most of the decline in output is accounted for by maize; although IGC’s projection has been increased by 11 million tonnes compared to IGC’s March projection, at 951 million tonnes, it is still 43 million tonnes down on 2014-15, led by lower US production and reduced prospects in Argentina, China and India. Production of wheat has been reduced by 4 million tonnes to 705 million tonnes, down by 2 per cent on 2014-5.

IGC’s projection of global consumption is increased by 10 million tonnes, to 1,969.8 million tonnes with a high proportion of the increase in the feed sector. The projection of end-of-season inventories has also been increased by 9 million tonnes to 415 million tonnes, down on the 2014-15 outcome but still about 9 per cent above the average for the past half-decade.

Feed Material Prices

The IGC’s Grains and Oilseeds Index (GOI) in April fell by 2 per cent compared to March, reaching its lowest level since July 2010. Hard Red Winter wheat FOB Gulf fell by $9 to $244.55; Soft Red Winter, conversely, was marginally firmer than in March. US maize was marginally easier in April while US soybeans FOB Gulf fell by 1.5 per cent to $386.40.

Nottingham Feed Conference

This year’s event will take place at Nottingham University’s Sutton Bonington Campus on 23 and 24 June. The provisional programme – at the time of writing, two papers needed to be confirmed – can be seen on the Nottingham University website.

Economic Catchup

The Bank of England’s Monetary Policy Committee agreed unanimously at its meeting on 8 and 9 April to maintain Bank Rate at 0.5 per cent and maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion. However, it was widely noted and commented upon that the minutes of the meeting had reported that while ‘all Committee members agreed that it was appropriate to leave the stance of monetary policy unchanged at this meeting two members regarded this month’s decision as finely balanced.

The two members in question regarding the decision as ‘finely balanced’ were, putatively, the same two that voted in August through December last year for a 0.25 per cent increase in Bank Rate to 0.75 per cent, namely Ian McCafferty and Martin Weale. Since January, they have voted with the majority of the MPC; it now appears that, if indeed it was these two who found the decision this close, the hawks are fluttering their plumage once again.

Meanwhile, the Office of National Statistics has just published its preliminary Estimate of the UK’s gross Domestic Product during the first quarter of 2015.

Prior to the ONS’ announcement, some economists had expected the figures to show GDP growth slowing to a quarterly 0.5 per cent in the first three months of this year, down from 0.6 per cent in the final quarter of 2014. Weaker than expected industrial production, construction output and high street sales in recent months had even encouraged some economists to pencil in a halving in the growth rate to 0.3 per cent, according to a Reuters poll.

In the event, the Reuters poll was spot-on. The ONS reported that GDP was estimated to have increased by 0.3 per cent in the first three months of 2015 compared with growth of 0.6 per cent in the last quarter of 2014. While output increased in services by 0.5 per cent in the first quarter of 2015, the other three main industrial groupings within the economy declined, with construction falling by 1.6 per cent, production by 0.1 per cent and agriculture by 0.2 per cent. GDP was thus provisionally estimated to have been 2.4 per cent higher in January to March 2015 compared with the same quarter in 2014.

21st April 2015

GB Feed Production

Data for the first two months of 2015 presents a mixed picture.

Total output of compounds, blends and concentrates in Great Britain during January and February amounted to 1.79 million tonnes, 32,000 tonnes or 1.8 per cent more than in the first two months of 2014. However, production of cattle and calf feeds, at 717,400 tonnes, was lower by 4,400 tonnes or 0.6 per cent compared with the corresponding months a year earlier. There were falls across the species sub-sectors with the exception of dairy blends which saw output increase by 7,000 tonnes or 4.8 per cent. Output of dairy compounds, on the other hand fell by 1,200 tonnes or 0.4 per cent; this may suggest that dairy farmers are starting to reverse their previous apparent strategy of increasing milk product in order to take advantage of the higher milk prices that characterised the early part of 2014.

Output of non-dairy cattle feeds and, in particular, blends also declined; this is likely to have reflected the clement weather that dominated during the first few weeks of 2015.

Production of pig feeds during the first two months of 2015 amounted to 278,800 tonnes, slightly less than in the corresponding period of 2014. This largely reflected lower output of grower feeds; finishing feed production was up on year-earlier levels. The combination of higher finishing feed and lower grower feeds may suggest a weakening in the market which could manifest itself more fully in succeeding months, particularly in that output of breeding feeds was lower in the first two months of 2015 than in the equivalent months of 2014.

Production of poultry feeds during the first two months of the year was up by 19,100 tonnes or 4 per cent, largely reflecting a 14,200 tonne or 6.5 per cent increase in broiler feed output, although there was also a significant increase in production of layer feeds. Interestingly, there was also a 12,200 tonne or 6.3 per cent increase in the output of sheep and lamb feeds, largely driven by a 10,300 tonne increase in blends for breeding sheep; total output of the latter, at 17,800 tonnes, was more than double that of January and February 2014.

Northern Ireland

Production of livestock feed in Northern Ireland during the first two months of 2015, at 410,800 tonnes, was 7,800 tonnes or 1.9 per cent lower than in January and February 2014.

At 222,600 tonnes, output of cattle and calf feeds was 14,800 tonnes or a substantial 6.2 per cent down on the levels of the corresponding months of 2014. Non-dairy compounds and blends were most affected. Output of pig feeds increased by 5,700 tonnes or 20 per cent to 34,000 tonnes, its highest level since 1998.  Output of poultry feeds increased by 4,500 tonnes or 3.9 per cent, largely driven by increased production of broiler feeds. There was a small decrease in the production of feeds for sheep and lambs. 

USDA Updates

The United States Department of Agriculture has made small changes to its current projections of wheat and maize supply and demand for the 2014-15 outcome.

World wheat output has been increased by 1.69 million tonnes, largely reflecting increased production in the EU. The world maize harvest has been increased by 2.26 million tonnes compared to USDA’s March projection, reflecting higher prospects for a number of disparate countries. In neither case has USDA’s estimate of Days Consumption Equivalent been changed from its March projection of 101 DCE and 71 DCE respectively; both these figures are relatively high compared to historical projections.

USDA has slightly increased its projection of 2014-15 soybeans output, reflecting a combination of increased Argentine output and a cut in the Indian soybean harvest. This has had no effect on USDA’s estimate of end-of-season stocks as a proportion of estimated soybean crushing in 2014-15; this still stands at 35 per cent, the same as in March and a historically high figure.

In May, USDA looks set to issue its first projection of wheat, maize and soybean production during the 2015-16 season; these will be reported upon in due course.

31st March 2015

International Grains Council Outlook

IGC has marginally cut its estimate of world grain production – wheat and coarse grains – in 2014-15 to 2,000 million tonnes, a million tonnes less than in 2013-14.

Its February projection of world wheat production remains almost unchanged in IGC’s March projection at 719.3 million tonnes, up by 300,000 tonnes on IGC’s February projection, of which the most significant increase was in the EU. IGC’s projection for maize in 2014-15, currently at 990 million tonnes, is slightly down on the February projection of 992.4 million tonnes. This includes a 3 million tonne cut in IGC’s assessment of South African prospects but a 600,000 tonne increase in prospective EU maize output.

IGC has made its initial projection of supply and demand for grains in 2015-16 which points to a 3 per cent decline in the world’s grain harvest. This includes an estimated 9 million tonne fall in global wheat production compared to the current estimate for 2014-15. However, IGC are projecting a 2 million tonne decline in global end-of-season wheat inventories, equivalent to 101 Days Consumption Equivalent (DCE), a fairly minor reduction from the 102 DCE projected for 2014-15.

World output of maize in 2015-16, on the other hand, is seen as declining by 49 million tonnes compared with 2014-15, almost 5 per cent, reflecting a return to more ‘normal’ yields.  Maize end-of-season stocks in 2015-16 are seen as declining by 20 million tonnes to 171 million tonnes, equivalent to 65 DCE compared to 72 DCE in 2014-15.

IGC has made a small adjustment to its 2014-15 projection of soybean production, from 314.9 million tonnes in their February projection to 314 million tonnes. This appears largely to reflect adjustments to South American production, although Brazil and Argentina were unaffected. Both Brazil and Argentine are projected to increase soybean production in 2015-16, although the increases are smaller than those envisaged in IGC’s February Grain Market Report.

The United States Department of Agriculture will shortly publish two measures which have significant potential price impact: Firstly, domestic grain stocks as of the beginning of March 2015; and, secondly, farmers' prospective spring sowings intentions. These will be reviewed in a subsequent issue of the e-letter. Meanwhile, USDA’s first look at world supply and demand for grains and oilseeds in 2015-16 will be published on 12 May.

Economic Background

Following the latest data on inflation as measured by the Consumer Price Index, which showed inflation at zero in the year to February 2015, there has been increased speculation as to whether forthcoming data would show prices actually falling and, if so, what would be the Monetary Policy Committee’s reaction as regards interest rates?

There were plenty of conflicting signals. Bank Governor Mark Carney told a Bundesbank conference in Frankfurt that 'We're still in a position where our message is that the next move in interest rates is going to be up.' Deputy Governor Ben Broadbent said in a speech at Imperial College’s Business School that current UK deflation fears were ‘overblown’.

This double blast of the trumpet against the interest rate cutters seems to have been a response to the Bank of England’s own chief economist Andy Haldane, who surprised investors recently when he said that the recent sharp slowdown in inflation meant the Bank could cut interest rates further; in other words, below 0.5 per cent.

However, the Bank’s latest inflation report hints that interest rates will not rise until the Spring of 2016 if the UK economy ‘stays on its current course’.

The Quarterly National Accounts for the last three months of 2014 reported that the UK’s Gross Domestic Product in volume terms was estimated to have increased by 0.6 per cent between the third and fourth quarters of 2014, revised up 0.1 percentage points from 0.5 per cent estimated in both the preliminary and second estimates of GDP. The latter was estimated to have increased by 2.8 per cent in 2014 compared with 2013, revised up by 0.2 percentage points from the previously published estimate.

The first, preliminary estimate of GDP in the first quarter of 2015 will be published on 28th April.

24th March 2015

Milk Quotas RIP

We are a week off the demise of milk quotas, introduced way back in April 1984 and this has raised questions as to how dairy farmers will react.

It will be remembered by compounders of a certain age that the introduction of milk quotas had a devastating effect on the feed industry in terms of volumes. However, that is a matter of history; the question now is should we expect a tidal wave – or, even, a milk lake.

A recent report by the European Commission says that ‘despite the quota expiry, no surge in milk production is expected’. The report suggests that, in 2015, milk production in the Community is expected to increase by around 1 per cent. The report says that further supply increase can be expected especially in the countries where the number of dairy cows is significantly higher than in 2013, according to the December livestock survey. This group would include Ireland, the Netherlands and Germany.

We shall see. At a recent meeting of the RABDF, I was told that at the current level of prices, there was very little incentive for dairy farmers in the UK to increase production.

EU dairy farmers delivered a record 148 million tonnes of milk in 2014, 6 million tonnes or 4.5 per cent more than in the preceding year, a development which, as the report observes, ‘few anticipated’. The UK was one EU member whose milk production increased by more than 6 per cent – the actual figure was 8.2 per cent.

Compounders will be watching developments carefully in the next few months. There is a great deal of difference in the market situation in 2015 compared to 1984 when quotas were introduced, of which the emergence of significant volumes of demand for milk and dairy products in Asia and elsewhere will offer opportunities to dairy farmers in the EU. After thirty years in which milk production has been carried out in the context of the quota system, we are moving into a new era.

Wynnstay AGM

The Wynnstay Group held its AGM on 24 March and noted that the Group had made ‘a good start’ to the new financial year, with both the agricultural and retail divisions performing in line with management expectations. In particular, demand for feed over the winter period had been ‘encouraging’, with increased volumes over last year.

The Group reported ‘robust’ results for the twelve months ending 31 October 2014 with the Group’s broad spread of activities continuing to be a major strength. Sales, at £413.56 million were slightly up compared to the previous twelve months, reflecting commodity price deflation but the Group achieved volume gains in certain markets. The Group’s pre-tax profit of £8.60m were also slightly up on the previous year at £8.46 million, excluding an exceptional item of £0.35m and £8.11 million after the exceptional item. The Group noted that its performance during the second half of the year had been particularly strong.

Inflation Report

There was fevered speculation as to the UK’s inflation rate in February, following the Consumer Price Index’s fall to 0.3 per cent in January with analysts suggesting that the Index might go negative; in other words, move into deflation.

In the event, the Index was unchanged compared with February 2014, signifying a ‘12-month rate of 0.0 per cent, down from 0.3 per cent in January.’

The Office of National Statistics put the main contributions to the slowdown in the inflation rate down to ‘price movements for a range of recreational goods (particularly data processing equipment, books and games, toys & hobbies), food and furniture & furnishings.’ The ONS said that there were no large upward effects to offset the changes.

Foods are an area of particular interest to compound feed manufacturers, especially livestock products. While beef prices, on average, were 1.6 per cent higher in February 2015 than they were a year earlier, home-killed lamb was 3.2 per cent cheaper and pork 4.7 per cent cheaper. Poultry was down by 5.1 per cent. Cheese prices at retail were down by 3.9 per cent while eggs saw retail prices fall by 11.4 per cent over year earlier levels.

To put some of these percentages into context, a pint of milk in February 2015 cost 39 pence a pint compared with 47 pence a year earlier. A dozen size 4 eggs cost £2.30 compared with £2.82 in February 2014. An oven-ready fresh or chilled roasting chicken cost £3.17 a kilo in February 2015 compared with £3.34 a year ago. Home-killed loin of pork cost £6.58 a kg in February 2015, down from £6.83 a year earlier. At £7.66 a kilo in February 2015, home-killed bone-in shoulder of lamb was 20 pence cheaper than a year earlier while bone-in loin of lamb at £12.80 was £1.12 less than a year earlier. Beef prices, on the other hand, were generally up on year earlier levels although best minced beef was 17 pence a kilo cheaper.

Much of this will have reflected the competitive state of the retail food market, particularly as regards the activities of Aldi and Lidl. However, the falling price of livestock products at retail will be of concern to the feed industry in that livestock producers may find margins being squeezed – potentially affecting the price they are able to pay for their largest single input, namely feed.

Customer Numbers

The December Survey of livestock held on holdings in the UK shows a very small increase in the numbers of cattle and calves but, as far as the dairy breeding herd was concerned – cattle of two years old or more – UK numbers increased by 3.7 per cent compared with December 2013.

There was a 2.9 per cent increase in the total number of pigs but the female breeding herd decreased by 1.8 per cent. The number of sheep and lambs increased by 4 per cent compared to December 2013.

11th March 2015

UK January Feed Output

Feed manufacturers in Great Britain started the New Year off with production of 892,000 tonnes in January, 5,900 tonnes or 0.7 per cent up on the same month a year earlier.

At 359,600 tonnes, cattle and calf feeds were 10,900 tonnes lower than in January 2014, down by 2.9 per cent. Perhaps significantly, all categories of cattle feeds were down on year earlier levels with the exception of dairy blends, up by 5,900 tonnes or 8.1 per cent; this may be viewed as dairy farmers’ first reaction to falling milk prices. Production of dairy compounds, at 166,300 tonnes, was down on year earlier levels by 3,300 tonnes or 1.9 per cent.

Production of pig feeds, at 144,200 tonnes, was 2,400 tonnes or 1.7 per cent up on the level of January 2014 with the bulk of the increase reflecting higher production of finishing feeds. Production of poultry feeds, at 254,500 tonnes, was 9,100 tonnes or 3.7 per cent up on year earlier levels with the largest contribution coming from higher output of broiler feeds, up by 7,200 tonnes or 6.4 per cent on the total recorded in January 2014; there was also increased output of layer feeds. Output of both broiler and layer feeds were at their highest recorded level since 1992.

Production of feeds for sheep and lambs recovered from the weather-driven decline of January 2014 and, at 91,200 tonnes, were 5,200 tonnes or 6 per cent up on the total for a year earlier. This largely reflected a massive rise in production of breeding blends which, at 9,100 tonnes, were almost three times higher than in January 2014.

There was a small fall in horse feeds output and a small increase in output of ‘other compounds, blends and concentrates’.

Production of feeds in Northern Ireland during January 2015 showed a small decline of 1,400 tonnes or 0.7 per cent on January 2014 but was still the second largest total since records for Northern Ireland began to be kept in their present form in 1996.

Output of cattle and calf feed fell by 7,400 tonnes or 6 per cent month on month with the largest fall occurring in coarse mixes and blends for beef cattle. There was also a 1,800 tonnes or 3.9 per cent decline in the production of dairy compounds.

Output of feeds for pigs rose to 17,800 tonnes, 2,600 tonnes or 17.2 per cent up on January 2014. Production of poultry feeds rose by 4,200 tonnes or 6.9 per cent to 64,900 tonnes with the bulk of the increase being contributed by higher output of broiler feeds. Output of poultry feeds was at its highest on record; the same was true of pig feeds.

In common with Great Britain, output of feeds for sheep and lambs was higher than in January 2014, up by 600 tonnes or 7.1 per cent with the bulk of the increase attributable to higher output of compounds for growing and finishing stock as well as coarse mixes and blends.

Feed Material Price Indicators

The International Grains Council’s Grains and Oilseeds Index (GOI) has been declining since November 2014 and this decline continued into the first week in March 2015, reflecting declines in the GOI’s sub-indices for both wheat and maize to below 200 (January 2000 = 100). HGCA’s monitoring of wheat prices FOB Gulf showed Hard Red Winter averaging $253 in February 2015 with Soft Red Winter at $236; year earlier values for these wheats stood at $301 and $268 respectively. LIFFE spot wheat averaged £116.75 in March, its lowest since November last year with contracts for May, July and November all down compared with February. This may reflect easing of concerns about potential knock-on effects of the Russia and Ukraine conflict, as well as the supply position in general.

The United States Department of Agriculture’s latest supply and demand update was published at 5 PM on 10 March, too late for inclusion in this edition of the e-letter; it will be discussed in the next issue.

17th February 2015

USDA Updates Supply and Demand Projections

It is said amongst agricultural commodity watchers that the World Agricultural Supply and demand estimates represent ‘a highpoint of the agricultural commodities calendar’. However, the February edition is ‘not usually much of a market mover’, according to one publication. This is not surprising in that, within three months, USDA will publish its first guess at prospects for the forthcoming 2015-16 season, much of the hard data for 2014-15 being already to hand. The Agricultural Outlook Forum that USDA will host on 19 - 20 February will give some initial insights into USDA’s current thinking about 2015-16.

USDA has increased its February projection of world wheat production in 2014-15 to a new record of 725 million tonnes, 1.65 million tonnes ahead of its January projection, reflecting increased production from Argentina, Kazakhstan, EU, Turkey, and Ukraine. Export prices in January for Hard and Soft Red Winter wheat FOB Gulf averaged $265 and $251 respectively, down by 9.6 per cent and 9.3 per cent on December values; both values eased further in the first week of February. End-of-season inventories, at a shade less than 196 million tonnes, are projected to be equivalent to 101 Days Consumption Equivalent (DCE), unchanged from USDA’s January projection; both US and total world inventories are significantly up on the 2013-14 outcome.

USDA has increased its projection of world maize production to 991.3 million tonnes, an increase of 3.2 million tonnes on USDA’s January estimate and reflecting larger crops in Ukraine (up by 1.45 million tonnes) Argentina (up by a million tonnes) and India (up by 500,000 tonnes). EU production has also been increased by a modest 200,000 tonnes. The increases more than offset a reduction of 500,000 tonnes in Russia. US maize FOB Gulf values eased modestly by just under 5 per cent to $181 in January and were showing easier in the first week in February.

USDA notes that record soybean production in nearly all of the major exporting countries, either already harvested, or forecast for harvest in early 2015, is contributing to an increase in global oilseed end-of-season inventories. These are forecast to rise significantly this year, led by a 35 per cent per cent rise in world soybean end-of-season stocks driven, to a very significant extent by US end-of-season inventories which are currently projected to rise from 2.5 million tonnes in 2013-14 to 10.5 million tonnes in 2014-15, an increase of 319 per cent.

USDA sagely observes that: ‘The abundant oilseed supply situation will likely cause negative pressure on soybean prices, a situation that could be exacerbated if producers harvest large crops next year’. This prospect will be further discussed on 20 February during the USDA Agricultural Outlook Forum on February 20 when the initial forecast of U.S. soybean and products in 2015-16 will be released.

Chicago wheat for May 2015, which averaged $5.47½ cents a bushel in January eased back to $5.17 in the first February trading week; July and December futures were also lower. Chicago maize futures were also easier during the first February trading week while the May 2015 soybean contract dropped below the $10.00 level for the first time, following the lead given by the November 2015 contract which averaged £9.83¾ during January, easing further to $9.58¼ in the first February trading week.

The MATIF May 2015 wheat contract, which had firmed significantly during the back end of 2014 and into January 2015, reflecting concerns over the Russia Ukraine conflict, eased back from €196.15 in January to €187.55 during the first week of February; the  November contract was also easier. May 2015 wheat futures on LIFFE closed at £131.66 in January and eased by a further £6.70 in the first trading week of February. July 2015 wheat averaged £132.03 in January, easing by a further £6.40 in the first week of February.

Northern Ireland Feed 2014

Production of feeds in Northern Ireland in December 2014 amounted to a total of 217,200 tonnes, 6,900 tonnes or 3.3 per cent more than in the corresponding month of 2013. It was also the highest total for December since records were first kept in their current form in 1996.

Cattle and calf feeds, at 115,200 tonnes, were down on the December 2013 total by 5,900 tonnes or 4.8 per cent. There was a particularly sharp fall in output of coarse mixes or blends for beef cattle, down by 6,800 tonnes or 20.7 per cent compared with December 2013. The most significant increase was in output of dairy compounds, up by 2,400 tonnes or 5.8 per cent on year earlier production.

Production of pig feeds was up by 3,000 tonnes or 18.8 per cent on year earlier levels with finishing feeds making the largest contribution. Production of poultry feeds, at 70,300 tonnes, was 10,100 tonnes or 16.8 per cent up on the levels of December 2013 with the largest contribution arising from broiler feed output, at 39,900 tonnes up by 8.100 tonnes or 25.6 per cent on year earlier levels.

There was very little change, at 4,900 tonnes, in output of feeds for sheep and lambs in December 2014.

Total production of feeds in Northern Ireland during 2014, amounted to 2,313,200 tonnes and the second highest total on record, only exceeded by 2013’s total of 2,319,300 tonnes. Production of total feeds in 2014 was thus 6,100 tonnes or just 0.3 per cent less than in the record-breaking 2013 run.

Predictably, and given the clement weather of 2014 compared to its predecessor, output of cattle feed in Northern Ireland was 78,000 tonnes or 6.1 per cent less in 2014 compared with the previous year. Feeds for beef cattle took the bulk of the decline with beef compounds down by 24,400 tonnes or 16.2 per cent and output of beef coarse mixes and blends down by 63,100 tonnes or by just over a fifth. In contrast, compound feeds for dairy cows were up on 2013 by 21,200 tonnes or 4.3 per cent, although dairy coarse mixes and blends were down on 2013 by 6,400 tonnes or 2.5 per cent. Output of feeds for sheep and lambs, at 67,200 tonnes, was down by 14,700 tonnes or 17.9 per cent with falls across the board, particularly for breeding sheep compounds.

Monogastric feeds came to the rescue, however. At 180,000 tonnes, output of feeds for pigs during 2014 was up on output in 2013 by 19,200 tonnes or 11.9 per cent, with solid advances in grower and finisher feeds, up respectively by 16 per cent and 11.9 per cent. Perhaps significantly, production of starter and creep feeds was up by 3,800 tonnes on the levels of 2013, an increase of 34.7 per cent.

Production of poultry feeds, at 778,900 tonnes was up by 69,100 tonnes or 9.7 per cent compared with 2013, with the increased output dominated by broiler feeds, at 448,900 tonnes up by 57,000 tonnes or 14.6 per cent. Less spectacularly, output of layer and breeder feeds also rose in 2014 by 15,200 tonnes or 6.7 per cent.

What about 2015? Given Northern Ireland's recent track record and assuming ‘average’ weather in 2015, it would be a bold pundit who laid odds against Northern Irish feed production exceeding the record 2.32 million tonnes achieved in 2013.

Interest Rate Puzzle

Bank of England Governor Mark Carney has said that Bank Rate could drop even further from its current record low rate of 0.5 per cent.

In a letter to Chancellor Osborne, Carney said that ‘the fall in near-term inflation could be more persistent than the Committee currently expects. Global activity could continue to disappoint, or if low inflation were to depress inflation expectations, it could become self-reinforcing’. In such a case, the Monetary Policy Committee could cut the current rate further towards zero or do more quantitative easing. He went on to say that ‘the MPC now judges it more likely than not that headline CPI inflation will turn negative at some point in the spring and will remain subdued for much of the rest of the year’.

Earlier this year, the market consensus was that the Bank of England would not raise interest rates until the second half of 2015. However, weak economic data and the  fall in inflation as a result of the collapse in oil prices has pushed markets’ expectations as regards the first interest rate increase back to the start of 2016 at the earliest, although it should be noted that the markets can change their position very quickly.

As this issue of the e-letter closed for publication, there was mounting speculation that inflation, as measured by the Consumer Price Index, could fall from 0.5 per cent in December 2014 to 0.3 per cent in January.

10th February 2015

Feed Production December and 2014

Total output of compounds, concentrates and blends in Great Britain during December 2014 amounted to 1,005,000 tonnes, 25,800 tonnes or 2.6 per cent more than in December 2013 and the third highest total for the month in question since records started to be kept in their present form in 1992.

At 427,000 tonnes output of cattle and calf feeds in Great Britain was 3,600 tonnes or 0.9 per cent higher than in December 2013. It looks, however, as if the effects of falling milk prices have started to be reflected in relative purchases of dairy compounds and blends; while the former rose by 3,600 tonnes or 1.9 per cent compared with December 2013, the latter rose by 10,000 tonnes or 11.7 per cent. However, output of blends for non-dairy cattle fell by 7,400 tonnes or 16.4 per cent compared to December 2013.

There was a 6,500 tonne increase in pig feeds production in December, an increase of 4 per cent largely driven by higher output of finishing feeds. Poultry feed production rose by 7,400 tonnes or 2.6 per cent on December 2013 levels with substantial contributions coming from broiler chicken feeds, up by 6,000 tonnes or 4.8 per cent on year-earlier levels and layer feeds, up by 5,200 tonnes or 5.8 per cent. Production of feeds for sheep and lambs rose by 1,500 tonnes or 2.5 per cent with most of the increase coming from breeding sheep compounds, up by 1,500 tonnes or 7.5 per cent on year-earlier levels.

Turning to the year as a whole, production of feed in 2014 – excluding integrated poultry feed – was 10.54 million tonnes, 224,700 tonnes or 2.1 per cent less than in 2013.

Production of cattle and calf feeds, at 4.16 million tonnes in 2014, was almost 120,000 tonnes less than in the preceding year with double-digit percentage declines in the output of non-dairy compounds and blends. There was also a 13,900 tonne decline in output of dairy blends; in contrast, however, production of dairy compounds, at 2,095,900 tonnes was 60,900 tonnes or 3 per cent up on 2013 and at its highest level in eight years.

Pig feeds, at 1,748,600 tonnes, added 66,600 tonnes or 4 per cent to the 2013 outcome with finisher feeds to main contributor. In contrast, output of poultry feeds in 2014, at 3,333,000 tonnes showed an advance over 2013 of just 22,400 tonnes or 0.7 per cent. Broiler feeds were the major contributor to increased output; at 1,476,200 tonnes they were 36,200 tonnes or 2.5 per cent up. Turkey feeds, on the other hand, showed a decline of 15,100 tonnes or 7.7 per cent.

Predictably, output of feeds for sheep and lambs plummeted in 2014 compared with the preceding year. At 705,000 tonnes, production was down by 185,200 tonnes or 20.8 per cent with the major losses occurring in compounds for breeding sheep, down by 118,800 tonnes or 28.1 per cent on 2013.

Northern Ireland’s output of feed in 2014 will be reported upon in the next edition of this e-letter.

NWF Reports Half Year

The NWF Group has recently reported its half-year results for the six months ending 30 November 2014.

Group revenues (from the manufacture and sale of animal feeds and other agricultural products; the sale and distribution of domestic heating, industrial and road fuels; and the warehousing and distribution of clients’ ambient grocery and other products to supermarkets and other retail distribution centres) were down 4.6 per cent to £247.1 million (six months to end-November 2013: £259.1 million). Operating profits, at £2.8 million, were 13.9 per cent down, (six months to end-November 2013: £3.6 million) while Headline Pre-tax Profits were down 24.2 per cent to £2.5 million (six months to end-November 2013: £3.3 million).

Looking at feeds, sales decreased by 0.6 per cent to £68.0 million (six months to end-November 2013: £68.4 million). This was as a result of lower selling prices being offset in part by the sales from S.C. Feeds which joined the Group in November 2013. Volumes were up 14.7 per cent to 258,000 tonnes (225,000 tonnes); implying an ‘average’ selling price of £264 compared to £304 during the corresponding period of 2013, a fall of just over 13 per cent.

NWF does not provide data on Gross Profitability but, in the light of these figures, the melt-down in operating profit, from £1.4 million in the first half of 2013 to £100,000 in first half 2014, the worst result for years, suggests, in the absence of any data suggesting an increase in indirect costs, NWF Agriculture’s was taking delivery of high priced forward-brought raw materials; as NWF’s interim report notes, ‘Margins reduced during the period as a result of utilising higher priced forward bought commodities as feed prices were reduced’.

It will be interesting to see whether other feed manufacturers have experienced similar problems.

Economic Catch-up

The Markit/CIPS UK Services PMI® for January 2015 moved further into positive territory, reaching 57.2 compared to the January measure of 55.8.

 Both current activity and new business increased at accelerated and above survey average rates. Companies were encouraged by these trends to hire additional staff at the joint second-fastest rate in the survey history, using the additional capacity to try and clear backlogs and prepare for further business expansion in the coming months. Chris Williamson, Chief Economist at survey compiler Markit, noting that the January PMI surveys collectively signalled ‘a reassuringly robust start to the year for the UK economy’, added that they were indicative of a quarterly rate of GDP growth of just over 0.5 per cent, allaying fears that the economy was slowing sharply and contributing to a more sustainable rate of growth.

Meanwhile, City AM’s ‘Shadow’ Monetary Policy Committee, voting in advance of the Bank of England’s February MPC meeting, elected by seven to two to keep interest rates at 0.5 per cent, the two dissenters being in favour of raising rates. The real Monetary Policy Committee duly complied, although it will not be known until 18 February whether, as at the time of the MPC’s January meeting, the decision was unanimous.

4th February 2015

Raw Materials in January

Indicative data is now available to show how raw material values moved in January 2015.

For January, the International Grains Council’s Grain and Oilseeds Index (GOI) fell by a net 6 per cent compared to their last, November report, and was down 14 per cent on a year ago. There was some firming of wheat and maize values in December 2014 relating to developments in Russia and China but markets eased in January, as large exportable supplies were reinforced by mostly favourable weather for South American crops; while falls in cereal crop values were quite broad-based, soybean prices fell particularly sharply, with the soybean sub-Index some 20 per cent lower compared to the same time last year.

On the basis of IGC data for successive Fridays, values for Hard Red Winter Wheat FOB Gulf in January averaged $260.80 compared to December’s $288.25, a fall of 9.5 per cent and the lowest since July 2010. Standard French wheat values at Rouen, which had recorded firmer prices during the last quarter of 2014, reflecting concerns over Russian actions vis-a-vis Ukraine, also eased, shedding $10 compared to December. US maize FOB Gulf, at $180.80 in January, was down £7.70 on December, continuing the decline on November values. IGC also noted declines in both US and Argentine FOB soybean values.

HGCA data, also collected by this publication on successive Fridays, showed bellwether FOB US Gulf Hard and Soft Wheat values for January at, respectively, $265 and $251 were $28 and $26 down on the average for the preceding month. US Number 2 yellow soybeans on the same basis eased $22 compared to their December values.

In the UK, the LIFFE wheat futures contract for July 2015 averaged £132 in January, £5.30 down on its December value while the November contract averaged £137 in January, down £5.60 on its December value.

Overall, an encouraging start to 2015 for raw material purchasing managers.

Farm Incomes 2014-15

DEFRA has recently released its latest forecasts of Farm Business Incomes for England for the twelve month period ending in February 2015. Actual results from the Farm Business Survey will be published towards the end of October.

Briefly, average Farm Business Incomes for dairy farmers are expected to fall by 11 per cent to £78,000 in the year to February 2015 although there will clearly be a great deal of variation around the mean. Additionally, it was a year of two halves. Higher prices in the first half of the year together with high volumes will have partially offset the much-discussed reduction seen in recent months.

Input costs are also expected to fall, particularly for feed, reflecting lower cereal and soya prices. DEFRA say that current indications are that volumes of purchased dairy feed are unchanged compared to 2013-14; this likely reflects silage quality along with other forages as well as increased average herd sizes.

Average incomes on both Lowland and Less Favoured Area grazing livestock farms are projected to increase slightly in 2014-15, albeit from a low base. Total input costs are expected to fall for both these farm types, more than offsetting the lower output from livestock enterprises and thus resulting in higher incomes, albeit that the increases are marginal, amounting to a 6 per cent increase to £16,000 for Lowland Grazing Livestock farms and a 14 per cent increase to £16,500 for LFA Grazing Livestock farms. DEFRA say that feed costs are likely to reflect lower volumes as well as prices due to more favourable grazing and forage harvesting conditions during 2014.

Average Farm Business Income is forecast to fall by around 20 per cent to £51,500 on specialist pig farms. Input costs are also expected to fall, particularly feed which represents almost half the total costs on these farms. Forecasts for specialist poultry farms are subject to considerable uncertainty, reflecting both the structure of this sector and the relatively small sample of these farms in the Farm Business Survey. Total farm output on specialist poultry farms is expected to fall, partially offset by lower input costs, particularly feed, the key input on these farms; average incomes are therefore expected to fall by 11 per cent to around £140,500.

More detailed analysis of these data in due course.

Name Change

I understand that the Agricultural and Horticultural Development Board (AHDB) is rebranding itself or, rather, its component parts.

ADHB is a UK-wide non-departmental public body primarily funded by statutory levies paid by farmers, growers and others in the supply chains concerned. Currently chaired by former NFU President Peter Kendall, AHDA’s new Chief Executive is former Farmers’ Weekly editor Jane King, who took up her position on 1 February

 I understand that the changes will be implemented from this summer; this will, amongst other matters, allow the using up of existing stocks of sector-specific materials in order to ensure that the rebranding exercise is carried out at minimal cost.

The Home Grown Cereals Authority, whose data is frequently quoted in this and related publications, will become AHDB Cereals and Oilseeds. DairyCo will become AHDB Dairy while Eblex will become AHDB Beef and Lamb; Bpex will become AHDB Pigs.

AHDB Cereals and Oilseeds is a bit of a mouthful compared with HGCA – but never mind.

Economic Update

The January Markit/PMS surveys for production, construction and services have been published this week with analysts, according to City A.M. expecting all the numbers to be up on December’s.

This proved to be the case as regards manufacturing, albeit the PMI was up only marginally from December’s revised 52.7 to 53.0. Rob Dobson, Senior Economist at survey compilers Markit, while noting that UK factories had reported a welcome upturn in output growth and order books at the start of the year, ‘producers clearly remain stuck in a low gear’. He went on to say that the rate of expansion remained muted, with output rising at a quarterly pace of around 0.2 per cent in January, barely more than the 0.1 per cent registered in the final quarter of 2014.

As regards the construction sector, the PMI was also up, from 57.6 in December to 59.1 in January. Commenting on the data, David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, said that after the disappointing end to 2014 and the drop in the industry’s fortunes, ‘the construction sector has had a perky start with good activity across all sectors’.

Markit/PMI’s Services index for January was published too late for this issue of the e-letter; an update on this sector will be published next week.

27th January 2015

International Grains Council Update

IGC has increased its last, November estimate of world cereals production in 2014-15 by 12 million tonnes to 2,002 million tonnes, a record.

The increase largely reflects a higher estimate of world maize output, from 982 million tonnes in November to 992 million tonnes in January, including bigger than previously forecast crops in Argentina, Brazil, the EU and Ukraine. IGC’s estimate for maize production in the US during the 2014-15 run, on the other hand, has been reduced by 3.9 million tonnes to 361.1 million tonnes.

Total end-of-season cereal inventories, at 432 million tonnes, are slightly up on IGC’s November projection but remain at an estimated 80 Days Consumption Equivalent (DCE). A small reduction in estimated wheat consumption in 2014-15 has resulted in an increase in end-of-season wheat inventories from 99 DCE in November to 101 DCE in January, a relatively high level. IGC’s January projection has factored in a 10 million tonne increase in maize consumption in 2014-15, resulting in a minor decrease in end-of-season cover, from 74 DCE to 73 DCE.

IGC’s soybean projection for 2014-15 has seen production increase from 308 million tonnes in November to 312 million tonnes in January. A slightly smaller increase in consumption means that projected end-of-season inventories have increased from 49 to 51 DCE, relatively high and equivalent to the ratio of stocks to consumption in the 2010-11 season.

IGC has made its preliminary guesses at Brazilian and Argentine maize supply and demand in the 2015-16 season, with both countries showing lower maize production compared to 2014-15; South African production has also been reduced.

Meanwhile, prices on world markets have continued to ease, if not dramatically. The IGC’s useful Grains and Oilseeds Index (GOI) weakened by 6 per cent since the November issue of the Grain Market report with a particularly sharp fall in soybeans. Residual concerns about Black Sea export curbs contributed to temporary strength for wheat, but values retreated again as supplies elsewhere were considered ‘adequate’. For cereals, the tone was mostly set by a focus on abundant world supplies, contributing to an overall decline in prices.

Wynnstay Reports

The Wynnstay Group has recently reported its results for the twelve months ending 31 October 2014.

In line with International Financial Reporting Standards (IFRS) 8 (which requires a company’s operating segments to be identified on the basis of internal financial information about the components of the Group that are used to allocate resources to the segments and to access their performance) Wynnstay’s operation are divided up as follows: Agriculture – the manufacture and supply of animal feeds, fertiliser, seeds and associated agricultural products; Specialist Retail - supplies of a wide range of specialist products to farmers, smallholders, and pet owners; Other - miscellaneous operations not classified as Agriculture or Specialist Retail.

On Wynnstay’s 2014 accounting year, almost three-quarters of the Group’s sales arose from Agriculture, (78.1 per cent in 2013) with 25 per cent accounted for by specialist retail (21.8 per cent in 2013). Overall, sales rose by £77,000 compared with the Group’s 2013 financial year while the cost of sales fell by £3.37 million, a reflection of easier commodity markets and resulting in a 6.9 per cent increase in Gross Profitability. There were, however, sharp increases in distribution and administrative costs, up respectively by 11.4 per cent and 3.1 per cent and resulting in a 3 per cent fall in operating profits. When other factors are taken into account, Wynnstay generated pre-tax profits of a shade over £8.49 million, 5.9 per cent up on the 2013 outcome and, as many publications noted, a record.

On a segmental basis, based on ‘a measure of operating profit’, Agriculture appears to have come under pressure in 2014. Agriculture’s contribution to Group operating profit fell from 54.8 per cent in 2013 to 42.6 per cent in 2014 while Specialist Retail’s contribution rose from 49.5 per cent to 54.6 per cent. It should also be said that ‘Others’ turned around from negative operating profit in 2013 to a contribution of 2.8 per cent in 2014.

Looking at the 2014 accounts as a whole, while the Gross Profit ratio rose from 12 per cent of sales in 2013 to 12.9 per cent in 2014, indirect costs are clearly cause for some concern. Together, these amounted to 9.9 per cent of sales in 2013 and 11 per cent in 2014. However, apart from the fact that Wynnstay’s pre-tax profitability was at a record high in 2014, it is also worth reflecting that the group’s pre-tax profitability ratio in 2014 was 2.1 per cent, up from 1.9 per cent in the previous year. Not quite up to the 4.5 per cent recorded in 1995 or the 3.8 per cent recorded in the following year – or the average 2.5 per cent recorded during the course of the next decade, perhaps, but a far from unsatisfactory performance in what have been difficult times for the industry.

Interest Rate Prospects

Finance Directors will have taken due note of the minutes of the Bank of England’s Monetary Policy Committee vote at its January meeting when, for the first time since July last year, members of the MPC voted unanimously in favour of the propositions that Bank Rate should be maintained at 0.5 per cent and that the Bank of England should maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.

The Committee’s rebels, Ian McCafferty and Martin Weale, fell into line observing that, while the decision was ‘finely balanced’, they believed that although the sharp fall in inflation to 0.5 per cent, below the 2 per cent target, was probably driven largely by temporary factors, they conceded that low inflation might persist for longer than the temporary factors implied. Hence they concluded that ‘this risk would be increased by an increase in Bank Rate at the current juncture’. In the view of most commentators, this put any rise in interest rates at the back end of 2015 or, even, the first quarter of 2016.

However, as this issue of the e-letter went to press, one of the MPC’s newest members, former White House adviser Kirsten Forbes, was reported as saying that strong economic growth in the US and falling oil prices could trigger a need for a rise in UK interest rates from the current record low of 0.5 per cent ‘sooner than people are currently expecting'.

Meanwhile, and following the recent Reuter’s poll of economists suggesting that growth of Gross Domestic Product in the last quarter of 2014 would show the UK economy growing at 0.6 per cent, the Office of National Statistics has just published its Preliminary Estimate of Gross Domestic Product for the last quarter of 2014.This showed that, in fact, the UK’s GDP grew at 0.5 per cent in the last three months of 2014, confirming the view that the UK economy is slowing down. Output in the services sector grew by 0.8 per cent while output in agriculture grew by 1.3 per cent. Conversely, output in construction decreased by 1.8 per cent while production shrank by 0.1 per cent.

Taking 2014 as a whole, the new data indicates that GDP rose by 2.6 per cent compared with 2013.

21st January 2015

Soybean Prospects 2014-2015

The United States Department of Agriculture has recently updated its projections of the world supply and demand situation for soybeans and soybean meal.

The most significant revision is a 1.5 million tonne or 1.6 per cent increase in Brazil’s anticipated soybean crop compared to USDA’s December assessment, bringing Brazil’s anticipated harvest to 95.5 million tonnes. There is also a small upgrade of US prospects, up by 287,000 tonnes or 0.3 per cent to just over 108 million tonnes; this appears to be the result of a small upwards adjustment to anticipated average yields.

The EU’s anticipated soybean crush has been raised by 800,000 tonnes or 6.3 per cent from USDA’s December estimate. The Indian crush has been revised downwards by 400,000 tonnes or 4.5 per cent. Overall, estimated end of season soybean inventories, at 90.78 million tonnes, have been revised upwards by 912,000 tonnes or 1 per cent compared to USDA’s December projection, giving an end-of-season stocks / crush ratio of 36 per cent, the highest since USDA started keeping records in their current form.

As regards soybean meal, USDA has increased its estimate of production by 570,000 tonnes to 199.5 million tonnes compared to its December projection with the two main features comprising a 670,000 tonne increase in the EU and a 320,000 tonne reduction in Indian output. USDA has revised downwards its end-of-season stock projections by 99,000 tonnes; nevertheless, end-of-season soybean meal inventories are seen as historically high relative to estimated consumption.

Overall, the picture is one of plentiful supplies overhanging the market at the beginning of the 2015-16 season; the question is how the markets and, in particular, US soybean growers, will respond to the prospect of depressed prices.

First Milk Catastrophe

First Milk, the largest farmer-owned milk buyer in the UK, has recently announced that it will delay scheduled payments for milk (according to some sources, for the whole of 2015 and according to other sources, for ‘an undecided period of time’) by a fortnight, starting with the payment due on 12 January which was put back until 26 January.

The cooperative said that the move was to protect First Milk’s own cash flow.

First Milk’s Board statement said that, in addition to the payment delay, it would reverse 1.1 pence per litre of the February milk price reductions for the manufacturing and liquid pools; increase members' capital investment from 0.5 to 2 pence per litre for milk supplied from December 2014 up to August 2015; and increase members’ capital investment target from 5 to 7 pence per litre. First Milk said that these moves would ‘deliver a cash injection into the business and play an integral role in putting our finances and our business on a stronger platform as we approach the spring flush’ with the latter promising to see milk output in the UK approaching a twenty-year high.

First Milk’s AGM is scheduled for the end of January; it will be instructive to see how the cooperative looks to have performed during the twelve months ending 31 March 2014. The situation will obviously concern feed manufacturers with outstanding accounts with First Milk; more on this topic as new information becomes available.

Prices in 2015 So Far

The LIFFE July wheat contract for the week ending Friday 16 January fell by 3.6 per cent to £132.15 compared to the previous week’s trade while taking the first three weeks of January as a whole, LIFFE July wheat, at £134.71, was trading at £2.63 less than in December. Nearby values were also easier in the week ending 16 January.

Wheat values on FOB Gulf markets showed significantly weaker in January with average prices for Hard Red Winter wheat in the period ending Friday 16 January standing at $272.10, $20.67 down on the average for December. On the same basis, Soft Red Winter wheat was down by $17.90. Yellow soybeans, at $405.27, were also down during the first three weeks of January by $16.63.

The useful International Grains Council Grain and Oilseed Index during the same period also eased from 226.25 (2000 = 100) in December to 219.33 in January, its lowest value since July 2010.

UK feed ingredient prices, as quoted by HGCA, were also showing significant falls as the month proceeded. Brazilian soymeal ex-store Liverpool for both January and February delivery was down by between £12 and £13 a tonne on the preceding week. Rapemeal ex-mill Erith was also easier by £8 for March delivery and Argentine sunflower ex-store Liverpool for delivery during the first quarter of 2015 eased by £4. Conversely, however, maize gluten and pelleted wheat feed showed little change on previous weeks’ values.

14th January 2015

DARDNI Feed Production Data for Northern Ireland

DARDNI has published data on production of compounds, blends and concentrates in Northern Ireland during November 2014. At 192,300 tonnes, production in Northern Ireland during November was the highest for the month since records started to be kept in their present form in 1996. Production was just 500 tonnes or 0.3 per cent up on the previous record high recorded in November 2013.

This was a monogastric month. Production of pig feeds, at 17,200 tonnes, was 3,300 tonnes or 23.6 per cent up on the same month a year previously. About half the increase was accounted for by higher output of finisher diets, up by 1,600 tonnes or 28.3 per cent compared to November 2013. There were also double-digit percentage increases in the output of grower and breeder diets.

At 62,200 tonnes, output of poultry feeds in Northern Ireland during November 2014 was 1,800 tonnes or 3 per cent ahead of the total for November 2013. While output of layer and breeder feeds, together with turkey and ‘other’ poultry feeds was down on year earlier levels, production of broiler feeds was 2,800 tonnes or 10 per cent higher than that recorded in November 2013.

Production of cattle and calf feeds, at 103,200 tonnes in November, was 2,800 tonnes or 2.7 per cent down on the equivalent month of 2013. Predictably, most of the decline was attributable to falling output of feeds for beef cattle, notably coarse mixes and blends which were down by 5,800 tonnes or 20.5 per cent. Interestingly, output of dairy compounds was up by 1,900 tonnes or 5.1 per cent while output of dairy coarse mixes and blends was up by 2,400 tonnes or 12.2 per cent.

Production of sheep feeds was down by 400 tonnes or 11 per cent with the bulk of the decrease accounted for by falling production of compounds for both breeding and growing animals.

Taking the first eleven months of 2014 as a whole, total production of feed in Northern Ireland amounted to 2,097,100 tonnes, just 12,000 tonnes or 0.6 per cent less than in the equivalent period of 2013 but still the second highest level of output for the period under review since the relevant statistics began to be collected in their present form in 1996.

Production of cattle and calf feeds, at 1,096,900 tonnes, was down by 71,300 tonnes or 6.1 per cent compared with the same period of 2013 with the major falls, as expected, taking place in the beef sector. However, output of dairy compounds, at 474,200 tonnes, was 18,800 tonnes or 4.1 per cent ahead of the same eleven months of 2013. Production of feeds for sheep and lambs was 14,500 tonnes or 18.9 per cent less than in the equivalent period of 2013.

Output of feeds for pigs during the eleven months in question, at 160,900 tonnes, was 16,200 tonnes or 11.2 per cent up on the corresponding period of 2013 with the bulk of the increase accounted for by increased production of growing and finishing diets. Output of poultry feeds increased over year earlier levels by 59,100 tonnes or 9.1 per cent with the bulk of the increase accounted for by rising output of poultry feeds; at 408,900 tonnes, these showed a 48,900 tonnes or 13.6 per cent increase on the equivalent period of 2013.

Little prospect of a record year, therefore, unless December comes up with a particularly exceptional output; figures for December are due early in February. Nevertheless, a very strong showing is on the cards when final results for 2014 are released.

USDA World Supply and Demand Update

The United States Department of Agriculture has just published its first estimate in 2015 of world supply and demand for grains and oilseeds during the 2014-15 run.

As the season progresses, USDA’s forecasts are becoming more definitive. There is very little change in the wheat outlook with production raised by 1.2 million tonnes compared with USDA’s December projection. Consumption has been increased by a slightly smaller amount, resulting in an increase in end-of-season stocks, expressed as Days Consumption Equivalent, to 101 DCE.

USDA has revised its estimates of the world maize crop downwards by 3.5 million tonnes of which a large proportion is due to a cut in the US harvest; the projections for India and the EU have been increased. The smaller US crop reflects a reduction in the estimated US yield to 171 bushels per acre.

An updated analysis of USDA’s soybean prospects will follow in the next issue of this e-letter. 

Milk Payment Disaster

Just as this issue of the e-letter was heading for its readers, it was announced that milk cooperative First Milk told its farmers that Monday's cheque and all subsequent payments will be delayed by a fortnight on account of cash flow problems.

The NFU said in December that the number of dairy farmers had dipped below 10,000 for the first time - a 50 per cent fall since 2001. The NFU’s President said news of the deferral had made First Milk’s members ‘extremely anxious’, surely an early contender for the prize of greatest understatement of 2015.

Economic Roundup

The Consumer Price Index for December 2014 has just been published, showing that UK inflation in the twelve months ending December 2014 rose by 0.5 per cent, down from 1 per cent in the year to November.

The main contributions to the fall came from the December 2013 gas and electricity price rises falling out of the calculation and the continuing drop in motor fuel prices.

Governor Mark Carney will now have to write to Chancellor of the Exchequer George Osborne saying why the inflation rate has dropped out of its target range and what – if anything – he is going to do about it.

6th January 2015

Feed Material Costs Round-up

Not a great deal to report on in the aftermath of the festive season. Data for feed production in Great Britain in November 2014 will be published on 8th January, just too late for this edition of the e-letter with data for Northern Ireland following shortly thereafter. Data for feed production in December 2014 will be published on 5th February, allowing a first shot at estimating total feed output in Great Britain for 2014 as a whole.

However, there were some indicative data around. The International Grains Council’s useful Grain and Oilseeds Index saw 2014 closing out at December’s 226.25 (January 2000 = 100), marginally lower than in November but still above October’s ‘low’ of 219.60. However, early IGC data for January 2015 suggests some easing in US FOB Gulf values, notably with respect to HRW wheat, #3 yellow corn and #2 soybeans while HGCA data for the week ending 2 January also suggested some easing of FOB Gulf hard and soft red winter wheats; there were also falls in US yellow corn FOB values as well as soybeans.

 The May 2015 LIFFE feed wheat contract appears to be reflecting political uncertainties relating to Ukraine in that, from a post-harvest September ‘low’ of £120.74, it averaged £136.89 for the first three weeks of December. Similarly, post-harvest MATIF wheat advanced from a May 2015 contract value of €168.75 to €179.38 in November before advancing to €191.70 in the first three weeks of December. Spot feed wheat values for the Corn Returns hardened to £118.95 in November before bounding to £131 in the first three weeks of December while three-month feed wheat hardened from £112.96 to £130.86 over the same period.

The Ukrainian factor is unlikely to go away while its effect on EU wheat prices is likely to be compounded by uncertainties over Russian wheat exports. It looks as if the size of the 2014 Russian grain crop has been seriously overestimated while Russian winter-planted crops are said to be in dire condition with a high incidence of winter kill.

Economic Roundup

December saw a whole raft of indicators seeming to suggest that it will be some time before Finance Directors are faced with an increase in the cost of borrowing.

Inflation, as measured by the Consumer Price Index, fell to 1 per cent in the year to November – a twelve year low according to the BBC News and attributable in no small measure to plunging fuel costs. The December figure is due out on the 13th of January. Combined with the continuing fall in crude oil prices, it is possible that the inflation rate will fall below 1 per cent, an eventuality that would cause bank of England Governor Mark Carney to put pen to paper, explaining to Chancellor Osborne why UK inflation had fallen to below its target range of not more than 1 per cent below the Government’s 2 per cent inflation rate. Previous letters from Governor to Chancellor have been to explain why the target rate has been exceeded by more than 1 per cent.

The Quarterly National Accounts for the Third Quarter of 2014 showed that Gross Domestic Product had risen by 0.7 per cent. This confirmed the estimates made in both the Preliminary and Second Estimates of GDP in the Third Quarter of 2014.

The Preliminary Estimate of Gross Domestic Product in the fourth quarter of 2014 will be published on 27th January. This will be of particular interest in that there has been speculation that the Treasury’s December summary of ‘independent’ forecasts of 3 per cent UK GDP growth in 2014 may be undershot.

The closely watched Markit/CIPS surveys for manufacturing and construction both suggested a slowing down in growth rates; the manufacturing PMI was at a three-month low while the seasonally adjusted UK Construction Purchasing Managers’ PMI signalled ‘the least marked increase in construction output for 17 months’. The Markit/PMI for services is of critical interest given that the services sector dominates the UK economy’s output; manufacturing only accounts for 10 per cent of economic output. In fact, the UK services sector experienced a loss of growth in December 2014, with both activity and new business rising at their weakest rates in over a year-and-a-half. After accounting for seasonal factors, the services PMI registered 55.8 in December, down from 58.6 in November and the lowest for nineteen months.

According to Chris Williamson, Chief Economist at survey complier Markit, the weaker rates of expansion seen in services, manufacturing and construction in December took the overall pace of economic growth to the weakest for just over a year-and-a-half. He added that the surveys suggested that the economy grew by 0.5 per cent in the fourth quarter of 2014, and the loss of momentum towards the year-end ‘will no doubt fuel worries that the upturn is too fragile to withstand higher interest rates’.

Indeed, the question that will be uppermost in most Finance Directors’ minds will be what all this means for interest rates.

Since last August, the prospects for a rise in 2015 later rather than sooner appear to have improved markedly. In August last year, the markets were looking for an initial rise in rates to take place as early as the end of 2014 while, in November, the first rise in rates is seen as in June 2015 at the earliest – most economists, according to website This is Money, would put the timing of the first rise in ‘late 2015’.

16th December 2014

Northern Ireland Reports October Output

Feed manufacturers in Northern Ireland reported feed production in October at 202,600 tonnes, 2,800 tonnes or 1.3 per cent less than in the same months of 2013.

Predictably, the working out of the effects of the bad weather in 2012 and the first half of 2013 were most marked in the ruminant sector, with cattle and calf feeds during the month, at 103,500 tonnes, being 10,500 tonnes or 9.2 per cent less than in the same months of 2013. The main effects were seen in the production of coarse mixes or blends for beef cattle, down by 7,100 tonnes or more than a quarter on year-earlier levels.

At 2,800 tonnes, production of sheep feeds was 700 tonnes or 19.3 per cent less than in October 2013 with compounds for growing and finishing sheep taking the majority of the decline.

Monogastric feeds, on the other hand, were firmer than year-earlier levels with pig feed production up by 2,000 tonnes or 11.9 per cent compared with output in October 2013; grower and finishing feeds accounted for the majority of the gains. Output of poultry feeds, at 71,100 tonnes, was 6,100 tonnes or 9.3 per cent up on the levels of October 2013 with broiler feeds accounting for much of the increase.

Taking the first ten months of the year as a whole, feed production in Northern Ireland, at 1,904,900 tonnes, was just 12,400 tonnes down on the equivalent period of 2013, a fall of just 0.6 per cent. Not bad, in the circumstances, although Northern Ireland seems unlikely to break any records in 2014. Next year, perhaps?

Raw Material Concerns

The Northern Hemisphere harvest being largely complete, raw material prices are being driven by, as former Prime Minister Harold Macmillan would have said, ‘Events, dear boy, events’.

From its low point in September, Soft Red Winter wheat FOB US Gulf has risen from $239.50 to $260.80 in November and to $274.90 during the first two weeks of December. The equivalent figures for Hard Red Winter wheat on the same basis were $280.65 in September, $282.98 in November and $289.25 in the first fortnight of December.

As this edition of the e-letter was in the process of publication, wheat futures hit a five-month high on the Chicago market while recording their highest finish in Paris in six months, reflecting fears over Russian supplies as a result of the looming possibility of export curbs. The March 2015 contract for wheat in Chicago reached $6.2275 a bushel, its highest since July before easing to close at $6.19, a gain of 2.1 per cent. MATIF wheat for March closed up 1.1 per cent at €191.75, its highest finish since June, while in London, LIFFE May feed wheat gained 1.7 per cent to £137.45 a tonne.

Inflation Plunges

The Office of National Statistics has announced that the rate of inflation, as measured by the Consumer Prices Index, increased by just 1.0 per cent in the year to November 2014, down from 1.3 per cent in the year to October. The last time the rate was as low as 1.0 per cent was September 2002. The last time it was lower than 1 per cent was in June 2002 when 0.6 per cent was recorded.

If, as many market watchers expect, inflation drops below 1 per cent, then Bank of England Governor Carney will have to put pen to paper and write to the Chancellor of the Exchequer, explaining what is going on.

According to the ONS, falls in transport costs – ‘and in the prices of alcohol and certain recreational and cultural goods’ – were the main contributors to the slowdown in the rate of inflation between October and November. Petrol prices fell by 3 pence a litre on the month this year compared with a more modest 1.7 pence fall a year ago, a reflection of the decline in crude oil prices. Changes in air-fares and second-hand car prices also had downward effects on the inflation rate.

9th December 2014

October Great Britain Feed Production

At 831,800 tonnes, production in Great Britain of compounds, blends and concentrates in October 2014 was 23,500 tonnes or 2.7 per cent less than in the same month of 2013.

Production of cattle and calf feed, at 334,100 tonnes, was 26,700 tonnes or 7.4 per cent less than in October 2013. This is likely to reflect, in part, prevailing weather conditions during October which, in common with the rest of 2014, were markedly warmer than ‘normal’ as defined by the average temperatures of the years running from 1981-2010. Average temperatures across England were 1.9°C higher and, although temperatures elsewhere were lower, the average for the UK as a whole was 1.6°C higher. With the exception of Wales, rainfall was also moderately above average.

The only cattle and calf feed sub-sectors to show a gain on year-earlier levels were calf feeds – up by 1,800 tonnes or 11.4 per cent – and compounds for dairy cows – up by 5,800 tonnes or 3.3 per cent. Production of blends for non-dairy cattle, on the other hand, at 22,800 tonnes in October, was 11,800 tonnes or 34.1 per cent less than in October 2013.

Production of pig feeds, at 152,400 tonnes, was 8,600 tonnes or 6 per cent up on the same month in 2013 with the bulk of the increase being in production of finishing feeds, up by 7,000 tonnes or 10.9 per cent. However, there was also a 2,800 tonne or 8.6 per cent increase in the output of breeding feeds compared with October 2013.

There was a modest increase in the output of poultry feeds – 4,500 tonnes or 1.7 per cent compared with October 2013 with increased production of layer, broiler and breeding and rearing diets; turkey feeds, on the other hand, were down by 1,800 tonnes or 8.7 per cent.

As expected, the favourable weather compared with that which characterised the same period in 2013 saw output of sheep feeds decline by 3,000 tonnes or 9.5 per cent in October 2014 compared with the same month a year earlier. There were also significant declines in the output of horse feeds and ‘other compounds, blends and concentrates’.

Taking the first ten months of 2014 as a whole, total output of compounds, blends and concentrates of 8,648,500 tonnes was 278,300 tonnes lower than in the equivalent period of 2013 with, as expected, the major falls occurring in the cattle and sheep sectors. More detailed analysis will be published in the January – February print edition of Feed Compounder.

Fears on UK Economy ‘Over-Played’?

Markit/CIPS’s UK Services PMI for November saw the index increase from 56.2 in October to 58.6 in November, indicative, as the survey pointed out, to ‘a marked and accelerated rate of expansionwell above the survey’s historical average’.

Chris Williamson, Chief Economist at Markit which compiles the survey, noted that the faster growth of activity in the services sector brought ‘welcome news’ that fears of a potentially sharp slowdown in the economy looked overplayed. This was because the upturn in the service sector offset slower growth of factory production and construction activity in November and had lifted the overall pace of economic growth from October’s sixteen month low. He said that the survey data available so far for the fourth quarter was signalling a GDP rise of 0.6 per cent which, although down from 0.7 per cent in the third quarter, was still ‘an impressively robust pace’ which would mean the economy grew 3.0 per cent in 2014. This latter figure is in line with the Office of Budget Responsibility’s current forecast.

Sustainable Intensification

An interesting concept which was the subject a conference organised by the Institute of Agricultural Management in the august surroundings of the Royal Society in London’s Carlton House Terrace.

More on this in the next print edition of Feed Compounder. However, it should be noted that the Institute of Agricultural Management has awarded its annual National Farm Management award to Tim Brigstocke, whom some readers will remember in his BOCM Silcock days and others in a multiplicity of subsequent roles.

The Award is presented annually to individuals who have made a significant contribution to the agricultural industry over a period of time. Presenting the award at the Institute’s conference in London, Chairman John Giles noting that it was richly deserved, added that ‘It only surprises me really that Tim hasn’t received it before.’

3rd December 2014

International Grains Council

The International Grains Council has recently published its November update to its Grain Market Report, its forecast of world supply and demand for grains and oilseeds.

IGC’s Grains and Oilseeds Index ended November unchanged month-on-month with outlooks for large global supplies resulting in ‘a softer tone’ in soybeans, maize and wheat export markets, although daily movements were sometimes volatile, particularly for soybeans.

Also, and despite the near-completion of record soybean and maize harvests, pipeline issues in the US contributed to occasional rallies, with wheat values, in particular, being underpinned by worries about 2015 crop prospects in the US and Black Sea regions.

Regarding IGC’s November Grain Market Report, the world’s grain production forecast for 2014-15 is 2 million tonnes higher than in the preceding, October Grain Market Report and, at 1,990 million tonnes, total production in 2014-15 is forecast to be just 4 million tonnes less than the record 1,994 million tonnes of the 2013-14 season.

Total wheat production in 2014-15 has been adjusted downwards but by only 400,000 tonnes. Maize production, on the other hand has been increased by 2.6 million tonnes compared to the October estimate with a major contribution to the increase coming from China; EU production has also been revised upwards by half-a-million tonnes.

As far as end-of-season stocks are concerned, wheat inventories, at 193 million tonnes are equivalent to 99 Days Consumption Equivalent, unchanged from IGC’s October assessment. End-of-season maize inventories, at 195 million tonnes, are equivalent to 74 DCE, the highest for many years. At 429 million tonnes total end-of-season grain stocks, inventories are ‘seen reaching a 15-year high’.

IGC places world soybean production ‘fractionally higher’ than in October at 308 million tonnes, up 8 per cent on 2013-14. A reduced estimate for Argentina is more than offset by increased US production. Reflecting little change in anticipated consumption, IGC has increased world end-of-season soybean stocks by half-a-million tonnes compared to its October assessment.

Altogether an optimistic prospect as regards raw material prices. The next issue of IGC’s Grain Market Report will arrive after the Christmas break, on Thursday 22 January 2015.

Markit Manufacturing Survey

At 53.5, Markit’s Manufacturing PMI stood at a four month high.

Senior Economist Rob Dobson, at survey compilers Markit noted that, with the approach of Chancellor Osborne’s Autumn Statement, the November PMI survey showed the UK manufacturing sector continuing what he called ‘its solid expansion’. Albeit at a slower pace than that seen in the first six months of the year, growth was still coming from a broad basis that would ‘aid its sustainability’. Production and new orders were rising across the consumer, intermediate and investment goods industries and at SMEs and large companies alike.

 The UK construction sector November PMI of 59.4 suggested ‘a strong expansion of business activity’ in November, but the overall pace of growth moderated for the second month running at its lowest since October 2013, with momentum having undoubtedly cooled since the summer.

The Services PMI for November will be reported upon in the next issue of this e-letter.

Second GDP Estimate

The Office of National Statistics has recently published its Second Estimate of the UK’s Gross Domestic Product in the third quarter of 2014. This showed GDP increasing in volume terms by 0.7 per cent between the second and third quarters of 2014, unrevised from the Preliminary Estimate of GDP published on 24 October 2014.

According to the Second Estimate, all four sectors of the economy expanded during the third quarter. Agricultural output increased by 0.3 per cent during the third quarter of 2014 while production output increased by 0.2 per cent with manufacturing, the largest component of production, increasing by 0.4 per cent. Output in the construction sector increased by 0.8 per cent in the third quarter with the service industries also increasing by 0.8 per cent.

The next update will be published on 23 December.

25th November 2014

Annual Business Survey

The Office of National Statistics has just released the 2013 edition of this publication.

The Annual Business Survey is interesting in that its gives an initial indication as to the performance of an industry as a whole; performance of individual companies within that industry will vary considerably.

As regards livestock feed, this is enumerated under Standard Industrial Classification (2007) 10.91 as the manufacture of prepared feeds for farm animals. The preliminary data for 2013 suggests that the industry’s turnover of £4,952 million fell by 0.8 per cent to £4,992 million in 2012. Total purchases of goods, materials and services in 2013 amounted to £4,200 million; down by 6.7 per cent on 2012. Total employment costs, on the other hand, at £294 million, were up by £19 million or 6.9 per cent.

Approximate Gross Value Added (AGVA) at basic prices, at £762 million, was sharply higher than in 2012 and, in fact, was at its highest level in the seventeen years that the data has been collected in its present form. This term may not be familiar to non-accountants; one source defines it as providing a monetary value for the amount of goods produced, less the cost of all raw materials and other inputs that are directly attributable to that production.

If we use a slightly less theoretical approach and subtract from turnover in 2013 the cost of goods and services purchased by the industry together with the costs of employment, a similar picture emerges. At £458 million, the ratio of profit to turnover in 2013; 9.2 per cent; suggests that the industry as a whole in 2013 was performing very strongly on the back of ex-mill prices and cooling raw material costs, opening the way in 2014 for lower ex-mill prices of benefit to hard-pressed livestock producers.

More detailed information about the industry will emerge in the next few months.

Also recently published is UK Business – Activity, Size and Location, albeit in a new format which has taken a little time to decipher. This is produced from data taken from the Inter-Departmental Business Register (IDBR) which contains information on VAT traders and PAYE employers in a statistical register. First published in 1994, the publication records the position of businesses as of March of the reference year.

In March 2014, there were 250 companies identified as operating 350 production sites in the feed manufacturing industry (SIC 2007 sector 10.91), respectively five and ten more than in 2013. The five additional companies had turnovers in the range £100,000 to £249,000, hence they were relatively small. The only other significant change in the data when compared to 2013 was that five companies at the top end of the turnover scale had moved from the £1,000,000 - £4,999,000 range into the £5,000,000 plus range; this is self-evidently the area where the most significant players in the feed industry are located.

It is also worth noting that there has apparently been some restructuring in the eastern counties of England; whereas in 2013, there were twenty-five companies operating thirty-five production units in the region, the number of the latter fell to thirty in 2014.

As regards location, the North West showed a gain of five companies while the West Midlands appear to have ‘lost’ five companies. The Greater London area showed a gain of five companies; the last time that London showed any involvement with the animal feed industry as far as the IDBR was concerned was in 2006.

How representative are these data when combined with other data from different sources such as DEFRA? More on this in a subsequent edition of the e-letter.

Economic Roundup

UK Inflation, as measured by the Consumer Price Index, crept up to 1.3 per cent in the year to October 2014, up from 1.2 per cent in September. Smaller falls in transport costs than a year ago, notably for motor fuels and air fares, and, sign of the times, price rises for computer games were the main contributors to the rise in the inflation rate.

The minutes of the November meeting of the Monetary Policy Committee reveal that two members of the Committee, Ian McCafferty and Martin Weale remained, as has been the case since the Committee’s August meeting, in favour of increasing Bank Rate to 0.75 per cent from its current rate of 0.5 per cent.

17th November 2014

USDA Update

The United States Department of Agriculture has recently updated its supply and demand forecasts for grains and oilseeds in 2014-2015.

USDA’s October forecast of world wheat production has been reduced by 1.26 million tonnes but, nevertheless, this is still the largest total on record. This reflects smaller crops in Australia, Egypt, and Kazakhstan – declines that are only partially offset by larger crops in the EU, notably Poland, Germany, Romania and Spain. World end-of-season wheat inventories are projected to increase to 192.9 million tonnes, not a record but still equivalent to 99 Days Consumption Equivalent (DCE), slightly above the preceding season.

Estimated world production of maize in 2014-15, although reduced by 372,000 tonnes on October’s estimate, at 990.3 million tonnes remains a record. Smaller production in the US, due to a reduction in estimated yield per harvested acre, as well as in China, more than offsets larger crop forecasts for the EU, Ukraine, and Mexico. End-of-season stocks worldwide are projected at 191.5 million tonnes, substantially higher than in 2013-14 and equivalent to 72 DCE, the highest in 11 years.

USDA has raised its estimate of world soybean production to 312.1 million tonnes; the increase is entirely due to a revised evaluation of US output and reflects an increased estimate of yield per harvested acre, continuing a trend in place since August. Currently, estimated world end-of-season soybean stocks, at 90.3 million tonnes, are represent 36 per cent of the season’s estimated crush, a record ratio. Output of soybean meal has also been increased by 780,000 tonnes, reflecting increases in China and the US but a reduction of 825,999 tonnes or 2.7 per cent in Argentine output due, it is reported, to farmers’ reluctance to sell crops which they see as representing a dollar-denominated hedge against the devaluing peso and a domestic inflation rate which is far higher than the official figures. This has led to a search by importers for alternative supplies, one reason for the relative firmness of prices, despite the very large soybean harvest.

While the fundamentals for both grains and oilseeds point to falling prices, factors such as those mentioned above as well as weather in the US and the emergence of new tensions between Russia and Ukraine are tending to put a floor in both markets. It remains to be seen how long these factors remain in play.

Northern Ireland Reports September

Production of livestock feed in Northern Ireland during the month of September, at 165,600 tonnes, was marginally – 100 tonnes – up on the same month in 2013. However, there were more substantial changes in output by species with output of cattle and calf feeds falling by 5,100 tonnes or 6 per cent. There was just one exception to the decline in cattle and calf feed output, compounds for dairy cows which were 1,700 tonnes or 4.6 per cent up on September 2013.

Output of monogastric feeds, on the other hand, increased year-on-year: pig feeds by 1,400 tonnes or 10.7 per cent and poultry feeds by 3,700 tonnes or 6.1 per cent. Predictably, output of feeds for sheep and lambs, at 2,500 tonnes, was lower than in September 2013 by 400 tonnes or 14.3 per cent.

Cumulative output for the first nine months of 2014 was 8,600 tonnes or 0.5 per cent down on the corresponding period of 2013, with steep falls in ruminant feed output partially counter-balanced by increases in monogastric feed output, particularly of broiler feeds which were running  at 41,100 tonnes or 13.7 per cent ahead of year earlier levels.

Economic Catchup

The Bank of England has recently published the November issue of its quarterly Inflation Report.

Its August edition predicted growth at 3.5 per cent in 2014, 3 per cent in 2015 and 2.6 per cent in 2016. Given the slowdown in both survey data and in official statistics, market watchers bet on the Bank reducing its own estimates of the UK’s economic growth. The latest Markit CIPS survey suggested that growth in the UK’s services sector, which accounts for almost 80 per cent of the UK’s GDP, had slowed down, while the preliminary estimate of GDP in the third quarter of the year showed growth of only 0.7 per cent compared with the preceding quarter’s 0.9 per cent; survey data suggests that growth in the fourth quarter of 2014 will be nearer 0.5 per cent. Taking these aspects into account suggests that the UK’s calendar-year growth will amount to 3.0 per cent in 2014 rather than 3.5 per cent, and 2.8 per cent in 2015 rather than 2.9 per cent.

10th November 2014

Great Britain Feed Output

DEFRA has recently published production data for compounds, blends and concentrates in Great Britain during September.

Total production, at 836,500 tonnes, was 74,800 tonnes or 8.2 per cent down on the same month of 2013. Output of cattle and calf feeds, at 315,500 tonnes, was 33,000 tonnes or 9.5 per cent less than in September 2013, with falls across the product range with the exception of dairy compounds which recorded a small increase of 1,500 tonnes to 44,200 tonnes.

Output of feeds for pigs, at 149,000 tonnes, was down by a marginal 800 tonnes on September 2013, a fall of half of one per cent with the largest fall in grower diets. Production of poultry feeds, on the other hand, at 287,600 tonnes, was 31,100 tonnes down of year-earlier levels with the bulk of the decline reported by broiler feeds, down by 22,000 tonnes or 15.4 per cent. Broiler production in the integrated sector was also down by 9,400 tonnes or 5 per cent compared with September 2013, although there was a 7,000 tonne or 23.6 per cent increase in output of feeds for turkeys.

At 28,900 tonnes, output of feeds for sheep and lambs was 3,700 tonnes or 11.3 per cent less than in September 2013 with the bulk of the decline accounted for by lower production of compounds which, anyway, account for the overwhelming bulk of manufactured sheep and lamb feeds.

Regarding the prevailing weather in September, temperatures during the month, in common with the rest of the year with the exception of August, were well above ‘normal’ as defined by the thirty-year average of 1981-2010. In contrast, the amount of rainfall right across the UK was well below normal at just 23 per cent with particularly low precipitation across Wales and Northern Ireland; sunshine was ‘unexceptional’.

What about the cumulative outcome as regards the first nine months of 2014? It would seem likely that the unseasonably high temperatures that characterised September led to ruminant livestock being left out later; the October production data will be of special interest, given the fact that these, again, were well above ‘normal’, although the dry conditions of September were followed by above average rainfall in the UK, with the exception of Wales.

At 7.76 million tonnes, output of total compounds, blends and concentrates during the first nine months of the year was 311,100 tonnes or 3.9 per cent less than during the corresponding months of 2013. However, it is important to keep the 2014 production data in context; with the single exception of the same period of 2013, output in 2014 was at its highest since records started to be kept in their present form in 1992.

Output of cattle and calf feeds, at 3.01 million tonnes was 128,600 tonnes or 4.1 per cent less than in the first nine months of 2013. The only product lines to show an increase over the corresponding period of 2013 were output of protein concentrates for cattle and calves, up by 10,800 tonnes or 23.7 per cent on the same nine months of 2013 and, significantly, a 53,400     tonne or 3.6 per cent increase in the output of dairy compounds to 1.55 million tonnes, an eight-year high; symptomatic, perhaps, of the then-currently high milk prices.

Output of feeds for pigs, at 1.28 million tonnes, was 43,900 tonnes or 3.6 per cent higher than in the corresponding figure for 2013 with the overwhelming bulk of the increase taking place in production of finisher diets. Cumulative production of poultry feed in Great Britain, at 2.46 million tonnes, 46,200 tonnes or 1.8 per cent less than in the corresponding period of 2013 with the overwhelming bulk of the decline being accounted for by reduced output of broiler feed, down by 32,400 tonnes or 3 per cent.

Output of sheep and lamb feeds, at 576,000 tonnes, was 178,400 tonnes or 23.6 per cent less than in the corresponding period of 2013, perhaps the most dramatic reflection of the unwinding of the weather-driven effects of 2012 and the first half of 2013. However, it is worth repeating that the 2014 total for the first nine months of the year was the second highest on record since data started being kept in its present form in 1992. On current form, the effect should continue to unwind during the last quarter of the year – but who knows what surprises could await?

Farm Business Incomes 2013-14

DEFRA has recently published updated figures of Farm Business Incomes in England, originally published on 30 January 2014, for the March 2013 to Febuary 2014 period. Farm Business Income represents the aggregate of core agricultural activities, agri-environmental payments, diversification out of agriculture and the Single Farm Payment.

In 2013-14 the Single Payment continued to account for a substantial proportion of average Farm Business Income for all farm types apart from horticulture, specialist pig and specialist poultry farms. Across all farm types, the average Single Payment was around £25,000, little changed from 2012-13.

Of farm types of particular interest to the livestock feed industry, dairy farms’ average farm business income per farm increased from £52,600 in 2012-13 to £87,800 in 2013-14, an increase of 67 per cent and representing a return to the levels of 2011-12. Output from dairy farms’ agricultural activities was around 20 per cent higher, driven by both increased milk prices, up by 14 per cent and higher production, up by 8 per cent compared with 2012-13. This was partially offset by increased input costs, particularly for feed due to increased production and the prolonged winter. The upward trend in average herd size continued and the average milk yield per cow increased by approximately 4 per cent to just over 7,900 litres.

Of dairy farms’ average Farm Business Income of £87,800, 60.4 per cent was derived from core agricultural activities and 28.2 per cent from the Single Farm Payment with the balance arising from agri-environmental payments and diversification.

Average Farm Business Incomes fell on grazing livestock farms in both lowland and Less Favoured Areas (LFA) to £15,100 and £14,500 respectively, representing declines of 6 per cent and 22 per cent. In both cases, income from agricultural activities was negative. DEFRA notes that the declines reflect the continuing impact of the wet weather that characterised the autumn of 2012 which was then followed by the prolonged winter of early 2013, causing delayed grass growth and turnout.

On lowland grazing farms, there was an increase in both revenue from and the closing valuation for the cattle enterprises, due to firmer prices for most of 2013-14 compared to the previous year. This was, however, offset by falling output from sheep enterprises and increased costs, notably for feed. In the Less Favoured Areas, output from both beef and sheep enterprises was lower than in 2012-13 with input costs increasing, again primarily due to higher feed costs. In addition, agri-environment scheme payments, an important source of income in the Less Favoured Areas, were broadly similar, for both farm types, to those of 2012-13.

With regard to specialist pig and poultry farms, it must be noted that the Farm Business Survey samples are relatively small, meaning that individual farms can significantly influence the results.

On specialist pig farms average Farm Business Income increased by 56 per cent in 2013-14 to £65,200 per farm. It should be noted that even specialist pig and poultry farms generate output from other agricultural activities and, in this respect, while total output from the agriculture enterprises of specialist pig farms increased by 5 per cent, driven by a higher output from the pig enterprise, this was partially offset by reduced output from the farms’ cropping enterprises. Although total input costs were unchanged, variable costs were lower whilst fixed costs increased, notably for labour and rent.

DEFRA note that ‘feed costs were unchanged’; this seems peculiar but confirmation of this will have to wait until December when more detailed analysis becomes available. But, on first sight, this aspect of specialist pig producers’ input costs is far from clear.

For specialist poultry farms average incomes increased by almost 75 per cent compared to 2012-13. However this increase should be treated with added caution because of the particularly small sample size. Removing one especially influential farm from the analysis suggests that average incomes increased by 31 per cent between 2012-13 and 2013-14, rather than 74 per cent as in the raw data.

The rise in income was driven by increased output from both the broiler and egg enterprises, but partially offset by increased costs. Although feed costs were unchanged, many other costs increased, particularly those for labour, other livestock costs, machinery and rent.

As already noted, a more detailed analysis of these results will be published early in December. Preliminary estimates for the twelve months running from March 2014 to February 2015 will be published in January 2015.

Economic Update

The closely watched Markit/CIP Purchasing Managers Survey has now reported its results for October. The only sector to show an increase, albeit not returning to the levels of the first and second quarters of 2014, was manufacturing. Both the construction sector and the services sector showed month-on-month declines.

Chris Williamson, Markit’s Chief Economist, noting that the slower growth in the service sector ‘knocks the prospect of interest rate hikes firmly on the head’ added that the increasingly downbeat flow of economic data in recent weeks had thrown ‘a cloud of uncertainty over the outlook’. He said that the sharp easing of service sector growth to a seventeen- month low came on the heels of data showing construction growth down to a five-month low together with the manufacturing sector ‘shifting down a gear’ since earlier in 2014, despite the fact that manufacturing ‘made a bright start to the final quarter of 2014’.

He noted that GDP growth had slowed to 0.7 per cent in the third quarter of the year and that the Markit/CIPS surveys were currently signalling a further slowdown in the fourth quarter to around 0.5 per cent. However, with inflows of work rising across all three sectors at the slowest rate for sixteen months, there was a risk that economic growth could weaken further.

The overall impression generated from this latest set of data is that any increase in interest rates in the immediate or, indeed, the near future would seem to be increasingly unlikely.

4th November 2014

IGC Updates 2014-15 Prospects

The International Grains Council notes, in the October update of its Grain Market Report, that ‘world grains and oilseeds export markets had a firmer tone during October … overall, the IGC Grains and Oilseeds Index (GOI) increased by 6 per cent month-on-month’.

This is reflected in the data collected for this publication; Hard Red Winter wheat FOB Gulf averaged $287.15 compared with $280.65 in September while Soft Red Winter wheat averaged $250.58 in October compared with $239.50 in September. CBOT wheat for December delivery was also firmer; however, it was maize that saw values rise most significantly. IGC note that the maize sub-Index gained 11 per cent while its soybean sub-Index rose by 9 per cent. Wheat values were just 3 per cent higher. The November contract for LIFFE wheat which stood at £129.55 in July fell to £113.93 in September but firmed in October.

IGC have added just 5 million tonnes to their September projection of total cereals production – wheat and coarse grains – in 2014-15. Total usage has also been increased by 3 million tonnes but the net effect is to make little if any change in end-of-season inventories which are estimated at 429 million tonnes, equivalent to 80 Days Consumption Equivalent (DCE), unchanged from IGC’s September projection.

Wheat production in 2014-15 has been increased by just a million tonnes to 718 million tonnes; IGC note that planting of winter wheat crops for 2015-16 is well underway with the total area sown to wheat projected to rise by 1 per cent more than in 2014-15. Production in the latter season reflects reduced output in Australia – reportedly confirmed by US forecasters – and Canada but a million tonne boost to IGC’s projection for the EU; a similar increase is projected for Ukraine.

IGC have increased their estimates of 2014-15 maize production from 974.2 million tonnes to 979.7 million tonnes with additional output anticipated from the US, following further upgrades in yields. EU output has been increased by 2.2 million tonnes although Chinese output is projected lower. As a result, end-of-season maize inventories are projected to rise to 194.1 million tonnes, a 2.7 million tonne increase over IGC’s September projection and constituting a record.

IGC have reduced their projection of world soybean production in 2014-15 from 310 million tonnes to 307.4 million tonnes. However, this still represents an 8.2 per cent increase on the 2013-14 outcome; after adjustments for a 3 million tonne fall in consumption, end-of-season stocks are projected at 39.7 million tonnes, up by 700,000 tonnes on IGC’s September estimate.

IGC note that the early stages of planting the 2014-15 soybean crop in Brazil have been disrupted by unusually hot weather. According to the forecasting service Oil World, Brazil is set to produce 89 million tonnes of soybeans in 2014-15, 3 million tonnes less than their previous estimate, a reflection of reduced soybean plantings due to drought. Brazilian crop forecaster Safras & Mercado reported during the last week in September that Brazilian farmers had planted soybeans on 12.5 per cent of the expected area, just half of what was planted a year earlier. This was as a result of the prevailing hot and dry conditions discouraging farmers from sowing.

Despite the Brazilian factor, taking the average of IGC’s soybean sub-indices for the first four Fridays of October, the index fell from 221 in September to 210 during October. This, according to data published by HGCA, reflected falling export values for US No 2 Yellow soybeans, from $421 in September to $405 in October. At $408, Argentine material was also sharply lower in October although no quotes were available in August and September. Brazilian soybeans averaged $411 in October compared with $518 in August.

Altogether, a continuing picture of abundant grain and oilseed supplies with prices responding appropriately. The question which will arise is what effect these low prices will have on planting intentions for the 2015-16 run. Some indications of the answer to this question may arise when the new forecasting season starts in March 2015. As an aperitif, as it were, IGC appear to be forecasting that maize output in both Argentina and Brazil will be lower in 2015-16 than in the preceding season; output in South Africa will also be lower. Conversely, IGC is looking for higher soybean production in both Argentina and Brazil in 2015-16.

Livestock Numbers

DEFRA has recently published data on livestock numbers for the United Kingdom as of June 2014.

The UK data shows that cattle and calf numbers fell marginally in June 2014 compared to those of a year earlier, by 15,000 head or 0.1 per cent. However, while the beef breeding herd contracted by 33,000 head or 2.1 per cent, the dairy breeding herd expanded by 46,000 head or 2.6 per cent, its first expansion in four years.

There was also a 4.1 per cent expansion in the number of other female dairy cattle. It is too early to say whether this reflects increasing confidence in the direction of milk prices but, given the recent decline in the latter, it may be that the December census will show the size of the dairy herd resuming its downward trend.

Overall pig numbers fell by 65,000 head or 1.3 per cent with breeding pig numbers declining by 20,000 head or 3.9 per cent. The female breeding herd was down by 13,000 head or 3.2 per cent while there were also significant falls in the number of boars for service and gilts not yet in pig but expected to be used for breeding. Fattening pig numbers fell by 44,000 head or 1 per cent but it should be noted that, with the exception of 2013, this was the largest population in eight years.

The total UK population of sheep and lambs rose by 569,000 head or 1.7 per cent, the highest for eight years although there are signs that numbers may have peaked in that the number of ewes intended for first time breeding fell by 86,000 head or 3.4 per cent. However, there was a 667,000 expansion in the UK population of lambs under one year old, equivalent to an increase of 4.1 per cent.

No data is currently available for poultry; these will be available in December.

Economic Readout

Data released by the Markit/CIPS UK Manufacturing Survey for October suggests that the UK manufacturing sector ‘made a bright start’ to the last quarter of the year.

At 53.2 in October, recovering from September’s 17-month low of 51.5, the seasonally adjusted Markit/CIPS Purchasing Managers Index remained above the neutral 50.0 mark for the twentieth month in a row. The pickup in growth mainly reflected a resilient domestic market, with overseas demand impacted by continuing economic weakness of the eurozone and strong sterling relative to the euro.

28th October 2014

Outside Indicators

Apart from statutory accounts, there are relatively few sources of data indicating the overall profitability of the livestock feed or, indeed, any industry. However, the Annual Business Survey which, until 2009, was called the Annual Business Inquiry – shades of the Inquisition – does give a clue to what is going on, even if it raises hackles in the business community; ‘time-consuming’ is just about the politest description of the process leading up to the compulsory completion of the necessary forms.

The latest revised data for the feed industry, defined as the manufacture of prepared feeds for farm animals (SIC 2007 Code 10.91) was released in June this year and suggests that in 2012, the industry’s turnover amounted to £4,992 million, an increase of £347 million or 7.5 per cent over 2011, reflecting the industry’s need to increase prices in the face of soaring raw material costs.

The industry paid out £4,500 million for purchases ‘of goods, materials and services’, £358 million or 8.6 per cent more than in 2011. However, Gross Value Added, a calculation used in the estimation of Gross Domestic Product (GDP) fell from £537 million in 2011 to £520 million in 2012, giving a GVA ratio of 10.4 per cent compared with 11.6 per cent – and 12.4 per cent in 2010. This is suggestive of the industry’s margins coming under increasing pressure, although it should be noted that the calculation takes no account of labour costs which amounted to 275 million in 2012, up by £25 million or 10 per cent on 2011.

The other source of data about the industry as a whole is the publication UK Businesses – Activity, Size and Location.

The latest data of this publication relates to 2013 and shows that the number of VAT-based or PAYE companies in the feed industry, at 245, remained unchanged from 2012. Significantly, however, the number of companies showing as generating sales of more than £5 million rose from seventy-five to eighty, a reflection of rising sales values following higher raw material costs. The data also shows clear signs of cost-cutting in that the number of companies employing more than 250 people fell from five in 2012 to nil in 2013, while the number of companies employing between a hundred to two hundred and forty-nine people rose from ten to fifteen.

More on this analysis when data for 2014 is released shortly.

Economic Update

The Office of National Statistics has made its initial, preliminary guess at the growth of the UK’s Gross Domestic Product during the third quarter of 2014. This amounted to an increase of 0.7 per cent over the 2nd Quarter.

At this stage of the proceedings, the available data content is less than half of the total required for the final output estimate. The estimate is subject to revision as more data become available, successively in the Second Estimate and the Quarterly National Accounts, but these revisions are typically small between the preliminary and last estimate of GDP. All figures in this release are seasonally adjusted.

Meanwhile Ian McCafferty, the second member of the Monetary Policy Committee to vote for a rise in interest rates at the MPC’s August, September and October meetings (the other being Martin Weale) told the Sunday Times that spare capacity in the UK’s rapidly recovering economy could be used up by the middle of 2015, adding to inflationary pressures in the economy.

Despite this, the clever money is on any rate rise being deferred into the first quarter of 2015 at the earliest.

Forthcoming Data

The International Grains Council will release its latest update on grain and oilseeds supply and demand prospects in 2014-15 on Thursday 30 October, to be reported on in the 3 November issue of this e-letter.

13th October 2014

Northern Ireland August Feed

In common with the rest of the UK, temperatures in Northern Ireland were lower than usual for August, based on the average of the years running from 1981 to 2010. This was in marked contrast to the preceding seven months. Rainfall, on the other hand, was well above ‘normal’ for the month, with Northern Ireland receiving 144 per cent of its usual allocation. However, the province received 112 per cent of its ‘normal’ sunshine hours.

Total output of feed in Northern Ireland during August, at 160,200 tonnes, was 11,200 tonnes or 7.5 per cent more than in the same month of 2013.

Output of cattle and calf feeds, at 78,200 tonnes, was 1,400 tonnes or 1.8 per cent higher than in August 2013. While production of feeds for non-dairy cattle was down, output of compounds and blends for dairy cattle was up by a combined 4,500 tonnes, the bulk of which (3,400 tonnes) was blends.

Output of pig feeds was up by a thousand tonnes or 8 per cent with the bulk accounted for by finishing feeds. Output of poultry feeds was up by 9,100 tonnes or 17 per cent of which 8,000 tonnes was accounted for by broiler feeds, an increase of 27.2 per cent. Sheep feeds output fell by 500 tonnes or 15.3 per cent, largely accounted for by lower growing and finishing compounds.

Taking the first eight months of 2014 as a whole, total production of livestock feeds in Northern Ireland amounted to 1,538,300 tonnes, 8,300 tonnes or 0.5 per cent less than in the equivalent period of 2013.

Production of cattle and calf feeds, at 814,100 tonnes, was down by 49,000 tonnes or 5.7 per cent compared with the same eight months of 2013. There were sharp falls in feeds for beef cattle with compounds down by 17,600 tonnes or 18.2 per cent and coarse mixes or blends down by 37,900 tonnes or 18.8 per cent. Output of coarse mixes or blends for dairy cattle was also lower by 6,500 tonnes or 3.7 per cent but production of dairy compounds was up 16,000 tonnes or 4.8 per cent, perhaps a reflection of dairy farmers’ eagerness to capitalise on high milk prices.

Output of pig feeds, at 110,000 tonnes, was 8,800 tonnes or 8.7 per cent up on the equivalent period of 2013 with the bulk of the increase accounted for by higher output of grower and finishing feeds. Output of poultry feeds was during the first eight months of 2014 was higher by 47,500 tonnes or 10.2 per cent with the largest part of the increase accounted for by a 37,400 tonnes increase in production of broiler feeds, up by 14 per cent.  There was also a 9,700 tonne or 6.5 per cent increase in layer and breeder diets.

Predictably, output of sheep and lamb feeds, at 53,300 tonnes, was down by 13,800 tonnes or 20.6 per cent compared with the same months of 2013 with the major fall taking place in the production of breeding compounds.

It seems unlikely that any feed production records will be broken in Northern Ireland this year but it is worth noting that output during the first eight months of 2014 was, by some distance, at its second highest level since records began to be kept in their present form.

USDA Soybean Prospects

The United States Department of Agriculture has recently updated its estimate of soybean supply and demand during the 2014-15 season.

There were, in fact, no very significant changes in USDA’s production forecast, the total amounting to an additional 76,000 tonnes. US production was raised by 373,000 tonnes, reflecting higher yields. Chinese production was reduced by 200,000 tonnes or 1.7 per cent compared with USDA’s September assessment.

End-of-season inventories, both in the US and worldwide are expected to be at high levels relative to the season’s predicted crush, particularly in the US.

Economics Update

The rate of inflation, as measured by the Consumer Price Index grew by 1.2 per cent in the year to September 2014, down from 1.5 per cent in August. This was significantly lower than most observers had expected. Falling transport costs, notably sea and air fares, and prices for a range of recreational goods provided the largest contributions to the slowdown in the rate of inflation between August and September.

Housing and household services, including utility bills, accounted for a third of the rate of inflation in the year to September. If falling food and motor fuel prices are excluded from the calculation, the rate of inflation would be a third higher. The falling price of crude oil, currently around $88 a barrel or 30 per cent lower than its June peak of $115, is clearly pointing to a further fall in prices at the pump. The falling price of crude oil reflects weak economic data from the Eurozone as well as the possibility of an economic slowdown in China; US shale gas is also affecting the situation.

Meanwhile, Bank of England Governor Mark Carney, while visiting the US, refused to confirm whether or not he still believed that an increase in Bank Rate was getting closer. One commentator was quoted as saying that his organisation had been factoring in a first increase in Bank Rate in February 2015 but there is clearly a very real and mounting possibility that the Bank could delay acting until nearer mid-year.

Martin Weale, one of the two members of the MPC to vote in favour of a rate rise in August and September, went public at Hull University, saying that the Bank of England should increase interest rates now because the economy was growing rapidly and inflationary pressures were threatening. He argued that if interest rates stayed low for too long, inflation might surge upwards, causing interest rates to be hiked more sharply than planned. He added that ‘the margin of spare capacity is shrinking rapidly and all logic suggests that that ought to lead to an increase in inflationary pressures over the two to three year horizon which concerns the MPC.’

13th October 2014

August Feed Production Great Britain

At 788,600 tonnes, feed production in Great Britain in August was 17,200 tonnes or 2.1 per cent less than in August 2013.

Production of cattle and calf feeds, at 303,300 tonnes, was 9,200 tonnes or 2.9 per cent less than in August 2013. The bulk of the decline was accounted for by falling production of non-dairy cattle compounds; there was also a small fall in the output of non-dairy blends. Production of dairy compounds and blends was marginally higher than in August 2013; up by 0.5 per cent and 0.4 per cent to 166,500 tonnes and 56,300 tonnes respectively.

Production of feeds for pigs, at 134,700 tonnes, was up by 2,400 tonnes or 1.8 per cent. This was largely accounted for by higher output of finishing feeds, up by 4,900 tonnes or 8.8 per cent to 60,400 tonnes compared with August 2013. There was also a 1,100 tonne or 3.6 per cent increase in pig breeding rations to 32,000 tonnes. Output of link/early grower and growing feed was lower than in August 2013.

Output of poultry feeds, at 267,000 tonnes, was 7,700 tonnes or 2.8 per cent less than in August 2013. The bulk of the contraction is accounted for by a fall in broiler feed production, down by 5,300 tonnes or 4.6 per cent when compared with August 2013. There was also a 2,500 tonne or 16.6 per cent fall in output of turkey feed, down to 12,600 tonnes.

Output of feeds for sheep and lambs continued its return to levels more typical of preceding years. Output in August 2014, at 27,600 tonnes, was 3,100 tonnes or 10.1 per cent less than a year earlier with the major falls occurring in compounds for both breeding animals and growing and finishing feeds; down by 21.6 per cent and 9.3 per cent respectively.

Looking at the first eight months of 2014 and taking account of lightly processed feeds such as flaked maize and molassed feedingstuffs, production in the first eight months of 2014 amounted to 6,997,500 tonnes; down by 281,600 tonnes or 3.9 per cent compared with the same  eight months or 2013.

Output of cattle and calf feeds during the first eight months of 2014, at 2,695,000 tonnes, was 95,800 tonnes or 3.4 per cent lower than in the equivalent period of 2013. The bulk of this decline was accounted for by falls in the production of non-dairy compounds and blends; there was also a 22,300 tonnes or 4.1 per cent fall in dairy blend production. In contrast, output of dairy compounds rose by 52,100 tonnes or 4 per cent to 1,368,100 tonnes, the highest since the equivalent period of 2006. This appears to be a response to the high level of milk prices for, at least, part of 2014.    

Output of feeds for pigs during the eight months in question, at 1,128,600 tonnes, was 43,900 tonnes or 4 per cent higher than in the equivalent period of 2013; its highest eight month total for twelve years. The bulk of the increase was accounted for by increased output of finishing feeds although there was also a 9,700 tonne or 3.6 per cent increase in pig breeding rations. Output of poultry feeds, on the other hand, was marginally lower during the period in question, down by 16,700 tonnes or 0.8 per cent to 2,172,800 tonnes with much of the decline attributable to falling broiler feed production, down by 10,000 tonnes or 1 per cent, and lower turkey feed output, down by 8,100 tonnes or 8.1 per cent. There was, however, an increased level of production for breeding and rearing diets, up by 4,800 tonnes or 2.7 per cent to 182,200 tonnes.

Predictably, production of feeds for sheep and lambs, at 549,600 tonnes, was lower by 172,200 tonnes or 23.9 per cent than in the first eight months of 2013. The major contributor to the decline was compounds for breeding sheep, down by 116,500 tonnes or 30.7 per cent. There was also a 48,200 or 17.7 per cent fall in output of compounds for growing and finishing rations. Compounds account for almost 90 per cent of production of manufactured feeds for sheep and lambs.

Output of straight or lightly processed feeds fell by 44,800 tonnes or 37.7 per cent compared with the first eight months of 2013.    

USDA Updates Supply and Demand Projections

On the stroke of 5PM (local time) on Friday 10 October, The United States Department of Agriculture released what one publication called USDA’s ‘much-anticipated’ World Agriculture Supply and Demand Estimate (WASDE), adding that it had been ‘viewed as a force behind all kinds of price moves, notably the general short-covering which has supported grains, but also the closing of some spreads’.

USDA has revised world wheat production upwards by 1.17 million tonnes in 2014-15 but the increase is marginal – just 0.2 per cent. Prospects for Argentine and Australian production have been reduced as have prospects for Canada and Kazakhstan; output in the EU, however, has been increased compared to the September assessment by just over 3 million tonnes or 2 per cent. Estimated end-of-season stocks have, however, been reduced and Days Consumption Equivalent reduced to 99 DCE, compared to 101 DCE in the September assessment.

Maize production has also been revised upwards by 3.18 million tonnes or 0.3 per cent. Estimated production in Ukraine and Russia has been cut while production in the EU has been increased by 2.67 million tonnes or 3.9 per cent compared with USDA’s September estimate. The net effect of these changes has been to maintain estimated end-of-season stocks at 72 DCE, the highest figure in twelve years. There has, in particular, been a further upgrade to US yield prospects for maize.

An update of USDA’s views regarding soybean prospects in 2014-15 follows in next week’s edition of the e-letter.

Economic Catch-Up

The question of the economy’s performance and, in particular, how it will affect the timing of interest rate rises, a matter of no little concern to Finance Directors, continues to dominate economic discussion.

On 30 September, the Office of National Statistics published the Quarterly National Accounts for the second quarter of 2014, following the Preliminary Estimate of Gross Nation Product, published on 25 July and the Second Estimate, published on 15 August. Whereas both the Preliminary and the Second Estimates had the UK’s Gross Domestic Product growing by 0.8 per cent over the first quarter, the Quarterly National Accounts upgraded the increase in GDP to 0.9 per cent. The increase was broad-based, according to the Office of National Statistics which noted that production, construction and services all expanded during the second quarter, albeit that agriculture, forestry and fishing contracted slightly.

Total production output grew by 0.2 per cent during the second quarter, with manufacturing rising by 0.5 per cent; providing the largest upwards contribution to production growth. Output in the construction sector increased by 0.7 per cent in the second quarter of 2014. Output in the service industries, which account for three-quarters of the UK’s GDP, grew by 1.1 per cent, following the 0.8 per cent increase in the first quarter of 2014. All four components of the service industries increased quarter-on-quarter.

It should be noted that, in order to conform to updates to international standards, these latest ONS estimates are based on a revised methodology which includes, in its definition of what constitutes GDP, a number of areas that are not usually regarded as ‘economic’ activity such as spending on research and development as well as the economic contribution made by drug dealers and the sex trade.

What about prospects for the third quarter? The National Institute of Economic and Social Research (NIESR) reckons that in the three months to September 2014, the UK’s GDP grew by 0.7 per cent. This lower figure compared to the Office of National Statistics’ figure of 0.9 per cent for the second quarter is consistent with survey data published by the Markit/CIPS PMI® which suggested that growth in manufacturing is slowing down, due to continuing problems in the Eurozone. Chris Williamson, Chief Economist at Markit, which compiles the surveys, noting that September’s PMI surveys suggested that the UK most likely enjoyed another spell of above-trend economic growth in the third quarter, added that ‘the recovery appears to be losing its legs’. However, he further noted that the PMI surveys were collectively signalling GDP growth of 0.8 per cent in the third quarter, down from 0.9 per cent in the second quarter but ‘still strong by historical standards’.

Meanwhile, and on the question of interest rates, City AM, motto ‘Business with Personality’, notes that ‘many City analysts are expecting a rise as early as November 2014. Interest rate futures, meanwhile, are pricing in a first UK rise by the first quarter of 2015’. The Monetary Policy Committee, while it voted unanimously at its July meeting to maintain Bank Rate at 0.5 per cent and to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion, as it had done since 5 March 2009, broke ranks in August and again in September when two members voted in favour of an increase to 0.75 per cent.

The minutes of its October meeting, when the same propositions were adopted, will not be published until 22 October and, while no change in Bank Rate is expected, it will be interesting to see whether any more members of the Monetary Policy Committee have changed their stance against maintaining it at 0.5 per cent.

And Finally

Remember BOCM Silcock, the flagship of Unilever’s feed manufacturing empire and first incorporated as British Oil and Cake Mills way back on 8 July 1899? Then the powers that were decided that feed manufacturing was not core business as far as the Anglo-Dutch giant was concerned and BOCM Silcock, as it became, was conjoined to another of the major feed manufacturers, Paul & Whites, to become BOCM Pauls in October 1992.

Now it’s all change and BOCM Pauls will become ForFarmers, the name of its Netherlands-based parent company. End of an era – or start of a new one?

29th September 2014

USDA Soybean Review

In its latest, September update, the United States Department of Agriculture has increased its estimate of the world’s 2014-15 soybean harvest by 6.43 million tonnes or 2.1 per cent compared to its previous, August estimate.

This reflects increased prospects in a number of major soybean producers with Brazil up by 3 million tonnes or 3.3 per cent, the US up by 2.65 million tonnes or 2.6 per cent and Argentina up by a million tonnes or 1.9 per cent (all increases compared to USDA’s August projections). The US figure reflects an increase in estimated bushels per acre from 45.4 bushels in August to 46.6 bushels in September, up by 1.2 bushels or 2.6 per cent.

Interestingly, while USDA’s August assessment gave the top export spot in 2014-15 to the US, its September assessment gives Brazil the top exporter’s spot – 46.7 million tonnes as against the US’s 46.27 million tonnes.

End-of-season soybean stocks, at 90.17 million tonnes, have been increased from USDA’s August assessment of 85.62 million tonnes. These end-of-season stock volumes show a particularly high ratio to projected crush during 2014-15. The latest world end-of-season stocks to crush percentage is 35.8 per cent, up from 34.1 per cent in August and 27.9 per cent in 2013-14 while in the US, the projected end-of-season stocks to crush percentage is 26.8 per cent, as against 24.5 per cent in August – and 7.5 per cent in 2013-14. This is fully reflected in the FOB Gulf value of US Yellows, from $559.63 in June to $429 during the first three weeks of September.

USDA’s next assessment of world grain and oilseeds supply and demand is scheduled for Friday 10 October.

Raw Material Price Developments

The International Grains Council’s Grain & Oilseeds Index (GOI) fell to 226.50 during the first three weeks of September. There was a slight increase in the wheat sub-index but significant falls in the maize and soybean indices.

Hard Red Winter wheat FOB US Gulf both fell in September compared to August, the former falling to its lowest value since April 2012. In the UK, the November 2014 LIFFE wheat contract dropped to an average of £116.24 for the first fifteen contract days of the month with the May 2015 contract falling to £123.34. Corn Returns data saw feed wheat prices for spot delivery falling to £111 with three month forward delivery at £115-116. Protein prices, on the other hand, showed a degree of firmness; Hipro ex-store East Coast UK stuck at £330, unchanged from May while rapemeal ex-Erith, at £166, put on £5 on its May values. Significantly, maize gluten feed put on £6 a tonne in September while pelleted wheat feeds, at £103, were also stronger by £10. The strength of the US dollar, combined with some perceived weakness in sterling in the run-up to the Scottish referendum, may account for some of the increases.

Meanwhile, the International Grains Council’s latest update for the 2014-15 run was duly published on 25 September, with IGC raising its forecast of the total world production of grain - wheat and coarse grains - in 2014-15 by 8 million tonnes to 1,983 million tonnes, just 10 million tonnes less than the record crop harvested in 2013-14.

Production of wheat worldwide, at 717 million tonnes, is already projected at its highest-ever level while the prospect of what IGC calls ‘exceptional’ yields, not just in the US but also in the EU, looks set to increase the world maize forecast to 974 million tonnes, just 9 million tonnes short of the record maize harvest gathered in during the 2013-14 run.

Despite smaller wheat crops in the US, Canada, Australia and Near East, larger harvests across Europe, the Confederation of Independent States and China point to a record wheat outcome in 2014-15. World end-of-season stocks of 195 million tonnes are forecast at their highest in five years with major exporters’ end-of-season stocks projected to increase for a second successive season.

IGC note that with autumn cultivation of the 2015-16 northern hemisphere winter wheat crop underway, the total world area planted to wheat is ‘tentatively projected’ to increase slightly over 2013-14. Reflecting plentiful supplies and limited demand, the price of low and medium grade wheats moved mostly lower during September but the price of durum and, in particular, North American spring milling wheats quotations hardened on continued quality concerns.

IGC has ventured on its first forecast for the world wheat area for 2015-16, estimating it on a harvested basis, at 224 million hectares, up from the estimated 222.7 million hectares for the current 2014-15 season. This would be the largest area harvested since the 225 million hectares in 1998.

As regards maize, IGC have increased its forecasts of production in the US from 355 million tonnes to 360 million tonnes and the EU from 67.8 million tonnes to 70.7 million tonnes; these increases are primarily due to improving yield prospects. IGC also noted that, because of drought damage, China’s crop is expected to show its first fall in five years. However, with southern hemisphere old crop supplies still available and with the 2014-15 harvest now underway in the US and the Black Sea region, IGC expect export competition to strengthen. After a brief surge in August, US FOB Gulf export maize prices fell to $182.70 during the first three weeks of September, it’s lowest since August 2010. IGC note that the IGC GOI maize sub-Index was at its lowest since June 2010.

IGC note that, although soybean planting has only just started in parts of Brazil and is still some weeks away in Argentina, they are expecting ‘a sharp rise’ in the 2014-15 run. Driven by significant increase in US production, soybean output in 2014-15 is expected to increase to 310 million tonnes compared to the 2013-14 outcome of 282 million tonnes, an increase of just short of 10 per cent.

The next update of IGC’s projections for the 2014-15 run is scheduled to be published on 30 October.

NWF Update

At the NWF Group’s AGM, held on 25 September, Chairman Mark Hudson, told shareholders that, whereas the first quarter of the Group’s 2014-15 had been ‘difficult’ for the Group as the result of significant falls in commodity prices which had impacted margins, ‘the outlook at this early stage of the year remains broadly in line with management expectations.

As regards the Feeds Division, activities had focused on providing ‘high quality nutritional advice and sales direct to farmers’ – no buying groups need apply. Although volumes were ‘robust’, margins had been impacted by ‘both significant price reductions seen in the commodity markets and the announcement of the recent reductions in milk prices across the UK.

Mark Hudson added that the Group would provide a more detailed update at the time of its Interim Statement in early February 2015.

23rd September 2014

USDA Update

The United States Department of Agriculture (USDA) has updated its projections of supply and demand for grains and oilseeds.

Compared to its August projection, USDA’s September revision has increased its estimate of world wheat production in 2014-15 by 3.86 million tonnes or 0.5 per cent to 719.95 million tonnes, a new record. The increase reflects an increased projection of wheat production in the EU, up by 3.1 million tonnes or 2.1 per cent to 150.97 million tonnes; however, a high proportion of this is likely to be of feed quality. Production in Ukraine is increased by 2 million tonnes or 9.1 per cent to 24 million tonnes; there is also a 350,000 tonne or 5.1 per cent upgrade for Uzbekistan to 7.15 million tonnes.

The main issue this season looks to be a plentiful supply of feed quality wheat but supply constraints on higher quality material. USDA reports that Hard Red Spring wheat rose by $44 to $392 in August on quality concerns, following heavy rain along with some continuing transport issues in the Northern Plains. In contrast, prices of most other classes of wheat were steady, weighed down by the prospect of large global supplies.

End-of-season wheat stocks, at 196.38 million tonnes, are estimated to constitute 101 Days Consumption Equivalent, an increase of two days since USDA’s first 2014-15 projection in May. This compares with a ten-year average of 96 DCE. Average world yields per hectare have been increased from an initial 3.13 tonnes to the current 3.24 tonnes, equal to the 2013-14 outcome.

USDA has increased its September estimate of world maize production by 2.12 million tonnes or 0.2 per cent to a record 987.52 million tonnes, compared to its August projection of 985.39 million tonnes.

The major contributor to the increase is a 9.23 million increase in the projected US total, up by 9.23 million tonnes or 2.6 per cent to 365.66 million tonnes compared to USDA’s August outlook. The most significant contributor to the increase in US maize production appears to be a sharp increase in yields, up from August’s167.4 bushels an acre to 171.7 bushels in September. Markets also reacted to the projected US end-of-season stock position with stocks equivalent to 62 Days Consumption Equivalent, compared to the August projection of 56 DCE.

While increasing its estimate of EU and Brazilian maize production, USDA has cut its estimate of Chinese maize production by 5 million tonnes and Argentine output by 3 million tonnes; there have also been reductions in estimated Ukrainian and Russian output. It is worth noting that, if the US is excluded from the world’s total production of maize, then USDA’s September assessment would show a 7.1 million tonne or 1.1 per cent reduction compared to its August estimate. Where prices are concerned, therefore, much will depend on the upcoming US maize crop being realised.

A review of USDA’s latest projections for soybeans and soybean meal will follow in next week’s newsletter. 

Northern Ireland

Production of animal feeds in Northern Ireland during July, at 185,200 tonnes, was 5,300 tonnes or 2.9 per cent up on July 2013.

Production of cattle and calf feeds, at 91,000 tonnes, was 3,500 tonnes or 3.7 per cent down on the same month of 2013, with some unwinding of the weather-driven effects of 2012 and 2013 undoubtedly playing some part. However, it is interesting to note that production of dairy compounds, at 48,100 tonnes, was 2,900 tonnes or 6.3 per cent up on the levels of July 2013; dairy blends and coarse mixes were also up but by much less in both quantitative and proportionate terms. Production of feeds for beef cattle were lower than in July 2013, principally due, one would assume, to the unwinding of the weather effects of the previous two years.

Output of feeds for pigs, at 15,200 tonnes, were 1,400 tonnes or 10.3 per cent up on July 2013 with the increases driven principally by increased growing and finishing feeds. Output of feeds for poultry were up by 8,300 tonnes or 13.1 per cent, substantially driven by a 7,500 tonne or 20.4 per cent increase in production of broiler feeds compared with July 2013.

Production of feeds for sheep and lambs, at 3,000 tonnes, was 500 tonnes less than in July 2013, a reduction of almost 15 per cent, but not unexpected.

Looking at the year so far as a whole, total production of feeds during the first seven months of the year, at 1.38 million tonnes, was 19,400 tonnes or 1.4 per cent less than in the same period of 2013.

As expected, cattle and calf feeds have taken a substantial hit in volume terms, production of 735,400 tonnes being 50,400 tonnes or 6.4 per cent less than in the same seven months of 2013. However, output of dairy compounds was 14,900 tonnes or 4.9 per cent higher than in the same months of 2013. Production of feeds for beef cattle, on the other hand, was substantially less.

Production of feeds for pigs, at 97,000 tonnes, was 7,800 tonnes or 8.8 per cent up on the same period of 2013 with increases being recorded across the product range with the exception of protein concentrates. There was a sharp increase in output of poultry feeds during the period in question, at 449,000 tonnes up by 38,400 tonnes or 9.4 per cent, with the principal contribution coming from broiler feeds.

Output of sheep and lamb feeds, at 50,700 tonnes, was substantially down on the same period of 2013, by 13,300 tonnes or 20.8 per cent; as might be expected, breeding sheep compounds took the largest hit of 7,700 tonnes or 25.5 per cent.

Not another record year for the feed industry in Northern Ireland then, but given the fact that cumulative production was down by a comparatively modest 19,400 tonnes or 1.4 per cent, surely another record must be on the cards in the not-too-distant future. The contribution of the poultry feed sector in particular will bear watching. 

Economic Update

Inflation, as measured by the Consumer Prices Index (CPI) grew by 1.5 per cent in the year to August 2014, down from 1.6 per cent in July. Falls in the prices of motor fuels and food & non-alcoholic drinks provided the largest downward contributions to the change in the rate with the largest, partially offsetting, upward effects coming from clothing, transport services and alcohol.

There seems to be a general emerging opinion that this latest statistic, suggesting the absence of any inflationary pressure, means that any increase in interest rates during 2014 is unlikely, with the main betting being on the first quarter of 2015. However, it has emerged that, at their August and September meetings, two members of the Monetary Policy Committed broke ranks, voting to increase interest rates 0.75 per cent. It will be interesting to see whether this division of opinion carries into the MPC’s October meeting; this might increase the chances of an interest rate increase in November, the month of choice for a number of City consultancies.

8th September 2014

Great Britain July Feed Total

Production of compounds, blends and concentrates in Great Britain in July, at 783,000 tonnes, was 7,600 tonnes or 1 per cent down on the levels of July 2013.

Production of cattle and calf feed, on the other hand, at 297,300 tonnes, was 2,800 tonnes or 1 per cent more than in July 2013. The emphasis on increased cattle and calf feed output was firmly on the dairy side with production of dairy compounds up by 10,400 tonnes or 6.7 per cent higher than in the same month a year earlier while production of dairy blends was up by 3,300 tonnes or 6.5 per cent. This would seem to reflect the continuing influence of higher milk prices although, given the announcement of recent milk price cuts by the big four processors together with a number of their smaller brethren for September and October, including several taking the price below 30 pence a litre, it must be questioned how long the apparent increased use of dairy feeds can go on. Already, dairy farmers are being urged to ascertain the quality and quantity of their forage in order to evaluate their requirements for purchased feed this winter.

It will also have been noted that ‘world’ dairy prices are in decline.

The volume of beef compounds fell by 9,300 tonnes or more than a fifth in July compared with twelve months earlier while production of beef blends fell by 3,100 tonnes or 12 per cent; this was to be expected as the effects of the weather-hit 2013 unwound.

Production of pig feeds was up by 1,200 tonnes or 0.9 per cent compared with July 2013 with the largest contribution coming from finisher feeds; production of other pig compounds was lower compared to year earlier output. There was a very sharp reduction in output of poultry feed in July compared to twelve months earlier; at 273,100 tonnes, output was down by 10,700 tonnes or 3.8 per cent. By far the largest reduction was in broiler feed output, down by 7,200 tonnes or 6.3 per cent. It may be surmised as to whether this reflected concerns about quality, given pronouncements about campylobacter in recent weeks. There was a small increase in output of layer feeds, up by 1,300 tonnes or 1.7 per cent compared with July 2013.

Predictably, output of feeds for sheep and lambs in July, of 28,300 tonnes was down on year-earlier levels by 2,100 tonnes or 6.9 per cent, the sub-sector taking the brunt of the reduction being compounds for breeding animals, down by 2,400 tonnes or 48 per cent. There was a 900 tonne or 7.9 per cent fall in output of horse feeds while production of other compounds, blends and concentrates rose by 2,100 tonnes or 5.4 per cent; a high proportion of the latter category is thought to be feeds for fish.

It’s worth noting that, in July 2014, production of flaked maize and other maize products along with molassed feedingstuffs and other ‘straight’ materials, at 6,800 tonnes, contrasted with the 23,100 tonnes produced in July 2013 – evidence of livestock farmers’ attempts to avoid high feed costs against the prevailing background of poor grazing and forage quality.

Taking the first seven months of 2014 together shows total production in Great Britain at 6.14 million tonnes, down by 219,300 tonnes or 3.5 per cent on the same period of 2013.

Production of cattle and calf feeds, at 2.39 million tonnes, was 86,600 tonnes or 3.5 per cent lower than in the same seven months of 2013. While calf feeds were down by 7,200 tonnes or 6.7 per cent, production of dairy compounds, at 1.2 million tonnes, was 51,300 tonnes or 4.5 per cent up on the same months a year earlier. In contrast, production of dairy blends, at 470,000 tonnes, was 22,500 tonnes or 4.6 per cent lower than the first seven months of 2013, lending weight to the theory that higher milk prices were encouraging production with a switch from blends to compounds forming a part of the strategy. Production of compounds and blends for non-dairy cattle, on the other hand, was sharply down on year earlier levels, compounds by 78,100 tonnes or 17.9 per cent and blends by 41,400 tonnes or 16.1 per cent.

Production of pig feeds during the first seven months of the year was 41,500 tonnes or 4.4 per cent ahead of the same period of 2013 with the additional production led by finishing feeds and pig breeding diets, up by 9.3 per cent and 3.7 per cent respectively. There was also a sharp increase in production of protein concentrates, up by almost 47 per cent although the volume increase involved – 2,300 tonnes – was relatively small. Production of poultry feed, on the other hand, was 9,000 tonnes or 0.5 per cent less than in the first seven months of 2013 with the bulk of the decline accounted for by reduced output of broiler chicken, down by 4,700 tonnes or 0.6 per cent, and turkey feeds, down by 5,600 tonnes or 6.6 per cent, although output of breeding and rearing feeds increased by 4,100 tonnes or 2.6 per cent.

Predictably, output of feeds for sheep and lambs was sharply down on the equivalent period of 2013, falling by 169,100 tonnes or 24.5 per cent. The main decline took place in compounds for breeding sheep, down by 117,000 tonnes or 31.3 per cent; output of compounds for growing and finishing sheep also fell by 45,400 tonnes or 17.9 per cent. Production of horse feeds was also down by 17,400 tonnes or 15.1 per cent compared with the first seven months of 2013, also as a result of the unwinding of the weather effects during the first half of that year. However, there was also an increase in output of other compounds, blends and concentrates compared with year earlier data, up by 21,200 tonnes or 10.5 per cent.

Production of a range of ‘straight’ or lightly processed feeds declined by 30,100 tonnes or 31 per cent.

BOCM PAULS Reports on 2013

BOCM PAULS has reported sales of £615,851,000 in the twelve months ending 31 December 2013, up by 14.6 per cent on 2012. Operating profits, at £8.24 million were down by 34.6 per cent; this was impacted by an exceptional item relating to a provision against trade receivables, following a customer being placed in formal liquidation. Pre-tax profits were £6.16 million compared to £10.54 million in 2012.

Economic Pointers

The author of the Markit/CIPS Construction PMI®, commenting on the construction PMI for August of 64, compared to its July predecessor of 62.4, noted that UK construction firms had seen one of the sharpest rises in output for seven years. Increasing workload had been driven by ‘an array of factors’ including surging homebuilding activity, greater spending on infrastructure and what he termed ‘renewed confidence’ within the commercial development sector.

The services PMI stood at 60.5 in August, up from 59.1 in July and representing the sharpest monthly improvement in activity since October 2013. Growth has now been sustained for twenty months.

Chris Williamson, Chief Economist at Markit which compiles the survey, noted that accelerating growth in the services sector, which accounts for three-quarters of the UK’s Gross Domestic Product, together with the boom in construction, had offset ‘a weakened performance in manufacturing in August’. Taken together, the three August PMI surveys suggested that the UK economy had grown at the fastest rate since last November which, Williamson noted, provided ‘further ammunition for policymakers arguing for higher interest rates’. He added that the sustained and elevated PMI readings suggested that ‘we will see another quarter of strong economic growth in the third quarter, similar to the 0.8% expansions seen the first two quarters of the year’.

1st September 2014

International Grains Council Update

The outlook for world grain and oilseeds production continued to move higher during August, underwriting what IGC called ‘a generally bearish tone’ in export markets. IGC’s Grains and Oilseeds Index (GOI) stood at around a four-year low, falling by around 3 per cent compared to July.

The only redeeming factor, from the speculators point-of-view, was that declining prices were underpinned by continuing uncertainty about the implications of the conflict in Ukraine and, as regards wheat, an increasingly tight position as regards premium quality availability. With regard to the former factor, European wheat prices rose on concerns about the escalating tension between Russia and Ukraine, two of the world's largest wheat exporters.

November milling wheat on the Euronext market was up €2.50 or by 1.44 per cent at €176.00 by mid-afternoon of the last August trading day, after hitting a three-week high of €177.25 earlier in the session. One trade source described the situation as ‘the most serious development we've seen so far and the most potentially disruptive over time’. However, and despite the political uncertainty, Ukraine maintained its grain exports at a high level in August, shipping 2.17 million tonnes of grains between 1 August and 26 August, of which 1.19 million tonnes was wheat, according to respected agriculture consultancy UkrAgroConsult.

IGC’s August projection of global output of wheat and coarse grains production in 2014-15 has been increased by 17 million tonnes compared with its July projection of 1,959 million tonnes to 1,976 million tonnes, only 33 million tonnes less than the current projection for 2013-14 of 1,992 million tonnes which was a record.

Of the 17 million tonne increase in August compared to July, 13 million tonnes is accounted for by projected higher production of wheat which, at 713 million tonnes, equals the record global output established last season. Most of the increase is for wheat, largely because of better-than-expected outcomes in China, the EU and Russia. However, it should be borne in mind that the global wheat harvest will include ‘an above average proportion’ of what IGC describes as ‘low/medium grade supplies’, not least where EU countries such as France and Germany are concerned. Add in the effects of ample supplies of maize and, while strong competition from maize is expected in most markets, consumption of feed wheat is expected to rise. In the EU, IGC have increased their estimate of feed wheat consumption from its July forecast of 49.5 million tonnes to 52.8 million tonnes in its August projection and its projection of total world feed wheat consumption from its July estimate of 133.6 million tonnes to 138.7 million tonnes in August.

However, and reflecting lower prices and increased demand, estimated end-of-season wheat stocks have been increased by only 2 million tonnes to 195 million tonnes with end-of-season stocks held by the major exporters increasing by 3 million tonnes to 59 million tonnes. Total end-of-season stocks at the end of 2014-15 season are equivalent to 101 Days Consumption Equivalent, a four-year high and considerably higher than the ten-year average.

The upshot of all this was that, taking August as a whole, the average of the IGC wheat sub-index, as measured each Monday by the previous Friday outcome, of 219.6 was only slightly lower than the July average of 222.5 (2000 = 100).

IGC’s projection for the 2014-15 maize harvest has also been increased from its July projection, from 969 million tonnes to 973 million tonnes. While Argentine output is forecast lower, output for Brazil, the EU, Ukraine and the US has been increased; the total for the latter country represents a new record.

IGC’s maize sub-index averaged 194.8 in August, down from 204.75 in July and its first fall below 200 for many months.

IGC’s higher estimates of use of feed for both wheat and maize have had the effect of lifting the forecast for total grain consumption by 12 million tonnes in their July outlook to a record 1,952 million tonnes; this will, however, only partly account for the anticipated additional 18.5 million tonnes available supply. Estimated end-of-season stocks, at 425.5 million tonnes, up by 23.3 million tonnes on the 2013-14 out-turn and equivalent to 80 Days Consumption Equivalent compared to the 2013-14 outcome of 76 DCE. IGC say that 425.5 million tonnes is the highest level of global end-of-season inventories for fifteen years; according to my records, it is the highest for considerably longer than that.

Raw Material Price Moves

Some slightly peculiar moves in the prices of Soft and Hard Red Winter wheats as measured each Friday by the HGCA. For August, Soft Red Winter FOB Gulf averaged $248.66 compared with its July average of $234.48. In comparison, Hard Red on the same basis was priced at $286.84 compared with $294.65 for July, despite the fact that there is supposed to be a premium on milling wheat for which Hard Red Winter codes.

On the LIFFE feed wheat market, the nearby, November contract averaged £122.46 for the first twenty-six days of August, down £7 from the July average and compared to £154.09 for the month of August 2013. The nearby CBOT wheat contract showed a slight gain on July, reflecting uncertainty over Ukraine and other geopolitical factors. For soybeans, US export values for August dropped to $448 compared with $458 in July and above the $500 mark for the 2013-14 marketing year.

Overall, the bears thus appear to be in control of the arena, reflecting the increasingly evident prospect of ample supplies of grains and oilseeds during the 2014-15 season.

Economic Signs and Portents

 The seasonally adjusted Markit/CIPS Purchasing Managers Index posted 52.5 in August, down from a revised 54.8 in July, thus recording its lowest reading since June last year.

David Noble, Group Chief Executive Officer at the Chartered Institute of Purchasing & Supply noted that UK manufacturers ‘were walking rather than running in August’ as the sector’s performance fell to a fourteen month low and growth began to slow further. He said that there was ‘a distinct easing’ across the UK manufacturing  sector, with growth in output, new orders and employment all reducing to what he described as ‘a more pedestrian level’. He drew particular attention to the fact that growth in new export orders had slowed to a five-month low ‘against a backdrop of market uncertainty and increasing geo-political tensions.

26th August 2014

Northern Ireland Update

At 169,200 tonnes, Northern Ireland chalked up a record volume of feed production for the month of June, 3,800 tonnes or 2.3 per cent more than in June 2013.

Cattle and calf feed production of 81,800 tonnes, however, was 4,600 tonnes or 5.3 per cent less than in June 2013. This reflected falling output of feeds for beef cattle; 3,100 tonnes or 17.5 per cent less in output of coarse mixes and blends and 2,400 tonnes or 30.1 per cent less in compounds. In contrast, output of compounds for dairy cows increased by 1,600 tonnes or 4.1 per cent. There was a much smaller increase in output of dairy coarse mixes and blends, 200 tonnes or 1 per cent. This is supportive of the view that dairy farmers in Northern Ireland were using more dairy compounds in a bid to increase milk output in response to higher milk prices.

Output of feeds for pigs rose by 12,200 tonnes or 12.5 per cent in June compared to a year earlier. This reflected increases across the product spectrum with the largest increase in percentage terms being for grower feeds, up by a fifth compared to June 2013. Poultry feeds put on 8,700 tonnes or almost 15 per cent compared with June 2013 with by far the largest contribution to the increase coming from broiler feeds.

Remarkably, output of feeds for sheep and lambs also increased compared with June 2013 albeit only by 300 tonnes. Most of the increase reflected higher output of growing and finishing compounds.

Taking the first six months of the year as a whole, production of feed in Northern Ireland, at 1.19 million tonnes, was 24,700 tonnes or 2 per cent less than in the first half of 2013; this was, however, the second highest total for the period in question, surpassed only by the weather-driven 1.22 million tonnes recorded for the first six months of 2013.

Predictably, output of cattle and calf feeds, at 644,900 tonnes in the first six months of 2014 was 46,800 tonnes or 6.8 per cent less than in the same months of 2013. Again, this reflected, in the main, lower output of feeds for beef cattle; beef cattle compounds was down by 13,400 tonnes or 17 per cent while production of coarse mixes and blends for beef cattle was down by 32,400 tonnes or 19.2 per cent. On the other hand, while output of coarse mixes and blends for dairy cattle was 10,300 tonnes or 7 per cent less than in the first half of 2013, output of dairy compounds increased by 12,000 tonnes or 4.7 per cent compared with the same period of 2013.

Production of pig feeds, at 81,800 tonnes, was 6,400 tonnes or 8.5 per cent up compared with the first six months of 2013 with the largest contribution coming from pig grower feeds, up by 2,800 tonnes or 16.8 per cent. Poultry feeds rose by 30,100 tonnes or 8.7 per cent to a record 377,300 tonnes with broiler feeds, at 223,100 tonnes, also a record, making the largest contribution to the increase. The combined total of layer and breeder feeds of 119,800 tonnes was up by 21,900 tonnes or 10.9 per cent and was also a record.

Output of sheep and lamb feeds reflected the unwinding of weather effects in 2012 and 2013 and, at 47,700 tonnes, was down by 12,800 tonnes or 21.2 per cent compared with the total for the first half of 2013.

No record production for Northern Ireland in 2014 would seem to be in prospect; nevertheless, the province should end up with a very respectable total, particularly as regards poultry feed which would seem the be Northern Ireland’s star turn at present.

USDA Soybean Outlook

USDA’s latest, August assessment of the 2014-15 world supply and demand situation shows soybean production 96,000 tonnes down on its July assessment with a 600,000 tonne reduction in Indian output more than offsetting increased US output.

The latter factor has had a significant downwards effect on US farm prices which, from $529 a tonne in June, fell to $467 in July. HGCA’s monitoring of No. 2 yellow soybean values FOB ex-Gulf dropped from $560 in June to $458 in July and $450 in the first half of August while USDA reported that U.S. export bids, FOB Gulf, in July averaged $496 a tonne, down $66 from the previous month with the decline attributed to the looming prospect of what USDA called ‘a bumper crop’ in the autumn.

USDA report that, as of the last week of July, U.S. soybean commitments – outstanding sales plus accumulated exports – to China totalled 28.1 million tonnes compared to 21.6 million tonnes a year ago, with total global commitments at 46.1 million tonnes, compared to 37.2 million tonnes for the same period last year.

Worldwide, projected end-of-season soybean stocks, at 34 per cent of the predicted world crush, are considerably in excess of the previous year’s stocks:crush ratio of 28 per cent – and of the average stocks:crush ratio for the past decade of 27 per cent. Market reaction in the U.S. was for November soybeans to fall 1.1 per cent to $10.59½ a bushel, reflecting a USDA estimate for domestic end-of-season stocks in 2014-15 which, at 430 million bushels, exceeded market expectations by 16 million bushels. And, although USDA lifted its forecast for the domestic soybean yield from its July assessment of 45.2 bushels per harvested acre to 45.4 bushels, a little less than market expectations, it predicted no increases in demand, nor did it trim its estimate for opening domestic stocks for the 2014-15 as some market analysts had expected.

The impression is very much one of expectations of a bigger US soybean yield outcome, reflecting the continuing favourable weather outlook. The picture should become even clearer once WASDE has produced its September assessment of US soybean yield prospects.

BATA Buys Thompsons of York

Brandsby Agricultural Trading Association – BATA – has bought William Thompson (York) Ltd, including its Jubilee mill at Murton, to the east of York. In the year ending 30 April 2013, Thompson turned over £32.3 million and generated pre-tax profits of £1.13 million. The company’s principal business is the distribution of animal feeds manufactured by the Jubilee mill as well as nutritional consultancy.

At the time of writing, no data was available on the price paid by BATA.

18th August 2014

Supply and Demand Prospects

The United States Department of Agriculture has published its latest update to the world Supply and Demand situation for grains and oilseeds in the 2014-15 run.

Compared with USDA’s July assessment, global wheat production for 2014-15 has been increased by almost 11 million tonnes to a record 716.09 million tonnes, largely as the result of a large Russian harvest and a 126 million tonne crop in China, up by 2 million tonnes on USDA’s July estimate and constituting a record. The US crop is raised by slightly over a million tonnes and the Ukrainian harvest crop is increased by a million tonnes. Average world wheat yields have been increased from 3.16 tonnes per hectare to 3.22 tonnes.

USDA has increased its estimate of world wheat consumption by 6.87 million tonnes of which 2.5 million tonnes is accounted for by increased use of wheat in the EU, largely reflecting quality problems which are projected to lead to higher use of wheat in livestock feed. End-of-season world wheat stocks have been increased by 3.42 million tonnes to 192.9 million tonnes, equivalent to 100 Days Consumption Equivalent (DCE), slightly higher than in USDA’s July estimate.

Wheat prices, predictably, have been under pressure. Hard Red Winter wheat FOB ex-Gulf has dropped below the $300 mark during the first two weeks of August while Soft Red Winter on the same basis averaged $234.50, its lowest since July 2010.

USDA has increased its August estimate of world maize output in 2014-15 by 4.43 million tonnes, largely reflecting increased production in the US. The latter appears to reflect a substantial upgrade to US yields, from 165.3 bushels/acre to 167.4 bushels/acre; while this would be a record if achieved, markets had been expecting an upgrade to 170.1 bushels.

While USDA increased projected use of maize for all purposes by 2.34 million tonnes compared to their July estimate, world end-of-season stocks are forecast to decline marginally; however, in terms of Days Consumption Equivalent, USDA’s August assessment leaves this measure unchanged at 71 days. Maize FOB US Gulf fell below the $200 / tonne mark in July although it was marginally firmer during the first two weeks of August. Argentine material averaged $190.25 during the first two weeks of August compared with $193 in July.

According to HGCA data covering the first half of August, Hard Red Winter wheat FOB Gulf stood at $287 compared to $293.75 in July while maize dropped to 194.67 during the first half of August, down from $196.75 in July. The indicative IGC Grain and Oilseeds index averaged 239.33 in the first half of August, its lowest since August 2010.

In the coming months, planting decisions for Southern Hemisphere maize and Northern Hemisphere winter wheat will be made in the context of increasing inventories and falling prices. Developments in this area will be reported upon in due course.

Soybean Prospects

USDA’s latest projections of soybean supply and demand in 2014-15 suggest a small reduction in forecast output but that anticipated world and US end-of-season stocks will represent a very substantial proportion of the expected 2014-15 crush. More on this in the next issue of the e-letter. 

Economic Catch-up

The Office of National Statistics has published its second estimate of UK Gross Domestic Product in the second quarter of 2014.

The UK’s GDP increased by 0.8 per cent in the second quarter of 2014, the second consecutive quarter-on-quarter increase of 0.8 per cent. The figure for the second quarter of 2014 was unrevised from the preliminary estimate published on 25 July 2014.

Output increased in two of the four main industrial groupings within the economy in the second quarter of 2014 compared with the first quarter. There was a 1 per cent increase in output in the service sector and a 0.3 per cent increase in production. However, output was flat in the construction sector and there was a 0.2 per cent fall in output in agriculture.

The Office of National Statistics reports that GDP in the second quarter of 2014 was estimated to be 0.2 per cent above the pre-downturn peak recorded in the first quarter of 2008. From then to the deepest part of the trough in 2009, the economy shrank by 7.2 per cent.

Northern Ireland Feed Production

Data for June 2014 will be addressed in detail in the next issue of this e-letter. Output of all feeds was 19,400 tonnes or 13.3 per cent higher in June compared to the same month in 2013 while cumulative production, at 1,217,500 tonnes, was 119,400 tonnes or almost 11 per cent higher than in the same six months of 2013.

11th August 2014

Great Britain Compound Feed Output – June

At 876,800 tonnes in June 2014, compound feed production in Great Britain was at its highest for the month since 1992 when records began to be kept in their present form.

Output of cattle and calf feed, at 313,800 tonnes, was also at its highest for the month in question since the current form of record keeping was instituted in 1992. At 173,700 tonnes, output of dairy compounds was 14,500 tonnes or 9.1 per cent up on June 2013 and at its highest for fifteen years. Output of dairy blends, at 62,200 tonnes was the highest on record. Apart from other considerations, it would appear that dairy farmers were attempting to maximize output before the much heralded cuts in milk prices started to take effect.

In contrast, output of beef cattle compounds, at 38,200 tonnes in June, was 9,600 tonnes or just over a fifth down on the levels of June 2013. There was also a sharp fall in output of beef blends, down by 6,800 tonnes or almost 24 per cent on year-earlier levels.

June saw a sharp increase in output of pig feeds compared to June 2013 – 14,600 tonnes or 10.5 per cent more and the largest output for 14 years. The largest increase – 11,100 tonnes or 19.2 per cent – was recorded in production of finishing feeds; smaller increases were recorded for breeding feeds. Production of poultry feeds was also up on June 2013, by 11,500 tonnes or 3.7 per cent; output was at its highest since 1992 with the most significant increase in output recorded by broiler feeds, up by 7,700 tonnes or 5.7 per cent.

Predictably, given the favourable weather characterising the first half of 2014 compared to 2013, output of sheep feeds in June 2014, at 35,700 tonnes was 6,300 tonnes or 15 per cent down on the total recorded in June 2013. It is, however, worth noting that the June 2014 total was the second highest recorded total for the month. Output of feeds for horses, at 11,400 tonnes was 2,200 tonnes or 16.2 per cent down on year-earlier levels.

Looking at the first half of 2014 as a whole, production of compounds, blends and concentrates amounted to 5.35 million tonnes, 211,700 tonnes or 3.8 per cent less than in the same period of 2013. This was, however, the third highest total on record since 1992, being exceeded only by 1996, the run-up to the breaking of the BSE crisis and 2013, the weather-driven total for that year.

As regards cattle and calf feeds, output in the first half of 2014, at 2.09 million tonnes, was at the third highest on record, being exceeded only by 1996 and 2013. Output was 89,400 tonnes less than in the first six months of 2013. There appears to have been a sharp switch from dairy blends to dairy compounds during the first half of 2014 with production of the former down by 25,800 tonnes or 5.8 per cent while the latter increased by 40,900 tonnes or 4.1 per cent. Production of dairy compounds, in fact, was at its highest since 2008. In contrast, output of beef cattle compounds were down by, respectively, 68,800 tonnes and 38,300 tonnes – 17.7 per cent and 16.6 per cent.

Output of pig feeds during the first half of 2014 increased by 40,300 tonnes or 4.9 per cent with finishing feeds, up by 34,000 tonnes or 9.8 per cent constituting the largest proportion of the total increase; there was also an 8,600 tonne or 4.2 per cent increase in production of breeding diets. Poultry feed production increased by a marginal 1,700 tonnes or 0.1 per cent. Output of feeds for sheep and lambs, at 493,700 tonnes was down by 167,000 tonnes or just over a quarter compared to the first six months of 2013, lower output of compounds for breeding sheep together with compounds for grower and finishing animals predictably constituting the bulk of the decline.

The overall prospect, at least in volume terms, appears for production in Great Britain in 2014 to amount to a respectable total if not up to the levels of 2013. However, the effects of impending cuts in milk prices and on dairy farmers’ strategy will need to be taken into account. More on this in subsequent issues.

Economics Catch-up

The Markit/CIPS UK Services PMI®, which was not available when the last issue of this e-letter was published, showed growth of the UK service sector strengthening in July as the increasingly positive business environment boosted demand.

Service providers ‘retained positive expectations for growth’, albeit to a lesser extent than seen during recent months. The headline Business Activity Index, at 59.1 in July compared to 57.7 in June. Chris Williamson, Markit’s Chief Economist said that the buoyancy of the services and construction sector PMIs suggested that the domestic UK economy continued to boom in July, offsetting cooling growth seen in the manufacturing sector. He added that the survey data pointed to the growing likelihood of yet another strong economic expansion in the third quarter of 2014 and that ‘we would expect to see GDP rise by 0.8 per cent again if the surveys hold their current levels’.

He added that the sustained strength of growth would reinforce calls for interest rates to start rising later this year; however, the absence of inflationary pressures meant that there was still a strong case for any tightening of policy to be delayed until 2015. In this connection, the National Institute of Economic and Social Research (NIESR) has suggested that the Bank of England’s Monetary Policy Committee could raise interest rates as early as February 2015 but called for clearer signals in  the run-up to such a move if stock market upheaval was to be avoided. In recent months, the Bank has been criticised for delivering ‘mixed messages’ on interest rate prospects, despite Governor Carney’s Forward Guidance policy, designed to bring clarity about the evolution of interest rates. The next minutes of the Monetary Policy Committee will show if members continued unanimous in extending interest rates at 0.5 per cent or whether anyone was prepared to break ranks.

5th August 2014

International Grains Council July Update

The IGC has published its latest monthly Grain Market Report update on grain and oilseed supply and demand prospects in 2014-2015.

During July, world grains and oilseeds markets came under further pressure from expectations for large 2014-2015 supplies and likely strong competition for exports. The IGC’s Grains and Oilseeds Index (GOI) eased by 6 per cent compared to June with the steepest falls for maize and soybeans; wheat and barley prices were also notably weaker.

IGC’s projections for the total wheat and coarse grains harvest in 2014-2015, at 1,959 million tonnes, are 10 million tonnes up on the June projection, largely reflecting improved maize prospects in the US and wheat in Russia and Ukraine; world harvest prospects are now expected to be only slightly lower than the record 2013-2014 harvest. The higher forecast for world consumption compared to the previous projection includes higher use of wheat for livestock feed; this is largely due to weather conditions in the EU, where wheat quality has suffered from heavy rainfall.

Growth in demand will absorb much of the increased grain production but projected world end-of-season stocks have been increased by seven million tonnes compared to IGC’s June projection, a figure representing a fifteen year high of 419 million tonnes, equivalent to 79 Days Consumption Equivalent.

Better prospects in the northern hemisphere have increased projected world soybean output in 2014-2015 by 4 million tonnes to a record 304 million tonnes. This projection assumes that currently attractive prices will encourage larger plantings and increased crops in South America. The increased production forecasts are expected to lead to higher world end-of-season stocks for all the major exporters, with US inventories at an eight-year high.

Poultry Imbroglio

We reported week that the Food Standards Agency (FSA) was carrying out an ‘audit’ on the two 2 Sisters plants identified by The Guardian as constituting ‘a catalogue of alleged hygiene failings in the poultry industry,

The FSA conducted detailed audits at two 2 Sisters Food Group plants, Scunthorpe and Llangefni, on Friday 25 July. Initial results from these two detailed and rigorous audits showed the plant at Scunthorpe as 'Good' and the plant at Llangefni, Anglesey, as 'Generally Satisfactory'. Sounds a bit like an Ofsted Report.

Questions raised by the affair include FSA’s relationship to the food industry, particularly as 2 Sisters published the report on the audit’s outcome before the official FSA announcement. It also appears that an FSA proposal to name and shame companies whose standards fell below acceptable levels was squashed by a combination of commercial and governmental pressure.

Economy Still Moving

At 55.4 in July, down from 57.2 in June, the headline seasonally adjusted Markit/CIPS Manufacturing Purchasing Managers Index® (PMI®) posted its lowest reading in twelve months while nonetheless remaining well above the survey average of 51.5. The PMI has now signalled an improvement in operating conditions throughout the past seventeen months.

The seasonally adjusted Markit/CIPS UK Construction Purchasing Managers’ Index® (PMI®) registered 62.4 in July, down slightly from 62.6 in June but above the neutral 50.0 mark for the fifteenth successive month. Moreover, the latest expansion of overall construction activity was one of the fastest seen since the summer of 2007. Anecdotal evidence widely cited resurgent demand for construction projects, especially in the housing sector.

28th July 2014

Poultry Practices

Poultry feed, self-evidently, is important to the feed industry.

In 2013 in Great Britain, 3.13 million tonnes was manufactured by retail compounders, of which 1.44 million tonnes was broiler feed. In Northern Ireland, 709,700 tonnes of poultry feeds was produced of which 391,800 tonnes consisted of broiler feeds. Poultry feed accounted for between 30 and 30 per cent of all feed production in both Great Britain and Northern Ireland. In addition, so-called ‘integrated’ producers in Great Britain accounted for another 2.53 million tonnes of poultry feed in 2013 of which 1.88 million tonnes consisted of broiler feeds. Using DEFRA’s voluntary price monitoring data, the estimated value of retail poultry feed production – excluding integrated production – in Great Britain in 2013 was something in the order of £987 million.

This is why the feed industry will be gravely concerned by the reports contained in The Guardian newspaper concerning the flouting of strict industry hygiene standards designed to prevent the contamination of chicken with the potentially deadly campylobacter bacteria on the factory floor and on farms. The revelations followed a five month inquiry by the newspaper using undercover footage, photographic evidence and information from whistleblowers. Recent incidents included a factory floor awash with chickens guts in which campylobacter can flourish, carcasses coming into contact with workers’ footwear which were returned to the production line and other poor practices involving points in the production chain that increase the risk of it spreading.

I understand that the report prompted Tesco, Sainsbury’s and Marks & Spencer to launch emergency investigations into their chicken sources, although it was initially reported that the Food Standards Agency ‘decidedto shelve a promise to name and shame supermarkets and processors for their campylobacter rates. The climb-down comes after “push-back” from industry and interventions from government departments.’ However, the Food Standards Agency announced that it had followed up the evidence presented by The Guardian at the 2 Sisters plants at Anglesey and Scunthorpe, although I understand that farms and an abattoir owned by Faccenda were also involved. The follow-up included ‘reviewing the video footage and photographs of three specific incidents at the plants and checking these against our own records’. The Food Standards Agency concluded that it was ‘satisfied that the specific problems at the plants were addressed in an appropriate manner by the business at the time and did not present a food safety risk’. However, the Food Standards Agency, noting that The Guardian’s investigation had highlighted ‘broader concerns’ about practices at the plants including chickens that have fallen onto the floor being put back on production lines. As a result of these allegations, the Food Standards Agency is conducting audits and investigations at the plants, the findings of which will be published ‘in due course’.

We have, of course, been here before and, indeed, I understand that the Prime Minister’s office had raised concerns that, if details of the investigation were made public, they could raise a food scare similar to that set off in 1989 when former Conservative minister, Edwina Currie, warned – wrongly – that most of British eggs were contaminated with salmonella. However, campylobacter is and remains a major problem where the poultry industry is concerned. As the Food Standards Agency observed in April 2012, campylobacter is the most common cause of bacterial food poisoning in the UK. At the time of the most recent count, campylobacter was present in two-thirds of British fresh chicken sold in the UK. Although the bacterium is killed by thorough cooking, around 280,000 people in the UK are currently made ill each year by it and 100 people are thought to die. In addition, contamination rates are known to have increased in the past decade.

I shall be interested to see whether the reports and follow-up in The Guardian have any material effects on the production of poultrymeat and related statistics over the next few weeks and months – to say nothing of the production of poultry feeds. I suspect that the affair will reawaken discussion as to the role and the powers of the Food Standards Agency. As they say, watch this space.

Raw Materials Roundup

With the publication of the International Grains Council’s weekly price data for 25 July, we are able to chart the continued downward progress of raw material costs in the run-up to what appears to be an early Northern hemisphere harvest, certainly in the UK.

The IGC’s useful Grain and Oilseeds Index in July, at 242.50 (2000 = 100), was at its lowest since August 2010 (227.69). The wheat sub-index in July, at 222.50, was at its lowest since January 2014, having strengthened in the run-up to the 2014 harvest, reflecting concerns over US prospects and developments in Ukraine. The maize sub-index stood at 204.75 in July, compared to 263 in July 2013 while the soybean index stood at 251.75 compared to 277 a year earlier. All in all, a reasonable prospect for raw material buyers as we move towards the start of the 2014-15 feeding season. 

The IGC publishes its July Grain Market Report update on 31 July; a full update on the IGC’s current views on the grain and oilseeds supply and demand situation in 2014-2015 in the next edition of this e-letter.

Economic Update

There was considerable speculation in the business pages in recent weeks as to whether the Preliminary Estimate of Gross Domestic Production in the second quarter of 2014 would show an increase over the 0.8 per cent increase in the first quarter of 2014, as shown in the Quarterly National Accounts published on 27 June, the figure being unrevised from the second estimate of GDP published 22 May 2014. This would have necessitated an upgrading of estimates of GDP growth for the year as a whole and, no doubt, brought a smile to the face of the Chancellor.

In the event, the Preliminary Estimate of GDP in the second quarter of 2014 showed UK GDP in volume terms increasing by 0.8 per cent, the second consecutive quarter-on-quarter increase of 0.8 per cent. This reflected increased output in two of the four main industrial groupings within the economy in the second quarter of 2014 compared with the first quarter. Output increased by 1.0 per cent in the service sector and by 0.4 per cent in production. However, output decreased by 0.5 per cent in construction and by 0.2 per cent in agriculture.

The preliminary GDP increase in the second quarter of 2014 means that GDP is estimated to be 0.2 per cent above the previous peak recorded in the first quarter of 2008, prior to the financial crash. From peak to trough in 2009, the economy shrank by 7.2 per cent.

The International Monetary Fund has further upgraded its forecast for the UK economy in 2014, from 2.8 per cent to 3.2 per cent, the largest increase in the developed world. However, the IMF is projecting a smaller uplift for the UK for 2015.

22nd July 2014

USDA Soybean July Update

USDA’s July projection of the world oilseed supply and demand situation has world production in 2014-2015 at 521.9 million tonnes, up by 5.8 million tonnes on USDA’s June estimate and a world record.

Most of the increase is accounted for by increased soybean and rapeseed production. World soybean production is projected at 304.8 million tonnes, up 4.8 million tonnes on the June estimate and mostly due to higher production in the United States. The latter reflects a 4 per cent in the area planted to soybeans together with a 4.5 per cent increase in the area harvested, resulting in an increase in July’s estimate of US production to 3,800 million bushels – say 103.42 million tonnes.

Higher soybean production is also projected for Russia and Ukraine, both reflecting higher harvested areas. USDA’s projection of a lower soybean harvest for India resulting from a reduced harvested area partly offsets these gains; the reduced harvested area reflects planting delays resulting from the slow development of the monsoon in the main soybean producing states.

Global oilseed end-of-season stocks for 2014-2015 are projected at 99.7 million tonnes, an increase of 3.6 million tonnes which mostly reflects a sharp increase in U.S. soybean inventories. World end-of-season stocks in 2014-2015 are estimated at the equivalent of 34 per cent of the estimated global world crush, a historically high proportion. End-of-season stocks in the US, at 11,284,000 tonnes, are equivalent to 23.6 per cent of the estimated 2014-2015 crush, a figure only recently exceeded in 2006-2007 where end-of-season stocks accounted for 31 per cent of the US crush in the period in question.

USDA has also updated some of its data for 2013-2014. The domestic soybean crush for 2013-2014 has been increased by 25 million bushels to 1,725 million bushels on both increased soybean meal exports and domestic soybean meal use. Soybean exports for 2013-2014 are estimated at 1,620 million bushels, up by 20 million bushels reflecting record shipments through early July. USDA note that, as of the last week in June, total commitments to the world, consisting of outstanding sales plus accumulated exports, are 45.5 million tonnes, compared to 36.8 million for the same period last year. End of season soybean for 2013-2014 are estimated at 140 million bushels, up by 15 million bushels.

From the market’s point-of-view, therefore, a pretty bearish prospect. From the point-of-view of feed manufacturers, the hope of a significant reduction in feed manufacturing costs during the period in question.

Economic Catch-up

The rate of inflation, as measured by the Consumer Price Index, rose to 1.9 per cent in the year to June, compared to 1.5 per cent in the year to May. The largest contributions to the increased rate of inflation came from the clothing, food & non-alcoholic drinks and air transport sectors; there were no large downward effects to offset the change.

The unemployment rate fell to 6.5 per cent in the three months to May, the lowest since late 2008, official figures have revealed. This compares with the 7 per cent at which Bank of England Governor Mark Carney originally said that the Monetary Policy Committee would start to consider raising interest rates. The continuing fall in unemployment together with the increase inflation albeit still below the government’s target of 2 per cent probably on balance brings the prospect of an increase in Bank Rate before the end of the year slightly, very slightly, nearer.

New DEFRA Secretary

Owen Paterson, the defenestrated DEFRA Secretary of State has been replaced by Liz Truss after less than two years in post.

Ms Truss is described as ‘one of the fastest-rising stars of the 2010 intake of Conservative MPs’. She reaches the Cabinet at the age of just thirty-eight and after only four years as an MP. State educated, she studied politics, philosophy and economics at Merton College, Oxford, before joining the Liberal Democrat party, switching to the Conservatives in her last year of university. If memory serves me right, PPE was also studied by a number of other senior Tory members.

As MP for South-West Norfolk, she was appointed Parliamentary Undersecretary at the Department of Education prior to becoming the youngest-ever member of the Cabinet. Her website contains a selection of her views on food and farming. She regards farming as ‘a vital industry’ in the constituency and is working hard to get the best deal for Norfolk’s farmers – well, she would say that wouldn’t she? As a result of concerns being raised regarding changes in the implementation of the CAP, she has led a delegation of local farmers to meet Farming Minister George Eustice. She reportedly has a number of concerns about the use of agricultural land for solar or biomass plants and the subsidies for these operations. She does not want to see the UK’s food security jeopardised; food and farming is the largest manufacturing industry in the UK and she is keen to see that the importance of this sector duly recognised.

Crucially, Ms Truss also raised concerns with the DEFRA Secretary Owen Paterson about flooding in her constituency, arguing that the cost-benefit ratio formula provided by the Environment Agency for the funding of flood prevention schemes ‘do not value farmland high enough.’ Ironically, it seems likely that last winter’s flooding, and Paterson’s response to it, were prime reasons for his dismissal from the Government.

We shall see. I look forward with interest to the first accounts of her initial contacts with the agricultural supply trade. AIC are, presumably, well advanced with preparations for their 2014 conference; perhaps a tweaking of the list of speakers would be in order?

Raw Material Price Developments

The imminence, indeed, the actuality of the northern hemisphere harvest has seen the continuing decline of feed manufacturers’ raw material prices.

Those ‘world’ wheat prices, US Hard and Soft Red winter wheats FOB Gulf fell by $20 and $10 a tonne in the first two weeks of July compared to their June averages to $300 and $236.50 respectively. Closer to home, the November LIFFE wheat contract averaged £132 during the first half of July, down £7 on the average for June. HGCA’s Corn Returns showed current and three months forward feed wheat values, at £141.40 and £128 respectively, £4.65 and £4 down on average June values; feed barley, at £112.45, was £8.45 down on June.

US Yellow Soybeans FOB Gulf, averaged $456.30 a tonne during the first half of July, down by more than $100 on their June average, their lowest since December 2011. Ex-store values for Hipro soybean meal and Brazilian 48 per cent values quoted by HGCA also fell sharply in the first half of July, being respectively at their lowest since March 2012 and May of the same year. Rapemeal ex-mill Erith fell below £200 for the first time in ten months and, at £182, was at its lowest in almost a year. Wheatfeed dropped below the £100 mark while maize gluten feed ex-store Liverpool, at £149, was at its lowest since July 2010. Overall, then, a promising picture as far as feed manufacturing costs are concerned.

However, something will always come along to stir the pot. At the time of writing, wheat prices in particular were reflecting renewed tensions following the apparent shooting down of a civilian airliner over the east of Ukraine on 17 July.

MATIF November wheat, which had shown little change before news of the plane crash, soared to close 2.2 per cent up at €183.00 a tonne. Chicago September wheat, which had closed at 538 ¢/bushel the day before the event, closed up ¢12.6 or 2.3 per cent at 550.6 ¢/bushel. LIFFE was also affected; November wheat closed up £2.75 a tonne at £132.00, reflecting concerns about potential disruption of Black Sea exports. No doubt markets will continue to watch the situation very carefully and with not a little nervousness.

14th July 2014

Northern Ireland in May

The Department of Agriculture and Rural Development has recently published survey results for feed production in Northern Ireland during May 2014. At 171,400 tonnes, total production of prepared feeds in May  was 13,900 tonnes or 7.5 per cent down on the same month a year earlier, although it should be noted that this production volume was at its second highest in a series going back to 1996.

At 86,800 tonnes, production of cattle and calf feeds was down on year-earlier levels by 18,700 tonnes or 17.7 per cent as the effects of the unfavourable weather of first half 2013 continued to unwind. However, as with the total production, it is appropriate to note that, despite this large fall in both volume and percentage terms compared with May 2013, this was still the second largest volume of cattle and calf feed in the series dating from 1996. The beef sector took the bulk of the decline; production of coarse mixes or blends for beef cattle were down on year-earlier levels by almost 9,000 tonnes or 35.6 per cent while beef compounds were down by 4,200 tonnes or 37.2 per cent. While output of coarse mixes and blends for dairy cattle fell by 4,000 tonnes or 18.6 per cent compared with May 2013, production of dairy compounds fell by just 600 tonnes or 1.3 per cent, tending to support the hypothesis that dairy farmers were using dairy compounds to maximise milk output at a time of higher milk prices.

The other sector most affected by the weather in 2013, sheep and lambs, showed a 2,000 tonne or 31 per cent fall in May compared with the same month of 2013; breeding sheep compounnds were most affected with output down by 1,100 tonnes or 51 per cent while growing and finishing compounds and coarse mixes were down respectively by 500 tonnes each.

As regards monogastric diets, production of pigfeeds, at 12,900 tonnes, was 800 tonnes or 6.2 ahead of May 2013. Production of poultry feeds, at 62,300 tonnes, was 7,800 tonnes or 14.2 per cent more than in May 2013 with the bulk of the increase reflecting increased production of broiler feeds, up by 6,800 tonnes or 21.7 per cent more than in the same months a year earlier.

Taking the first five months of 2014, total feed production amounted to just over 1.02 million tonnes, 28,400 tonnes or 2.7 per cent less than in the corresponding period of 2013. Again, however, it is worthwhile stressing that, by some distance, specifically 71,700 tonnes, this was the second highest total for the months in question since the current series of feed statistics started in 1996.

Predictably, output of cattle and calf feeds, at 563,200 tonnes, was 42,300 tonnes or 7 per cent down on the same five months of 2013. The most marked declines took place in the beef sector with output of compounds, coarse mixes and blends falling by over 40,000 tonnes. But while output of dairy coarse mixes and blends fell by 10,500 tonnes or almost 8 per cent, output of dairy compounds increased by 10,400 tonnes or 4.8 per cent compared to the same five months of 2013, adding credence to the notion that dairy farmers were utilising higher volumes of dairy compounds as part of their strategy of increasing milk output.

Production of sheep and lamb feeds, at 43,700 tonnes during the first five months of 2014, was 13,100 tonnes or 23 per cent down on the equivalent months of 2013 of which the bulk consisted of compounds for breeding animals with the remainder accounted for by reduced output of compounds and coarse mixes.

Production of pig feeds during the first five months of the year, at 69,200 tonnes, was up by 6,000 tonnes or a more than respectable 9.5 per cent; two thirds of the increase reflected increased output of grower and finisher feeds. Production of poultry feeds was up by 21,500 tonnes or 7.4 per cent with the bulk of the increase accounted for by higher output of broiler feeds, up by 14,200 tonnes or 8.5 per cent and the combined category of layer and breeding feeds, up by 6,800 tonnes or 7.3 per cent.

Although the weather-driven effects of 2012 and the first six months of 2013 are continuing to unwind, buoyant monogastric feed production keeps production in Northern Ireland at close to record levels. It’s unlikely that 2014 will be another record year nevertheless, the province could yet surprise us.

USDA Supply & Demand Prospects

The United States Department of Agriculture has recently released the July edition of its World Agricultural Supply and Demand Estimates (WASDE).

USDA has upped its estimate of world wheat production in 2014-2015 by 3.55 million tonnes, reflecting higher production in the EU, up 1.625 million tonnes on its June estimate together with increases in Australia and Brazil. A reduction of a million tonnes from Kazakhstan is balanced by a million tonne increase in the Ukrainian harvest. The US crop has been increased by 1.36 million tonnes. Estimated world end-of-season stocks, at 99 Days Consumption Equivalent (DCE), are marginally higher than at the time of the June assessment.

USDA has marginally trimmed its estimate of maize production in 2014-2015 by 160,000 tonnes to 980.96 million tonnes. This reflects reduced estimates for the US, down by 1.9 million tonnes on USDA’s June projection and Canada, down by 900,000 tonnes. This is counterbalanced in part by a 2 million tonne increase in estimated Chinese production. Smaller increases have been pencilled in for the EU and Serbia.

Despite trimming back the harvest estimate for 2014-2015, maize prices have fallen sharply over the past four weeks. US maize export prices, which USDA describes as ‘a proxy’ for world prices, have fallen to their lowest in almost four years, reflecting rising inventories and prospects for another prolific harvest. Hard Red Winter FOB US Gulf averaged $320 in June, down from $336 in March while the equivalent figures for Soft Red Winter were $247 and $295. The weekly prices published by the International Grains Council for Hard Red Winter export prices show prices for the first two weeks of July at $300 compared to an average of $337 in March.

USDA’s Grain Stocks Report, published on 1 June, showed opening U.S. maize inventories to be higher than expected and this was reflected in the July WASDE assessment at 31.6 million tonnes compared to the previous estimate of 29.1 million tonnes and thus increasing exportable supplies from the US. Meanwhile, the 2014-2015 maize harvest in the US is projected to be only slightly below last year’s record outcome with favourable growing conditions continuing to support the prospects for a record yield currently estimated at 10.38 tonnes per harvested hectare.

USDA point out that high maize prices over the past ten years or so has driven an expansion of production not only in the US but also in Argentina, Brazil, and Ukraine. Furthermore, and unusually, exporters’ supplies will all be available to the market at the same time this autumn as supplies from the rain-delayed Argentinian harvest will coincide with supplies from Brazil’s near-record second maize crop. This will intensify competition with US and Ukrainian new-crop supplies.

Analysis of USDA’s latest projection of the 2014-2015 soybean supply and demand situation will follow in next week’s e-letter.

17th June 2014

Northern Ireland Unwinds

Production of animal feed in Northern Ireland during April 2014, at 217,100 tonnes, was 14,800 tonnes or 6.4 per cent down on production in the same month of 2013.

Output of cattle and calf feeds, predictably, accounted for much of the decline. Output in April 2014, at 120,100 tonnes, was 13,600 tonnes or 10.2 per cent down on that of April 2013 with coarse mixes or blends for beef cattle taking the largest hit in quantitative terms, down by 8,000 tonnes or more than a quarter compared to the April 2013 outcome; beef cattle compounds were also lower by 3,400 tonnes or 22.6 per cent.

Interestingly, while dairy coarse mixes and blends were down by 3,500 tonnes or 11.8 per cent, output of dairy compounds increased by 2,300 tonnes or 11.8 per cent compared to April 2013. This seems to support the view that dairy farmers in the province as well as on the mainland were seeking to increase their output and were turning to compounds as opposed to coarse mixes or blends in support of this objective.

Output of sheep and lamb feeds in the province, at 8,300 tonnes, was 5,200 tonnes less than in the corresponding month of 2013, down 38.3 per cent with the major hit, in both quantitative and percentage terms being taken by compounds for breeding sheep.

All this, given the relatively improved weather in April 2014 compared with its equivalent in 2013 was predictable. Output of pig feeds, at 14,700 tonnes was up by 1,100 tonnes or 8 per cent with the increase spread pretty evenly across the product range. There was a 4,300 tonne or 6.9 per cent increase in output of poultry feed with the largest contribution – 3,000 tonnes or 8.1 per cent – being made by broiler feeds. Incidentally, this was the highest figure for poultry feed production since records started to be kept in their present form in 1996.

How is the year so far looking, as far as Northern Ireland compound feed prodction is concerned?

At a cumulative total of 852,300 tonnes, feed output so far in 2014 is running at 14,500 tonnes or 1.7 per cent less than in the equivalent period of 2013. However, this figure needs to be kept in perspective in that it is, by some distance, the second highest total for the January – April run on record. Cattle and calf feed production was down by 23,700 tonnes – 4.7 per cent – on the same period of 2013. It is, however, notable that the only product group not to show a decline was dairy compounds; these were up by 11,000 tonnes or 6.3 per cent on year-earlier data. Sheep and lamb feeds were down by 11,100 tonnes or by more than a fifth with compounds for breeding sheep down by a quarter compared with the same four months of 2013. Pig feeds added 5,300 tonnes or over 10 per cent while poultry feeds put on 13,700 tonnes or just shy of 6 per cent. At 248,100 tonnes, total output of poultry feeds were the highest since the present form of record keeping was introduced, with over half the increase being contributed by broiler feeds.

As frequently observed, at this stage, although with only a third of the year’s data now available, Northern Ireland looks set not to break any production records in 2014.

USDA Updates

The United States Department of Agriculture has recently completed its first revision to its initial prognostications for the 2014-15 season.

In advance of the publication of the June revisions, there was an immense amount of speculation that the figures could provide some of a surprise as they related to maize. One source reported that they had increased US maize yields from the current 165.3 bushels / acre to between 167 or 168 bushels, citing the strong acceleration of sowing after a slow start and the latest official assessment of the US maize crop’s condition – 75 per cent at ‘good’ or ‘excellent’, one of the best ever. The weather is looking to be favourable with an El Niño event widely predicted which tends to result in key US maize growing areas a cool summer, beneficial for both maize and soybean yield prospects, albeit its effects may be less welcome elsewhere.

In fact, USDA did nothing of the sort, maintaining US maize yields at 165.3 bushels and thus confirming market watchers’ views of a hint by Joseph Glauber, USDA’s Chief Economist, who had told the International Grains Council’s meeting in London that USDA’s June predictions were ‘usually fairly quiet’. In fact, USDA increased its estimate of world wheat production in 2014-15 by 4.59 million tonnes, reflecting increases in Chinese, Indian and EU output as well as Russia and leaving world end-of-season stocks largely unchanged from USDA’s May assessment at 98 Days Consumption equivalent. However, US end-of-season wheat stocks were increased to 175 DCE from 162 DCE. As regards maize, USDA boosted their May estimate by just over 2 million tonnes, largely as the result of enhanced estimates for the EU and, interestingly Ukrainian harvests; this left currently anticipated end-of-season stocks largely unchanged, at 54 DCE and 69 DCE for the US and the world respectively.

As regards soybeans, the position as regards carry-over stocks is looking quite healthy with world end-of-season stocks assessed at a third of the season’s estimated crush, unchanged from USDA’s May estimate. USDA maintains that the US will maintain its position as the world’s largest producer of soybeans in 2014-15 – Brazil will have to wait a little longer to claim that title!

Carney’s Interest Rate Warning

At the City’s annual Mansion House dinner, Mr Carney gave his strongest indication yet that the first increase in interest rates since the onset of the financial crash was closer than the markets thought. Indeed, they could begin to increase later this year, a move that, while it would some long-awaited relief to savers, could plunge many borrowers into difficulty. The main driver towards higher interest rates was the growing concern over house prices, now posing ‘the greatest risk to the domestic economy’.

Finance Directors will be concerned inasmuch as earlier ‘forward guidance’ suggested that interest rates would not begin to rise until 2016. More recently, markets were focusing on a rate rise in the first quarter of 2015, reflecting the much quicker-than-anticipated fall in the unemployment rate; one analyst was quoted as saying that they had brought forward their expectation of the first interest rate hike, from the current 0.5 per cent to 0.75 per cent) from June 2015 to February 2015, adding that he did not regard it as ‘inconceivable’ that the Bank could act before the end of 2014.

A colleague of mine, who understands these things, says that at the close of last week – Friday the 13th as it happens – one year interest rate swaps, which indicate where market players think the benchmark cost of borrowing will be in twelve months' time, jumped to 0.8960 per cent from 0.7698 per cent.

Other pointers could be the increase in the rate of inflation in April from 1.6 per cent to 1.8 per cent. Finally, the announcement appears to have triggered an appreciation of sterling against other countries’ currencies – good news for feed manufacturers in terms of their imported raw material costs but unwelcome to most exporters.

9th June 2014

April Outcome

This was the month when feed production in Great Britain started to unwind from the weather-driven effects of 2012 and the first six months of 2013 with, as they say, a vengeance. Output of compounds, blends and concentrates, at 855,800 tonnes in April, was 114,300 tonnes or 11.8 per cent less than in the corresponding month of 2013.

Cattle and calf feeds, at 338,900 tonnes, were 40,700 tonnes or 10.7 per cent down on April 2013. Double digit percentage declines were recorded for all categories of cattle and calf feeds with two exceptions; protein concentrates for cattle and calves were up by 5.4 per cent on April 2013 and compounds for dairy cows were up by 1,100 tonnes or 0.7 per cent. In sharp contrast, dairy blends were down by 13,500 tonnes or 17.1 per cent. Output of pig feeds were up by 7,200 tonnes or 5.5 per cent with finishing diets making the biggest contribution to the increase. Production of poultry feed was 8,000 tonnes or 3 per cent lower than in April 2013 with both broiler and layer feeds lower.

But the most remarkable decline took place in April’s production of feeds for sheep and lambs.  At 84,400 tonnes, these were a massive 66,700 tonnes or 44.3 per cent down on production in April 2013, with double-digit falls across the range; compounds for both breeding and growing sheep were particularly hard-hit. The reason, of course, reflects weather conditions, not just in April 2014 contrasted with the same month a year earlier but the first four months of the year compared with the same months in 2013. As regards temperatures, each month so far in 2014 has been well above ‘normal’ across the UK, as defined by the 1981 – 2010 average, particularly so in April; they were also above average in May. Rainfall was also well above normal in January and February and below average in March and April; again, rainfall was above average in May. This combination of weather and its effects on grass growth also appears to have contributed to higher-than-normal reports of bloat in cattle.

There was also a 5,100 tonnes or 27 per cent fall in production of horsefeeds in April compared with April 2013.

How does 2014 so far stack up as a whole compared with the same period of 2013?

Total production of compounds, blends and concentrates in Great Britain, at 3.67 million tonnes is running at 193,500 tonnes or 5 per cent down on 2013. Unsurprisingly, the overwhelming bulk of this decrease is attributable to reduced output of sheep and lamb feeds, down by 133,200 tonnes or 24.2 per cent. Cumulative output of cattle and calf feeds, at 1.48 million tonnes, is down by 63,300 or 4.1 per cent. However, it is once again worth noting that, while output of dairy blends was down by 24,500 tonnes or 7.7 per cent, output of dairy compounds was up by 21,100 tonnes or 3.1 per cent suggesting, once again, that dairy farmers were going for output with part of their strategy involving the increased use of compounds.

Output of pig feeds in the first four months of 2014, at 567,000 tonnes was running 18,000 tonnes ahead of year earlier levels, up by 3.3 per cent. In contrast, output of poultry feeds was lower by 9,700 tonnes or 0.9 per cent.

We may expect further unwinding of the weather effects as we move further into 2014. Results for feed output in Northern Ireland during the first four months of 2014 will be discussed in the next issue of this e-letter.       

Milk in Focus

UK daily milk production peaked at 43.7 million litres on 3 May, following which production has declined seasonally although still performing better than the same period in each year in the last decade. It is necessary to go back to 2003 to see 2014’s performance exceeded; in that year, according to DairyCo, a peak of 45.0 million litres per day was reached on 11 May with production continuing strong for the rest of the month.

However, there are further reports of price cutting by processors, following Dairy Crest’s decision to apply a 1.25 pence per litre reduction to its farmgate milk price for its standard liquid contracts, effective from 1 July, citing reduced market returns as the main reason for this change, partly due to high levels of milk production in recent months. First Milk is to reduce its milk price for suppliers in its manufacturing milk pool by 1.15 pence per litre with effect from 1 July. Those in its liquid milk pool will see no change for July following the 2.0 pence cut announced for 1 June. Arla has also announced a price cut for its direct suppliers for July, who were not included in 1.27ppl price cut for Arla members from 28 April. From 1 July, their milk price will reduce by 1.5 pence per litre. Declining dairy commodity market returns continue to be blamed as the main reason for the price cuts although the rate of decline is reported to have lessened in recent weeks.

What effect this will have on milk production – and on feed sales – is hard to predict at present. It is possible that dairy farmers will seek to accelerate production in an effort to make up for declining unit prices, particularly when feed prices are falling. However, it is interesting to note that, while there were price falls for pig, poultry and sheep and lamb compounds in the first quarter of 2014 compared with the previous three months, prices for cattle and calf feeds rose, albeit by only a pound a tonne.

Economic Update

Reports that IMF boss Christine Lagarde had ‘grovelled’ to Chancellor George Osborne in respect of the IMF’s claims, a year ago, that his economic policies were ‘playing with fire’ emerged against a background of continuing economic improvement, as measured by the closely watched Markit /CIPS surveys for production, construction and services.

 Although the April data were all slightly lower than in March, Markit Chief Economist Chris Williamson noted that the UK economy ‘continued to boom in May’ in a way that suggested that GDP was set to grow by a further 0.8 per cent in the second quarter of 2014, pushing the economy above its pre-recession level. However, he noted that with every strong PMI reading, ‘the more lively the discussion will become among the Bank of England’s Monetary Policy Committee that a pre-emptive early hike in interest rates is warranted’. Williamson however argued that with inflationary pressures remaining subdued, the case for higher interest rates ‘is by no means clear cut’ and that until substantial increases in pay rates materialised in the official data, the chances are that ‘the Bank of England will keep its foot firmly on the accelerator pedal to help keep the economy booming.’

2nd June 2014

IGC Update

The International Grains Council updated its Grain Market Report on 29 May.

IGC’s estimate of total cereal production for the 2014-15 run has been increased slightly, from a projected 1,935 million tonnes in their April projection to 1,937 million tonnes in May. However, and as IGC point out, while this represents a 2 per cent decline on output in 2013-14, it is still the second highest cereal crop on record. Further, IGC’s projected consumption of 1,935 million tonnes will allow for a very modest degree of inventory rebuilding.

Turning to specific crops, IGC notes that its wheat ‘sub-index’ – part of its useful Grain and Oilseeds Index (GOI) – fell by 4 per cent over May, as markets looked for ‘ample global supplies’ in 2014-15. IGC are reckoning on world production falling by 2 per cent to 694 million tonnes in 2014-15 as average yields fall back from 2013-14’s unusually high levels. Consumption, on the other hand is projected to increase by 1 per cent as the result of increases in wheat usage for both food and feed; consequently, end-of-season stocks are seen as falling from 191 million to 187 million tonnes, equivalent to 98 Days Consumption Equivalent.

IGC’s maize sub-index fell by 5 per cent in May, reflecting markets’ views about ‘generally favourable northern hemisphere crop prospects’ and the consequent expectation of ‘ample exportable supplies’. IGC are reckoning on world output of 955 million tonnes in 2014-15, down 1.5 per cent compared to 2013-14 and, again, reflecting lower yields. On the demand side, at 947 million tonnes or just under 1 per cent up on last season, growth in maize usage for feed and industrial uses will be much slower. As a result, end-of-season stocks are likely to increase by 8 million tonnes to 172 million tonnes or 4.9 per cent, a high proportion of the increase being attributable to the major exporters led by the U.S; exporter stocks are forecast to increase by 8 million tonnes or 17.7 per cent to 53 million tonnes.

IGC has not yet produced a forecast of soybean supply and demand in 2014-15 – the last remnants of the South American crop are still being gathered in. However, the May soybean sub-index was broadly unchanged compared to April as modest price gains in Argentina, underpinned by harvest delays were counteracted by steady or slightly lower prices for soybeans elsewhere. IGC are reckoning on world soybean production of 284 million tonnes in 2013-14, a record, and this means that, despite consumption of 282 million tonnes, up by 13 million tonnes or 4.8 per cent, there is still room for total end-of-season inventories to increase by 2 million tonnes to 28 million tonnes, equivalent to 36 DCE globally.

IGC’s May update of their Grain Market Report is thus a modestly encouraging issue with, at present, no nasty shocks to raw material buyers’ systems. However, the latter should take note that recent data collected by NASA satellites showed that conditions in the eastern Pacific at the beginning of May 2014 were similar to those experienced in May 1997, the year that saw one of the powerful El Niño episodes of the 20th Century, which claimed an estimated 2,100 lives and caused US $33 billion worth of damage to property.

IGC’s next Grain Market Report is scheduled for 26 June.

Milk Prospects

It will have been noted by the trade that, while overall sales of cattle and calf feeds in the first quarter of 2014 were down on year-earlier levels, output of dairy compounds was 20,000 tonnes or 3.9 per cent higher. This is particularly notable in that output of dairy blends was down by 11,000 tonnes or 4.6 per cent on the level recorded during the first quarter of 2013. Similar developments took place in Northern Ireland where, despite overall output of cattle and calf feeds in the first quarter of 2014 being down by 10,000 tonnes or 2.7 per cent compared with the same three months of 2013, output of dairy compounds was up by 8,700 tonnes or 6.9 per cent. Dairy coarse mixes or blends, on the other hand, were 3,000 tonnes or 3.6 per cent lower.

DairyCo’s useful summary of Market Information, published at the end of May, noted that monthly UK milk production in April 2014, at 1,277 million litres, was 14.9 per cent up on the same month a year earlier. Some of this will be weather-related, reflecting the horrendous conditions that characterised the first six months of 2013 compared to the relatively benign conditions that have marked the first four months of 2014. However, DairyCo also point to the fact that farmgate milk prices in the first three months of 2014 have been substantially ahead of their equivalents in 2013, averaging 12.3 per cent higher. In April, at 33.33 p/litre including bonus, average UK farmgate milk prices were still 10.7 per cent ahead of April 2013.

Part of the surge in milk prices has reflected conditions on international markets, including demand from China. There are signs that this is beginning to abate, as high prices have encouraged production. The FAO dairy price index fell sharply in April by 17 points – 6 per cent – compared to March, although it remains at a relatively high level. The fall is being attributed to a slowdown in imports by China and Russia as well as continuing strong milk production globally. As far as the UK is concerned, a sign of the times may be seen by the announcement that Dairy Crest is to reduce the price it pays for farmgate milk by 1.25 p/litre on its standard liquid contracts with effect from 1 July. Dairy Crest cites ‘reduced market returns’ as the main reason for this decision due, in part, to high levels of production over recent months.

Weather Watch 2014

Weather, much in the minds of livestock farmers and their feed suppliers during 2012 and the first half of 2013, will also been in their minds during the first four months of 2014, although to a lesser and more favourable consideration.

In contrast to the first quarter of 2013, when UK temperatures were well below normal as defined by average temperatures in 1981-2010, particularly in March 2013 when the nation shivered in temperatures of 3.3 °C below normal, temperatures were more than a degree above their norm while rainfall in the first two months was also well above average although it slipped to below average in March and April.

As far as world weather conditions are concerned, it’s reported that forecast rain in the US’s southern winter wheat belt will come too late to counter declining yield prospects. Late frosts are also adding to the problems generated by lack of rainfall. ‘Dryness’ is also threatening Australian winter planting in the south of Queensland and the north of New South Wales. To add to these immediate concerns, the prospect of an El Niño brings an extra and unwelcome factor in that El Niño is linked with a shortfall of rainfall in eastern Australia. A recent forecast suggests a chance of at least 70 per cent of an El Niño developing this year, probably within the next three months.

Economy 2014

The Preliminary Estimate of Gross Domestic Product in the UK for the first quarter of 2014 showed growth over the last quarter of 2013 at 0.8 per cent, an improvement over the previous quarter. The Second Estimate of GDP in the first quarter of 2014, published on 22 May, incorporates data that was not available at the time of the preliminary estimate. At 0.8 per cent, this was unchanged from the preliminary estimate. The Third Estimate of GDP in the first quarter of 2014, officially known as the Quarterly National Accounts, will be published on 27 June.

The rate of inflation, as measured by the Consumer Price index was 1.8 per cent in the year to April 2014, up from 1.6 per cent in the year to March. Increases in transport costs, notably air and sea fares and motor fuels, provided the largest contribution to the rise in the rate. An overall fall in the price of food was the largest offsetting factor. The late arrival of Easter is likely to have had an impact on the index, most notably for air and sea fares.

Finally, the 2013 edition of ‘Agriculture in the United Kingdom’ was published on 29 May; this is the definitive guide to all matter of data regarding the industry in which the feed industry plays so central a role. In 2013, Total Income from Farming recovered from the dip in 2012, due to the prevailing bad weather conditions, to £5.6 billion in 2013. This is similar to the level seen in 2011 when inflation is taken into account.

19th May 2014

USDA’s First Crack at 2014-15

The United States Department of Agriculture has published its first estimates of grain and oilseed supply and demand in 2014-15.

World wheat production is projected at 697 million tonnes, down 2 per cent from the record output established in 2013-14. US production is forecast to be 4.53 million tonnes less than in 2013-14, reflecting damaging weather conditions affecting winter wheat and delaying the planting of the spring crop. Canadian output of 28.5 million tonnes is forecast to be down by 9 million tonnes compared to 2013-14; this reflects a lower area planted to wheat together with a return to more normal yields. Turkish and Iranian wheat is reported to have been hit by ‘persistent dryness and early April freezes’ which have severely damaged winter wheat crops. Ukraine’s projected 2014-15 wheat harvest, down by 2.28 million tonnes or 10 per cent, has been hit by a lower area planted to wheat and a return to more normal yields.

World end-of-season wheat stocks, at 99 Days Consumption Equivalent (DCE), are a day more than the estimated outcome for the 2013-14 season.

USDA’s initial projected world maize production in 2014-15, is at an estimated record 979.1 million tonnes, virtually unchanged from 2013-14. The biggest single decline is in Ukrainian production, down by 4.9 million tonnes or almost 16 per cent compared to the record output of 2013-14. This reportedly reflects the depreciation of the local currency, the Hryvnia, which is seen as keeping input costs high and thus reducing anticipated use of fertilizer and other inputs. Canadian output is also projected as declining by almost 12 per cent to 12.5 million tonnes.

End-of-season maize stocks, at 69 DCE, are 4 DCE higher than the latest estimate of the 2013-14 position.

At 299.8 million tonnes, USDA is calling a record soybean crop, 16 million tonnes or 5.6 per cent up on the estimated 2013-14 outcome. In volume terms, the biggest increase is the additional 9.4 million tonnes anticipated for the US; this presumably reflects a shift of acreage from maize to soybeans. USDA is also looking for an additional 3.5 million tonnes or 4 per cent from Brazil in 2014-15. The US is expected to delay the challenge from Brazil for the top soybean production spot for at least another year.

March and 1st Quarter 2014 Output in Northern Ireland

Feed output in Northern Ireland in March, at 215,700 tonnes, was 8,500 tonnes or 3.8 per cent down compared with output in March 2013. However, this figure was still the second highest total for the month of March since records started to be kept in their present form in 1996.

Cattle and calf feed output in March, at 118,000 tonnes, was 8,800 tonnes or 6.9 per cent down on the same month in 2013. This was to be expected given the unfavourable weather that characterised the first quarter of 2013 and the relatively more benign conditions during the same period of 2014; it will be recalled that in 2013 ain the UK as a whole, average March temperatures were 3.3 °C below normal with Northern Ireland very slightly warmer, at 3.1°C below normal.

It is interesting to note, however, that while every other category of cattle and calf feeds showed lower volumes in March, dairy compounds, at 46,800 tonnes, were up by 2,700 tonnes or 6 per cent on year-earlier output. This would seem to underpin the view that higher milk prices were encouraging dairy farmers in the province to go for output, particularly as coarse mixes and blends for dairy cattle declined by 3,500 tonnes or 11.8 per cent in March compared with a year earlier.

There was a slight increase in output of pig feeds but nothing to write home about; output was 700 tonnes or 5.6 per cent up on March 2013 levels. Poultry feed output increased by 2,500 tonnes or 4.1 per cent, largely as a result of higher output of layer and breeding feed (these are presumably collated on longstanding confidentially grounds but it would be helpful if these two categories could be separated) and broiler feed. Finally, output of sheep and lamb feeds was predictably hit by the improvement in weather conditions that characterised March 2014, down by 3,000 tonnes to 12,000 tonnes, equivalent to a reduction of just over a fifth.

How is 2014 shaping up so far? In fact, feed output in Northern Ireland during the first three months of 2014 was slightly ahead of the first three months of 2013, if only by 300 tonnes or a tenth of a per cent, and thus captures the record as the largest first quarter volume of feed output since records began to be kept in their present form in 1996.

Cattle and calf feed output was 10,000 tonnes lower than in first quarter 2013 with output down in all sectors with the exception of dairy compounds, up by 8,700 tonnes or 6.9 per cent; an interesting comment on the current dairy scene. Pig feed output, at 41,600 tonnes, was up by 4,200 tonnes or just over 11 per cent with the main gains recorded in growing and finishing rations. Output of poultry feeds was up by 9,400 tonnes at 181,000 tonnes, an increase of 5.5 per cent with significant contributions from layer and breeding feeds as well as broilers. Predictably, output during the first quarter of 2014 was 5,900 tonnes or 16 per cent less than in the first quarter of 2013 with the biggest reductions, in both volume and percentage terms, being experienced by compounds both for breeding sheep and for growing and finishing animals.

It would appear, therefore, that the weather-related effects of 2012 and the first half of 2013 are well into the process of ‘unwinding’. I would not expect that 2014 will be another year of record breaking by the feed industry in Northern Ireland – which might be an expectation that the feed industry in the province would love to confound!

Weather and Other Worries

The year to date has seen a sharp rise in world wheat futures as defined by the CBOT Exchange.

The May 2014 contract peaked at 875 ¢/bushel in November 2012 following which it trended downwards to 580 ¢/bushel in January this year. The contract then reversed direction, rising by 2.8 per cent in February but then by 14 per cent to 679 ¢/bushel in March. The December 2014 contract similarly peaked in November 2012 at 846 ¢/bushel following which it trended downwards to 607 ¢/bushel in January 2014, following which it added 2.3 per cent in February and 12.8 per cent in March. There was a much smaller increase in April but the two contracts put on, respectively, 5.3 per cent and 5.2 per cent, at 719 ¢/bushel and 749 ¢/bushel.

LIFFE wheat was less frenetic with the May 2014 contract rising by 7.1 per cent to £166.70 in March; the November contract moved ahead by 7.4 per cent during the month in question. During April and May, the May contract was either static or slightly easier with a similar pattern emerging in the November contract. March also saw the MATIF wheat contract move ahead by around 7 per cent for the May and November 2014 contracts.

Clearly, events in Ukraine have been influencing matters on the European exchanges and elsewhere; the spot UK Corn Returns for March, at £164.35, were £10.55 up on the February equivalent, an increase of 6.8 per cent and there was a similar increase in material for delivery in three months. It would appear that European exchanges have factored in possible disruption of Black Sea exports as a result of the Ukrainian/Russian standoff, although it should be stressed that, as of the time of writing, trading and port activity appear to be operating normally.

However, the situation on the Chicago Exchange, while it includes a Ukrainian input seems much more likely to reflect uncertainties about the US Hard Red Winter crop which has been successively hard-hit by abnormally cold weather, drought and a heat-wave, leaving one crop analyst to recall the dustbowl conditions of the 1930’s. In the first trading week of May, Kansas HRW wheat for spot delivery averaged 830 ¢/bushel as against 752 ¢/bushel for April, an increase of 10.3 per cent.

Interest Rate Prospects

With the publication of the Bank of England’s Quarterly Inflation Report, it would seem that the Bank has no plan for an early rate rise to cool the property market.

The report said that ‘slack’ in the economy could keep inflation rates down while unemployment would fall faster than expected. The first increase in Bank Rate, currently at 0.5 per cent, is likely in about a year, despite calls for an early increase to slow house price inflation, currently back near double-digit levels. City AM’s main headline the day following the Inflation Report proclaimed ‘Carney: No Rate Hike to Cool House Prices

Nottingham Reminder

And finally, those planning to attend the Nottingham Feed Conference should note that the Early Bird Deadline for booking the conference is 24 May. The conference takes place on Tuesday 24 and Wednesday 25 June.

13th May 2014

March and First Quarter Feed Output 2014

DEFRA has just published March 2014 data for compound feed output in Great Britain.

Comparing March 2014 with the same month a year previously, total production of compounds, blends and concentrates, at 1,055,800 tonnes, was 50,100 tonnes or 4.5 per cent less than the same month in 2013. If straight feeds and other lightly processed materials are included, then output in March 2014 was 50,900 tonnes or 4.6 per cent lower than in March 2013.

The trade has long been predicting the unwinding of the weather-driven effects of 2012 and the first half of 2013 and March would seem to fit the pattern. Total cattle and calf feed production, at 418,700 tonnes, was 17,300 tonnes or 4 per cent down on year-earlier output. There is, however, a particularly interesting feature in the data in that, although output of dairy blends fell by 12,200 tonnes or 13 per cent in March 2014 compared to a year earlier, output of dairy compounds increased by 7,500 tonnes or 4 per cent. This could be a reflection, perhaps, of higher milk prices and a consequent improvement in the economics of milk production leading to a drive towards higher output. However, with the exception of dairy compounds and protein concentrates for cattle and calves, all categories of cattle and calf feeds saw a decline in output compared to March 2013.

There was a small increase in output of pig feeds concentrated in finishing feeds although output of link, early grower and grower feeds declined. March 2014 also saw a small increase – 600 tonnes or 0.2 per cent – in output of poultry feeds although output of broiler feeds fell by 4,000 tonnes or 2.9 per cent when compared with March 2013. However, as regards the weather effect, it was predictably in sheep and lamb feeds where the effect was most pronounced; total sheep and lamb feed output in March 2014, at 140,900 tonnes, was down by 34,700 tonnes or 19.8 per cent compared with March 2013 with the greatest decline concentrated in breeding sheep compounds, down by 28,500 tonnes or almost a quarter.

How did the position shape up for feed production in the first three months of 2014?

Total output of compounds, concentrates and blends, at 2,815,600 tonnes was 79,200 tonnes or 2.7 per cent less than in the first quarter of 2013 but it is worth remembering that this was still the second highest total in fifteen years, being exceeded only by the equivalent volume in 2013. The decline was, predictably, largely made up by a 66,500 tonnes fall in the output of sheep and lamb feeds, down by 16.6 per cent. Cumulative production of pig feeds in the first quarter of 2014 was up by 10,800 tonnes or 2.6 per cent of which a large proportion consisted of increased finisher output, while output of cattle and calf feeds in the first quarter of 2014 was down by 22,600 tonnes or 1.9 per cent. Interestingly, though, output of dairy compounds was up by 20,000 tonnes or 3.9 per cent, lending weight to the theory that higher milk prices had contributed to a real drive towards higher production.

Total Income from Farming 2013 – First Estimate

DEFRA has recently produced its first estimate of Total Income from Farming (TIFF) in 2013.

This was awaited with some anticipation, given the fact that TIFF fell sharply from £5,319 million in 2011 to £4,756 million in 2012, a decline of £563 million or 11.8 per cent. In the event, TIFF in 2013 is estimated to have increased by £708 million or 14.9 per cent. All figures are at current prices.

The increase in TIFF in 2013 was driven by, on the output side and of principal interest to feed manufacturers, a £505 million increase in the value of milk to £4,271 million and a £250 million increase in the output of poultry. Overall the total output of livestock rose by £1,110 million to £14,241 million, a rise of 8.5 per cent.

The increase in the value of milk output reflected high prices seen throughout the year. The average price of milk in 2012 was 28.1 pence per litre compared to 31.6 pence per litre in 2013. The higher prices were due to higher demand from processors as global demand for milk products increased during the year. However, looking at prospects for 2014, it will be noted that, according to various sources, three quarters of the UK’s major milk processors as well as many smaller ones have cut their milk prices in response to falling world dairy markets and rising domestic milk production which, according to DairyCo, are up by 12.3 per cent compared with the three-year average. These cuts are the first since the farmer protests and dairy blockades during the autumn of 2012, reflecting producer anger at domestic price reductions which took place as world markets started to reflect the tightening world supply position.

DEFRA reports that the value of poultry meat continued to rise in 2013 by £250 million to £2,325 million, reflecting higher prices and a small increase in output. The increased price reflected additional production costs, particularly the cost of feed. Output of pig meat value rose by £141 million to £1,281 million and, as with poultry, price was a significant contributor to the increase in value with high prices resulting from tight supplies with modest increases in output being offset by increased exports and lower imports.  

The cost of inputs rose by £892 million to £16,492 million of which a very significant contribution was made by the £740 million increase in the cost of animal feed. The cold start to 2013 resulted in a lack of early grass and fodder growth so cattle and sheep needed supplementary feed following spring turnout. DEFRA report that increased milk prices saw farmers use extra rations to maintain and increase milk production. There was also a 9 per cent increase in pig numbers and a 1.6 per cent increase in poultry numbers, all of which required additional feed. Additional demand for animal feed saw feed prices rise by 7.4 per cent.

DEFRA will publish a second estimate, incorporating data becoming available later in the year, on 27 November 2014.

Economy Update

The National institute of Economic and Social Research’s (NIESR) latest, May, estimate of the UK’s GDP suggest that output grew by 1.0 per cent in the three months ending in April after growth of 0.8 per cent in the three months ending in March 2014.

By this estimate, the UK economy was just 0.17 per cent below its pre-recession peak at the end of April. Subject to ‘data revisions and the uncertainties surrounding any out of sample predictions’, NIESR believes that it can be ‘reasonably be expected’ that the pre-recession peak will be regained within the next month or so.

The OECD has also upgraded its growth forecasts for the UK as the dominant services sector rose for the 16th successive month. Sterling also hit a five-and-a-half year high against the dollar, a further sign of the UK’s strengthening economic recovery. OECD is now predicting that the UK will grow by 3.2 per cent this year, compared with an OECD average of 2.2 per cent. The upward revision from November’s estimate of 2.4 per cent was the largest upgrade in the G7 countries.

Finance Directors take note; these increases contribute to further speculation as to when the Bank of England will start to raise interest rates.

6th May 2014

Raw Material Round-up

The surge in raw material values that seems to have spooked buyers in March and early April now looks to be abating.

World wheat prices, as measured by FOB Gulf values for, respectively, Hard and Soft Red Winter wheat averaged $302 and $268 in February, up from $288 and $260 in the preceding month. In March, prices rose further, to $336 and $295. During the first three weeks of April FOB values very slowly declined but, in the last week of the month, rose sharply once again, in the case of Hard Red Winter to $341 although Soft Red Winter eventually fell back to $291. Taking a broader view, as developed by the Futures market, the CBOT (soft) wheat July 2014 contract was a little easier compared with the May contract although the latter had jumped by almost 14 per cent compared to its average February value, reflecting nervousness generated by the situation in Ukraine. However, the July maize contract broke through the 500 ¢ / bushel level, largely reflecting concerns about the crop’s late plantings in the US.

It was this situation that, no doubt, drove Charlie Taverner of Farmers’ Weekly to write that ‘Volatility in the grain markets and high protein costs are forcing a cautious approach to feed buying.’ Soybean meal ex-store in the UK averaged £420 for Brazilian material in Liverpool, its highest for several months; Hipro ex-store East Coast, as quoted by HGCA showed at £409, again the highest for six months or so. In April, both prices showed signs of easing but they are still high by the standards of all but their most elevated predecessors.

Feed Adviser Register – First Year Report

I understand that AIC’s Feed Adviser Register, now in its second year, is ‘going from strength to strength’ according to AIC’s John Kelley, with in excess of a thousand registered members and work going ahead with a range of professional development measures to maintain and enhance the Register’s status.

By the end of the Register’s second year, members will have to undertake a number of actions to retain their status. Once an adviser has completed these actions, they will receive a new ID card for use either on farm or with customers that will demonstrate that they are ‘fully compliant’ with the Register’s terms and conditions. As John Kelley points out, for the first time, feed advisers will have a professional register promoting professional industry standards’. Surely a good idea for all concerned.

Entrepreneurs in Dairying

An interesting development is taking place in the dairy industry, which is of such importance to the feed manufacturing industry. A new business training programme for aspiring dairy producers has been launched by the Royal Association of British Dairy Farmers (RABDF) in collaboration with DairyCo, the NFU and The Andersons Centre. Called ‘Entrepreneurs in Dairying’, the programme will offer specialist instruction accompanied by a unique mentoring scheme for those who wish to progress their careers and develop their own farming business.

The programme, which starts this September, is being offered by three colleges: the Cannington Centre for Land-based Studies, part of Bridgewater College in Somerset; the Gelli Aur Farm and Resource Centre in Carmarthenshire; and Newton Rigg College in Penrith, Cumbria. Each institution will provide fifteen places. The programme organised by RABDF will feature eight weekly sessions delivered by national industry specialists, accompanied by a local farming business. The areas covered will primarily focus on succession planning, and better business and financial management.

The comparatively innovative aspect of the programme will be offered to students towards the end of the programme. Each student will be offered the opportunity to be matched with a mentor who will provide help and guidance for the following twelve months; each mentor will be fully trained as part of the Get Mentoring in Farming initiative in which RABDF is involved.

At the programme’s official launch, RABDF Policy Director, Tim Brigstocke said that RABDF had discovered first-hand, from its previous training and knowledge exchange activities, that there was a need among people already working on farms – for example those five years out of college, herd managers and farmers’ sons and daughters without a future on the family unit. They were all keen to progress up the ladder; however, to do so, they required training in specialist areas such as how to farm in their own right, either through joint ventures or contracting arrangements and, crucially, how to run a business. He said that the programme had been developed by RABDF to fill this apparent void, with the help of three complementary organisations: DairyCo offering field officer support and DairyPro professional status; the NFU, the voice of British farming; and The Andersons Centre with a proven track record of advising on the various available business arrangements.

The offer of a specialist mentor, fully trained by RABDF in conjunction with the respective college and matched to the needs of the individual student in their locality is of particular interest. RABDF believes that ‘the opportunity for mentoring is an important element to business training which has been sadly lacking in agriculture whilst it is commonplace in other sectors.’ NFU Dairy Board chairman Rob Harrison, noting that the dairy sector’s future was ‘rich with opportunity’ pointed out that demand for dairy products was growing and that the industry had ‘huge promise and potential’. The programme was about seeing the bigger picture, while retaining the upcoming generation in the sector and introducing new ideas, as well as necessary business skills and financial management.

I shall be interested to see what becomes of this venture and will report upon it in due course.

Antibiotic Concerns

An article in The Economist newspaper reminds us that the issue of anti-microbial resistance is assuming an ever higher profile. In other words, we are running out of antibiotics that work.

The relevant article ‘The drugs don’t work’, points out that Sir Alexander Fleming, accepting his Nobel Prize, warned that bacteria could evolve to beat antibiotics. And, according to a recent WHO publication, Fleming’s fears ‘is at last becoming reality’. Doctors are increasingly turning to what were treatments of last resort such as vancomycin and, even, the carbapenems but bacteria are cracking these as well (Carbapenems are a powerful group of broad spectrum beta-lactam (penicillin-related) antibiotics which, in many cases, are the last effective defence against multi-resistant bacterial infections).

The article notes that antibiotic misuse by patients, such as patients failing to complete their antibiotic course, contributes to the problem in that some bacteria survive the treatment and go on to breed resistant descendants. Moves to cut farmers’ use of antibiotics in the US, where as much as 80 per cent of antibiotics by weight are fed to animals will help although The Economist notes that ‘exempting use for veterinary purposes leaves a loophole’. The Economist also noted that ‘No new class of antibiotics has been discovered since 1987’.

I suspect that we shall be hearing a deal more on this subject in the near future.

Total Income from Farming 2013

I shall be dealing with the first estimate of Total Income from Farming in 2013 in more detail in the next issue but, in the meantime, here is what TIFF had to say about animal feed.

The rise in use of inputs by farmers was primarily due to a £740 million increase in animal feed. A cold start to 2013 led to a lack of early grass / fodder growth so cattle and sheep needed additional animal feed when they were turned out in spring. The increase in milk prices saw farmers use extra rations to maintain milk production. There was also an increase in the number of pigs (9.0 per cent) and poultry (1.6 per cent) which required additional feed. The additional demand for animal feed saw the price of animal feed rise by 7.4 per cent.

Economic Update

Last week’s announcement, that the Preliminary Estimate of Gross Domestic Product in the first three months of 2014 showed GDP growing by 0.8 per cent compared with the previous quarter caught this column short. On the basis of survey data produced by Markit/CIPS which was suggestive of a slowing down in the rate of expansion in the manufacturing, construction and services sectors of the UK economy, this column posed the possibility of a slow-down in the rate of GDP expansion from the 0.7 per cent notched up in the last quarter of 2013.

In fact, the rate of expansion was higher, at 0.8 per cent. In passing, I would add that this figure was widely trailed in the press the day before the actual figures were released which makes me wonder whether there are any grounds for believing that there was a leak. ‘Pre-release access’ is accorded to a raft of politicians and officials in the Treasury, the Bank of England, the Department of Business, Innovation and Skills, the Cabinet Office and 10 Downing Street.

Contributions to the 0.8 per cent increase in GDP came from total production, up by 0.8 per cent, of which manufacturing was up by 1.3 per cent, construction, up by 0.3 per cent and services, up by 0.9 per cent.

The Preliminary Estimate will be replaced by the Second Estimate on 22 May.

29th April 2014

International Grains Council Update

The Council has recently issued its latest, April, Grain Market Report, revising its original projections made in March.

The IGC’s estimate of total grain output during the 2014-15 run has been revised downwards by 14 million tonnes to 1,935 million tonnes. This is largely accounted for by a 10 million tonne reduction in the output of maize in the US and reflects weather-related planting delays and the increasing probability of acreage switching to soybeans. World maize output is expected to fall by 2 per cent compared with 2013-14 and end-of-season stocks are expected to increase by a ‘more modest’ 3 per cent, compared with the IGC’s estimate of 10 per cent in March. The fall in IGC’s estimate of world maize production also reflects IGC’s assumption that maize yields will return to more ‘normal’ levels after the exceptional results in 2013-14. 

The IGC’s sub-index for maize in April, part of its Grain and Oilseeds index (GOI) which measures world prices of these commodities, rose by 1 per cent compared to March, reflecting strong export demand and concerns about the slow start to spring planting but, with the world supply position looking comfortable, prices in April were around 10 per cent lower than a year earlier. This reflects the record maize crops harvested in 2013-14 which have contributed to rebuilding of the world maize supply position. 

As regards wheat, there continue to be what IGC calls ‘persistent concerns’ about crop conditions, particularly for winter wheat in the US but, overall, world wheat prospects look generally promising. IGC have reduced its March estimate of world wheat production in 2014-15 by 3 million tonnes to 697 million tonnes. End-of-season stocks are reduced from 190 million to 187 million tonnes, which equates to 97 Days Consumption Equivalent, compared to 99 DCE in IGC’s March estimate. IGC also suggest that import demand is likely to be lower in 2014-15; this reflects Chinese demand returning to more normal levels.

Despite the US weather-driven price surge in the middle of April which saw Hard Red Winter wheat FOB Gulf rise from $325 to $342 in the third week of the month, the wheat sub-index fell by 2 per cent over the month.

The IGC have not yet issued a forecast of the world soybean supply and demand position in 2014-15 but, against the ongoing southern hemisphere soybean harvest, forecasts for the 2013-14 supply position continue to predict record production although availabily overall is more constrained that predicted earlier in the season. IGC have increased their estimate of Brazilian soybean production has been increased, reflecting the fact that the harvest is nearing completion and that yields have been good, the forecast for Argentina has been reduced following unfavourable weather. Nevertheless, IGC point out that, not only the Brazilian soybean crop but also the Argentine harvest would be the biggest on record.

A very early pointer to the US soybean harvest in 2014 suggests that the area planted to the crop could be 6 per cent up on its predecessor, reflecting soybean prices relative to maize.

Danish Organics Pointer?

Following the report in last week’s issue, that UK sales of organic foods were starting to rise after the recession, the Danish Agriculture and Food Council is reporting a surge in sales of organic food in that country.

Eggs and meat are, apparently, leading the charge. Statistics Denmark report a 6 per cent increase in sales by Danish supermarkets of organic food, led by increases in demand of 24 per cent for organic eggs and 17 per cent for organic meat. In stark contrast, total sales of all organic foods in Denmark had risen by only 0.5 per cent in 2012.

The head of the organic section at the Danish Agriculture & Food Council noted that the decision by more consumers to buy organic eggs in Denmark agreed with the conclusions of a study sponsored by the Council, completed earlier this year, which had examined attitudes towards the purchase and consumption of eggs. It found that Danes were beginning to put other factors above price when they went shopping for eggs. The study indicated that they would be prepared to pay a small premium for organic foods. A similar trend was noted with respect to purchases of pork, with increased numbers of consumers actively choosing to purchase organic pork. It was also noted that, whereas the trend in buying organic milk had been declining over recent years, this trend had reversed in 2013.

Sign of future times in the UK, perhaps?

Cornwall Farmers Correction

A correspondent has pointed out that, in my note last week on Cornwall Farmers’ results for the year ended 30 September 2013, I omitted to mention the Society’s considerable progress in reducing its outstanding indebtedness.

In the twelve months ending 30 September 2009, the Society had total indebtedness of £13.63 million of which an eye-watering £7.08 million was overdraft. Since then, the overdraft has been steadily reduced, standing at £781,757 as of 30 September 2013. Total indebtedness, at £3.38 million, was a quarter of the Society’s debt four years previously, a welcome sign of progress on what, nevertheless, still looks to be a long road to rude health.

23rd April 2014

Northern Ireland February Outcome

There has been some speculation that the recently cracking pace set by DEFRA for publishing the feed production figures in Great Britain has proved too hot a pace for their colleagues in Northern Ireland. Nevertheless, the latter’s figures for February are now available and it looks as if Northern Ireland feed manufacturers are on track to confound the critics when they say that the province can, surely not, establish yet another record for feed production during 2014.

The appalling weather that characterised much of the British Isles during 2012 and the first half of 2013 resulted in record feed output in the latter year. It had an effect on feed demand, not just in Northern Ireland, of course, but on the UK as a whole. It was expected that data for 2014 would show some signs of the weather-related events of 2012 and the first half of 2013 unwinding but, in fact, Northern Ireland feed production increased by 8.500 tonnes or 2.1 per cent compared with the January – February total for 2013. However, looking at individual livestock species suggests that the weather-related events of 2012 and 2013 are, indeed, beginning to unwind. Production of cattle and calf feeds in the first two months of 2014 was 1,400 tonnes or 0.6 per cent less than in the same two months of 2013. Beef-related feeds took the major hit with output of coarse mixes and blends for beef cattle falling by 6,100 tonnes or almost 10 per cent; output of compound feeds for beef cattle fell by 2,200 tonnes or 7.1 per cent.

Output of compounds for dairy compounds, on the other hand, rose by 6,000 tonnes or 7.4 per cent over the first two months of 2013 and there was also an increase, albeit very small, in output of coarse mixes and blends for dairy cattle. This may reflect increased farmgate milk prices. DairyCo reports average annual milk prices for 2012 in Northern Ireland at 25.82 p / litre. In 2013, they rose to 31.30 p / litre, an increase of 21.2 per cent and, in January and February, they were respectively, 17 per cent and 19.1 per cent higher than year-earlier levels. In fact, milk production in the province in January and February 2014 was, respectively, 6.7 per cent and 7.1 per cent higher than in the same months of 2013 although weather will have played a part during the months concerned in 2013.

It is worth noting that output of cattle and calf feeds in the first two months of 2014, at 238,200 tonnes, was at its second highest level ever since records started to be kept in their present form in 1996.

Output of feeds for pigs is a small part of Northern Ireland’s product mix. At 28,300 tonnes in the first two months of 2014, it has declined from the five-year average of 36,800 tonnes recorded in 1996 – 2000. The 2014 total was 3,500 tonnes or 13.9 per cent up on the level of the same two months of 2013 with the major gains being made in growing and finishing rations. Total poultry feeds were 6,900 tonnes or 6.3 per cent higher than in the first two months of 2013 with the major volume gains being made in the layer/breeder feeds and broiler feed categories. Output of broiler feeds in total during the period, at 116,400 tonnes was at its highest since records were first kept in their present form.

Finally, and as expected, output of feeds for sheep and lambs, at 18,700 tonnes, showed a 3,000 tonne or 13.6 per cent fall in comparison with the first two months of 2013, Growing and finishing sheep compounds took the biggest hit in percentage terms – down by 24.1 per cent or 1,400 tonnes – while compounds for breeding stock fell by 11.9 per cent or 1,300 tonnes.

The effects of the dire weather of 2012 and the first half of 2013 are thus unwinding with respect to ruminant species. However, taking total production into account, the increase in output of monogastric rations has masked a fall in ruminant output. More on this as the year progresses.

Cornwall Farmers Bite the Bit

After last year’s poor results when it made a loss of £1.7 million, farmer cooperative Cornwall Farmers has seen the first signs of a turnaround, although the society only moved into profit with the sale of its direct-to-farm arable business.

CF made a profit of £656,583 in the twelve months ending 30 September 2013 but it should be noted that this includes £1.26 million of exceptional gains from the sale of the former machinery site at Roche and the sale of the direct to farm arable business to HL Hutchinson Limited on 31 January 2013. Otherwise the society has made progress in reducing its net indebtedness but clearly still has some way to go before it returns to operation profitability.

Economic Catch-up

Inflation, as measured by the Consumer Price Index dropped to 1.6 per cent in March 2014. Weekly earnings data suggest that inflation has now fallen below rising incomes, meaning that the latter are now increasing in real terms for the first time in several years.

14th April 2014

Supply Prospects

As we approach the year end, little in the way of dramatic shifts in USDA’s supply and demand picture for the 2013-14 season is to be expected. And indeed, world wheat production for 2013-14 was reduced by an overall total of 191,000 tonnes with, as USDA described it, ‘mostly offsetting changes to several countries of 100,000 tonnes or less’. Projected end-of-season stocks, expressed as Days Consumption Equivalent, rose to 98 compared to 95 in USDA’s March assessment; pretty much average and not sufficient serious to undermine prices. Soft Red Winter FOB Gulf at $295 was at a six-month high as was its Hard Red Winter equivalent while the July and December CBOT contracts were also sharply up on their February averages.

As regards maize, USDA have boosted world production prospects by 6.39 million tonnes as the result of higher-than-anticipated output in Brazil, up by 2 million tonnes, and South Africa and Russia, up by approximately a million tonnes. Increased production in Brazil reflects favourable rainfall in March and early April which has supported the developing second maize crop with yields now expected to be just below last year’s levels in the areas of Brazil where this crop is grown. In South Africa, rains in late February and March have boosted yield prospects for maize grown in the normally lower-yielding western areas of that country.

Russian maize production is increased based on what USDA describes as ‘recent revisions’ to official production statistics.

World maize consumption is higher with increases in livestock feed usage for Argentina, Russia, and Algeria. Reduced EU use of animal feed is more than offset by take-up for food, seed, and industrial uses. Maize consumption is also increased for several Sub-Saharan countries, including an increase of a million tonnes by Uganda and 900,000 tonnes for Ethiopia.

The net effect of these increases in maize consumption is to cut world end-of-season maize stocks for 2013-14 by 475,000 tonnes with reductions for the United States, down by 3.18 million tonnes, and Ukraine, down by 500,000 tonnes. On the other hand, Brazilian end-of-season stocks are estimated to increase by 2.04 million tonnes.

Concerns about Brazil in particular have underpinned maize prices in recent weeks with March FOB ex-Gulf values noticeably stronger during the first quarter of 2014; CBOT maize futures for July and December were also up during March. April futures showed little immediate signs of easing prior to USDA’s latest assessment; more on this in the next edition of the e-letter.

February Feed Production 2014

The effects of the atrocious weather that characterised much of 2012 and the first half of 2013 would appear to be winding down as regards feed production in Great Britain.

It is worthwhile to look at the weather pattern for the first three months of 2014. Temperatures across the UK were significantly above normal, particularly in February. However, what will undoubtedly be remembered about January and February 2014 was the rain. It’s worth taking a look at the Met Office’s description of the situation during the months in question. In January, the UK as a whole received 151 per cent of average rainfall making it the third wettest in the available data. A broad region, running from East Devon to Kent and up to the Central Midlands, received well in excess of 200 per cent and some more localised regions came close to receiving three times the average. Parts of eastern Scotland were also similarly wet, with in excess of twice normal rainfall. South East and Central Southern England beat its January rainfall record by a large margin and was the wettest calendar month for that region in a series going back to 1910. It was also the wettest January in the England and Wales precipitation series that extends back to 1766, with January 1948 being the closest comparable to January 2014. However, it was not the same everywhere and parts of northern Scotland were significantly drier than average.

In February, the UK overall received 184 per cent of average rainfall, making it the fourth wettest February in the historical series. A broad region covering most of Wales and southern England received more than double the average rainfall for February, as did some other areas; a few places had close to three times the average. The region of south-east and central southern England, with 270 per cent of normal, was only just short of its February rainfall record. It was not so wet everywhere, however, and parts of Lincolnshire, north-east England and north-east Scotland received near-average rainfall.

As far as the feed industry’s fortunes were concerned, total production of compounds, blends and concentrates in Great Britain during February 2014 amounted to 877,700 tonnes, 21,400 tonnes or 2.4 per cent less than in the same month of 2013. To put this figure in context, however, it is the third highest February total since the data started to be published in its present form in 1992.

Predictably, output of cattle and calf feeds, at 352,600 tonnes, was 8,800 tonnes or 2.4 per cent less than in February 2013. The main hit was taken by compounds and blends for non-dairy cattle, down by a collective 15,700 tonnes; output of compounds and blends for dairy cattle was actually higher than a year earlier, the latter by 3,400 tonnes or 4.8 per cent. Feeds for pigs showed a 5,200 tonne gain on February 2013, up by 3.9 per cent, due to higher output of grower and finisher feeds. Poultry feeds were slightly down on year-earlier levels reflecting declining broiler and turkey feed production compared to February 2013. Sheep and lamb feeds, however, saw output fall by 16,600 tonnes or 13.4 per cent as the effects of the appalling weather in January and February a year earlier worked themselves out; compounds for breeding sheep were the worst hit with output falling by 12,100 tonnes or 15.6 per cent. Horse feed production, also perhaps reflecting the improved weather of 2014 was lower by 1,400 tonnes or 8.1 per cent.

No data for Northern Ireland during February 2014 is yet available; this will be reported upon in due course.

Economy Slowing Down?

The closely watched Markit/CIPS surveys for March, covering production, construction and services (the latter comprising three-quarters of the UK economy) were published at the beginning of the month. All remained above 50, signifying expansion but the rates of expansion have diminished in recent months. This particularly affects services, down from 62.5 in October last year to 57.6 in March 2014. Nevertheless, the picture is still one of an economy in recovery and this impression is reinforced by the International Monetary Fund’s recent prediction that the UK will have the fastest expansion among developed nations in 2014-15. U.K. government bonds rose, with 10-year yields falling to their lowest level since October last year. Sterling hit a seven-week high against the dollar.

31st March 2014

Pressure on Prices
The International Grains Council’s latest, March issue of its Grain Market Report’s preliminary projection for the 2014-15 grains balance estimates output at 1,949 million tonnes, down 0.9 per cent compared to the current estimate for 2012-13. This reflects lower yields for wheat compared to 2012-13 although those for maize remain unchanged.
 Grain consumption is expected to continue to rise, but end-of-season stocks are projected to rise by 3.6 per cent, while major exporters’ stocks are estimated to expand by 14.1 per cent. Much of the increase in end-of-season stocks will be accounted for by maize which is projected to reach a fifteen-year high; in contrast, world end-of-season wheat stocks, at 190 million tonnes, will be little changed.
The tone of world grain markets remained firm in the light of these data with the Ukrainian situation underpinning markets. The growing prospect of an El Niño event later this year was also supportive.
 

Milk Price : Feed Price Ratio
A colleague has recently drawn my attention to HST’s October 2013 issue of Nutrition Notes – which I hope BOCM PAULS / ForFarmers will keep on producing in a similar form. This highlighted, amongst other aspects, the ratio of milk price – expressed in pence per litre – to feed price – expressed in pence per kilogram. Self-evidently, the higher the ratio, the more profitable milk is to produce.
HST note that the winter of 2012-13 saw the ratio at between 1.1 : 1 and 1.2 : 1; they expected the ratio for the winter of 2013-14 to be between 1.3 : 1 and 1.5 : 1; a substantial improvement on the winter of 2012-13 and, so HST observed, ‘ the best milk price to feed price ratio in five years.’
I am intrigued as to how this ratio is calculated. As any compounder is fully aware, the industry produces a range of rations designed for particular dairying regimes ranging from what one compounder describes as bog standard low energy dairy cake to top of the range, intensive energy rations. I tried setting average UK monthly milk prices including retrospective bonuses against a mid-range dairy ration for which delivered prices were kindly supplied by a member of the trade and, lo and behold, from a 2012-13 winter ratio of 1.12 : 1 (winter defined as October through March) the equivalent ratio for the period October through February 2013-14 (March data being unavailable for milk) was 1.32 : 1, a significant improvement over the previous winter.
Judging by the available literature, this ratio plays a larger part in the decision making process of US dairy farmers than it does here. I shall be taking a closer look at this ratio in future issues of this e-letter.
 

Northern Ireland Statistics
A raft of statistics on Northern Irish agriculture has recently been released. These consisted of Farm Income statistics for the twelve months ending in February 2013 along with a statistical review of agriculture in the province during 2013.
Taking all farms as a whole, average Farm Business Incomes in Northern Ireland fell from £31,992 in £2011-12 to 19,336 in 2012-13, a fall of £12,656 or almost 40 per cent. As regards feed manufacturers’ interests, pig farmers’ Farm Business Incomes fell by £16,976 or 35 per cent to £31,473. Dairy farmers saw average Farm Business Incomes decline by £28,405 or about half while cattle and sheep farmers in the Less Favoured Areas experienced a £7,795 drop in average Farm Business Incomes – 37.6 per cent. Lowland cattle and sheep farmers saw Farm Business Incomes fall by £7,957 or 41 per cent.
More on Northern Ireland’s agricultural prospects in future issues of the e-letter.  
 

Economic Catch-up
The inflation rate, as measured by the Consumer Price Index, fell to 1.7 per cent in February compared with 1.9 per cent the previous month, its lowest since October 2009.
The largest contribution to the fall in the inflation rate came from transport, principally falls in the price of petrol and DERV, with other smaller effects from the housing and household services and clothing and footwear sectors. These were partially offset by upward contributions from furniture & household goods and ‘recreation and culture’. Food prices in February 2014 showed an increase of 1.8 per cent compared to a year earlier although the prices of specific foods varied significantly. Milk prices were up by 2.2 per cent while home-killed bone-in shoulder of lamb was up by 7.4 per cent. Home-killed topside of beef increased by 5 per cent on a year earlier and best beef mince by 6.2 per cent while home-killed rump steak was down by 3.1 per cent.  Braising beef steak recorded a year-on-year increase of 12.1 per cent. An oven-ready roasting chicken showed a 3.1 per cent increase while pork sausages rose by 4 per cent. Eggs, on the other hand, were, at £2.82 a dozen, 0.4 per cent cheaper than in February 2013.
The Quarterly National Accounts, representing the latest look at Gross Domestic Product in the UK during the last three months of 2013 were released at the end of March. The Preliminary Estimate, published in January 2014, showed an increase of 0.7 per cent for the final three months of 2013 and this was unchanged when the Second Estimate was published in February. In the event, the Office of National Statistic’s Quarterly National Accounts for the last three months of 2013 confirmed the 0.7 per cent increase in GDP, which is estimated to have increased by 1.7 per cent in 2013 compared with 2012, revised down by 0.1 percentage point from the previously estimated 1.8 per cent increase.
 

Early Warning
Just a reminder that the Nottingham Feed Conference takes place on the Sutton Bonington Campus at the University of Nottingham on 24th and 25th June 2014. For further information contact
Sheila.Northover@nottingham.ac.uk

24th March 2014

Conflicting Interests

There seem to be a number of factors influencing raw material prices at the moment. Events in Ukraine have, predictably, impacted upon market developments, especially for wheat in that a substantial tonnage of both Ukrainian and Russian material ships from Black Sea ports. In the meantime, I understand that grain continues to flow out of the Ukraine pretty much normally against previously arranged deals.

In fact, Ukrainian ports involved with the grain trade are relatively far away from the current political situation with Crimean grain accounting for only about 7 per cent of Ukraine’s total grain exports. Ukraine’s biggest grain port, Odessa, is about 112 miles from the Crimea region while the other major ports, Yuzhniy and Nikolaev, are more than 90 miles away. Ukraine’s agriculture ministry also reports that other ports have more than enough capacity to handle shipment diversions from Crimea if necessary.

However, Ukraine was a conspicuously absent participant in a recent Egyptian tender for 800,000 tonnes of wheat. Ukrainian grain prices are now, it is reported, too high to compete with Russian and Rumanian material; indeed, French and US material is also coming into the frame.

It appears that some Ukrainian farmers are stockpiling grain as a hedge against further devaluation of the Ukrainian currency, the hryvnia, which is currently standing at a near-record low against the dollar and thus sending grain prices higher. The prospects for financial disruption stemming from the general situation is also unhelpful as regards putting deals together, especially for smaller merchants and shippers who may be experiencing difficulties in obtaining supplies.

At the time of writing, halfway through March, the May and July CBOT wheat contracts stood at around 60 ¢ a bushel above their February levels while the December 2014 contract stood at a similarly higher level March on February. All the wheat contracts mentioned were trading above the 700 ¢ / bushel level as this edition of the e-letter went ‘to press’. Maize, too, was back at post-harvest levels while CBOT May soybeans broke through the 1,400 ¢ / bushel ceiling; there was also a distinctly firmer tone to the November 2014 and May 2015 contracts.

Nearer home, and taking the first two weeks of March 2014, Corn Returns spot values for feed wheat were showing at £163.30, approximately £10 up on February values; barley put on a more modest £3.70. Interestingly, feed wheat three months forward in March was quoted as identical with the spot value.

Other feed materials, derived from HGCA’s weekly feed ingredient prices bulletin have, with the exception of proteins, been in short supply in recent months but rapemeal ex-Erith broke into the £250 area during the first fortnight of March while Brazilian 48% soybean meal crashed the £400 mark in the first week of February. Of course, these prices will bear little relationship to the prices actually paid by compounders but they do give some indication of the way things are heading.

Wynnstay AGM

The Wynnstay Group held its AGM on 18 March and reported on the trading conditions attending the first half of its 2013-14 financial year.

The Group’s performance in 2012-13 ending 31 October 2013 was driven, amongst other factors, by ‘exceptionally strong demand for feed’, reflecting the adverse weather conditions during the trading period in question. Trading in the first half of the new financial year to date has also been influenced by the weather. Two successive poor harvests have reduced the grain crop and the exceptionally mild winter has shortened the housing period for livestock, reducing feed demand. While the remainder of March and April, ‘both key agricultural months’, are still to come, it is clear that Wynnstay are taking the opportunity to warn investors that first-half 2013-14 results are currently not expected to match the record levels of 2012-13.

Echoes of 2012

Data now available for Great Britain shows use of maize by feed manufacturers in Great Britain surging in 2013 to 295,800 tonnes, an increase of 98 per cent over the previous year’s total which, in itself, were 36.6 per cent higher than the previous year. This would appear to be a follow-on to the dreadful weather of 2012 and the first half of 2013 and its effects on wheat quantity and quality.

The actual volumes involved are, of course, relatively small. Total usage of maize by compounders in Great Britain in 2013 was equivalent to just 2.7 per cent of overall feed material usage, albeit that this compares with an even more diminutive per cent of 1.1 per cent in 2011 and 1.4 per cent in 2012. Even taking maize’s share of total cereal inclusion doesn’t make a lot of difference – maize’s share rises from 2.9 per cent in 2011 to 6.7 per cent in 2013.

To take maize at its full significance, we have to travel across the Irish Sea. There, maize at 436,300 tonnes in 2013 represented 18.8 per cent of total raw materials used, not far short of a fifth. In the two previous years, maize increased its market share, from 13.9 per cent in 2011 and 15.8 per cent in 2012.

With the prospects of an improved harvest across the UK in 2014, maize’s share of Northern Ireland’s feed material usage seems set to fall – unless, that is, with increasing use and familiarity, it has carved a more permanent place in the hearts – and formulations – of Northern Irish feed manufacturers.

Collaborate over Milk

Keep an eye on this one. Dairy farmers will be able to find out more about strengthening their businesses through co-operation at the RABDF Foundation for Collaboration conference, to be staged at the National Motorcycle Museum, Bickenhill, Solihull, on Wednesday 2 April.

The event officially kicks off the Foundation for Collaboration, a new training programme launched by the Royal Association of British Dairy Farmers with £320,000 worth of support secured from the Government’s £5m Dairy Fund package. The venture is designed to help English dairy farmers increase competitiveness, access new markets, strengthen their position in the dairy supply chain and ultimately, secure their long-term future in the dairy industry. All good stuff, with potential benefit to the UK dairy feed industry as well.

El Niño Odds Harden

An El Niño event is being viewed as increasingly probable by climatologists in Japan and by the US Climate Prediction Centre with the former putting the probability as ‘greater than 50 per cent’ while the latter estimates the chance of ‘a Pacific trigger developing late this summer or early autumn’ at 52 per cent.

El Niño is associated with drought in some parts of Australia and Indonesia with consequent threats to the Australian wheat crop. In the US, maize yields per acre are usually lower than historic averages and harvesting of summer crops such as maize, peanuts, and cotton may be delayed because of increased autumn rainfall. Frequent rain may reduce cultivation and yields of winter wheat.

This is unwelcome news, coming as it does on top of current concern over US winter wheat seedlings whose condition is reported to have deteriorated further recently, with temperatures and rainfall prospects that were well below normal. USDA reports soil moisture as being of major concern in the US’ major hard wheat growing regions. Latest reports note that wheat prices have soared again amid talk that drought poses a threat to wheat crops not just in the US but in Australia as well; it is also reported that planting conditions are ‘not ideal’ in Ukraine as well as in some parts of Russia.

Economic Update

The latest Minutes of the Monetary Policy Committee suggest that sterling could strengthen further as the UK's economy recovers, thus reducing the cost of imported feed raw materials priced in currencies other than sterling.

The latest Office for National Statistics figures show that unemployment was unchanged at 7.2 per cent in the three months to January, still above the level at which ‘forward guidance’ suggests that there might be a move towards monetary tightening – in other words, higher interest rates. All committee members agreed that none of forward guidance's ‘knockout conditions’ had been breached, such as an increasing danger of inflation or a significant threat to the UK’s financial stability. With unemployment remaining above the seven per cent threshold, the current form of forward guidance remains in place.

11th March 2014

January 2014 Production Data

DEFRA has published January 2014 feed production data for Great Britain.

Overall production of animal feed, including lightly processed feedingstuffs, fell by 3,000 tonnes or 0.3 per cent compared to January 2013. However, production of cattle and calf feed, at 371,800 tonnes, was up by 3,900 tonnes or 1.1 per cent compared to a year earlier. The major contributors to the increase were compounds for dairy cows and blends for non-dairy cattle; there was a 6.2 per cent decline in non-dairy blends. It seems possible that higher milk prices have encouraged dairy farmers to move from blends to compounds while the appallingly wet but mild weather in January may also have played a part. Total output of cattle and calf feed was at its highest January level in ten years.

At 142,100 tonnes, there was also a 3,100 tonne or 2.2 per cent increase in output of pig feeds with increases across the board with the exception of link and early grower feeds; production was at its highest January level for twelve years.

Poultry feed, at 246,000 tonnes added 500 tonnes or 0.2 per cent to its January 2013 total. This figure represents the highest level of January production since records were kept in their present form in 1992. The major contributor to the increased output was broiler feeds, up by 3,600 tonnes on 2013 and at their highest level since 1992 and tending to support the view that consumers have turned to chicken in order to stretch recession-hit disposable incomes. In contrast, layer feeds fell by 2,100 tonnes or 2.6 per cent.

In view of the foregoing, it may be wondered why total feed output declined, if only marginally. The answer may be found in the 12,200 tonne fall – 12.4 per cent – in the output of feeds for sheep and lambs compared with the same month in 2013. Reflecting the improved weather conditions in January 2014 compared to the same month in 2013, the largest decline was recorded in compounds for breeding sheep, down by 9,50 tonnes or 17.6 per cent compared to January 2013; compounds for growing and finishing sheep were also down but by a more modest 2,600 tonnes or 7.2 per cent.

There was a decline in the output of horse feeds, down by 2,100 tonnes or 11.2 per cent; this would also seem to have been weather-related. Overall, however, the sharp decline in output of sheep and lamb feeds would seem to mark the beginning of the great unwinding of the weather effects of 2012 and the first half of 2013. In 2013, the industry in Great Britain knocked up a total of 10.79 million tonnes of compounds, blends and concentrates, a record since the data started to be kept in its present form in 1992. The odds would seem to be against any new records being established in 2014 but, with the way the weather is at present … well, you never know.

Comment on Northern Ireland’s January 2014 feed production data in next week’s issue.

Ukrainian Tremors

Following events in Crimea, it was perhaps inevitable that there were going to be repercussions in the wheat trade given that a considerable volume of wheat passes out via Ukrainian Black Sea ports and Russian ports such as Novorossiysk.

On the last February trading day, the CBOT wheat contract for May rose by 2.2 per cent and by a further 4.9 per cent on the first trading day of March; the firm tone of the market continued through the ensuing week with the December 2014 contract particularly strong as the first week of March trading got under way. LIFFE wheat also moved ahead on the first day of March trading with 3 per cent day-on-day increases on the May, July and November contracts. MATIF wheat also opened the first week of March with a burst of activity although this was not strongly sustained until the last day of the trading week. The November 2014 contract, at 155.75 GBP on 7 March, was at its highest for 2014 so far.

Weather Hits Countrywide

Countrywide Farmers has had a rough first half year’s trading ending 30 November 2013.

Sales reached £143.59 million, 3.4 per cent up on the same period a year earlier but a 4.9 per cent increase in the cost of sales saw Gross Margin fall to 13.3 per cent compared with 14.5 per cent for the first half of 2012-13. Countrywide Farmers do, however, appear to have kept tight control of administrative and distribution costs in that these constituted 13.7 per cent of sales compared with 14.2 per cent in the equivalent period a year earlier, but this was insufficient to prevent pre-tax losses of £819,000 compared with the small £7,000 profit recorded in the same six months of the previous year.

As regards feed, Countrywide Farmers had some particularly interesting experiences to report which, I suspect, will have been shared by other feed suppliers. Nigel Hall noted that ‘Feed volumes were strong and finished the first half 14 per cent ahead of last year’. However, he noted that ‘There was a significant change in the mix with straights and blends well up while compound feed volumes were weaker.’ The change in product mix, predictably, reduced margins which were ‘further impacted by the levelling-off of commodity prices and the competitive market’.

Interestingly, it appears that Countrywide has seen no material volume improvement in its compound feed business since November, but given the fact that December 2013 feed volumes fell throughout Great Britain compared with the equivalent month of 2012, this should not be seen as too surprising; nor should the small year-on-year decline in January 2014 output materially reflect upon Countrywide Farmers’ failure to put on volume at the start of 2014.

Chairman Hall noted that he had announced the Board’s intention to seek an AIM listing for the business; the NWF Group and Wynnstay are, of course, already members of AIM. This would allow ‘a more appropriate market valuation and greater liquidity to be achieved for the business which would benefit all shareholders’. Although he had nothing further to report in terms of timing at this stage, he would give a further update at the time when Countrywide’s full year results were announced in the summer.

There may be tough times ahead as the market readjusts to new patterns of demand.

3rd March 2014

International Grains Council February Update

As one might expect at this stage of the season, there are few significant changes in the Council’s views as regards grain and oilseeds supply and demand prospects in 2013-14.

Total cereal production, at 1,966 million tonnes is slightly higher than in their January assessment, giving a total cereal crop almost 10 per cent up on 2012-1, with wheat up by just over 8 per cent and maize up by 11.4 per cent. End-of-season inventories are estimated respectively at 100 and 60 Days Consumption Equivalent (DCE). Soybean production, at an estimated 284 million tonnes is 4 million tonnes lower than in IGC’s January assessment; this would appear to reflect unfavourable weather conditions in South America.

As regards wheat in the coming 2014-15 season, while the global wheat area is expected to increase, production is likely to fall by 2 per cent due to ‘a return to more normal yields’ from 2013-14’s ‘exceptional results’ of 3.25 tonnes per hectare according to USDA. However, while large opening inventories are expected to increase total availabilities 2014-15, rising consumption is expected to absorb the larger availability, leaving end-of-season stocks almost unchanged.

The 2014-15 maize harvest is also provisionally projected to decline marginally as world maize yields, at a whopping 5.47 tonnes per hectare in 2013-14 according to USDA, return to more normal levels.

As regards recent events, markets appear to be reacting price-wise to developments in Ukraine, particularly in view of the fact that a large volume of grain exports is handled through Black Sea ports which are nearby to the troubled situation in the Crimea. On Friday 28 February, wheat futures for July rose 2.1 per cent and the maize contract rose 2 per cent over the previous day’s July contract.

El Niño to Return?

A number of concerned bodies are suggesting that the odds on an El Niño event in 2014 are shortening.in January,  

In January, the UN’s World Meteorological Organization said there was an ‘enhanced possibility’ of a weak El Niño by the middle of 2014. And, while scientists are still debating the intensity of a potential El Niño, both Australia’s Bureau of Meteorology and the U.S. Climate Prediction Center have warned of an increased chance that one will strike this year.

El Niño is a warming of sea-surface temperatures in the Pacific. It can trigger drought in some parts of the world while causing flooding in others. A strong El Niño can wither crops in Australia, Southeast Asia, India and Africa while other parts of the world such as the U.S. Midwest and Brazil suffer heavy rain. Any disruption to supplies would come as many crops have already been hit by the adverse winter weather of 2013-14, particularly in the northern hemisphere, quite apart from its potential to drive a coach and horses though any prediction of the supply and demand situation in 2014-15. 

Industry Numbers

The provisional results of the Annual Business Survey for 2012 were published last November.

As regards the feed industry, the survey shows that the number of companies operating in the industry, at 245, was unchanged from 2012. The number of ‘local units’ – mills,, in other words – also remained constant at 340. The survey also suggests that the number of companies in Northern Ireland increased by five to 40 and there was an increase of 5 companies in the West Midlands, the North West and the South West, two traditionally strong centres of feed manufacturing, saw a decline of five companies apiece.

It should be remembered that this survey covers any company which is registered for VAT and PAYE; thus some very small outfits get caught in the net. For example, out of 340 mills identified in 2013, 125 employed between 1 and 4 people – 37 per cent. However, taken over time, the survey does give some indication as regards the ongoing structure of the industry.

GM Plantings

The International Service for the Acquisition of Agri-Biotech Applications (ISAAA) has released its annual report on the global status of commercialized GM crops.

The report notes that, in 2013, commercial planting of GM crops increased for an eighteenth successive year, with 175.2 million hectares being grown around the world, up by 3 per cent over 2012 and over 100 times more than the 1.7 million hectares grown in 1996.

The United States is, once again, the top country for GM crop plantings, followed by Brazil, Argentina, India, Canada and China with Bangladesh, Panama and Indonesia also having approved biotech crops in 2013 although no commercial crops were grown. In total, 36 countries, with the EU-28 counting as one country, have approved GM crops for planting though only 27 have currently planted on a commercial scale.

Predictably, ISAAA stresses the fact that farmers in developing nations represent a huge share of those benefiting from biotechnology in 2013 with only eight of the countries planting biotech crops considered ‘industrialized’. In a similar vein, 90 per cent of the estimated 18 million farmers growing GM crops were ‘small, resource-poor’ farmers. ISAAA add that, from 1996 through 2012, GM crops provided benefits to farmers and the environment by increasing global crop production by $116.9 billion, saving almost half-a-million tonnes of the active ingredients used in the manufacture of pesticides and reducing CO2 emissions in 2012 alone by 26.7 billion kg, ‘a figure equivalent to taking 11.8 million cars off the road for one year’.

Whatever the industry may think about GM – and there are a fair number of companies in the industry that, for a variety of reasons, will have nothing to do with it – it is a technology that seems here to stay.   

Economic Roundup

The second estimate of Gross Domestic Product in the last three months of 2013, a 0.7 per cent increase over the previous quarter, was unchanged from the preliminary estimate published in January. GDP is estimated to have increased by 1.8 per cent in 2013 compared with 2012, revised down 0.1 percentage points from the previously estimated 1.9 per cent increase.

24th February 2014

USDA’s Latest Supply and Demand Projection

USDA’s latest, February 2014, projections of world supply and demand for grains and oilseeds in the current 2013-14 season reduced world wheat production by an estimated 771,000 tonnes, largely due to a 1.56 million tonne cut in their estimate of the wheat harvest in Kazakhstan. This was partially compensated by an increase in the Ukrainian harvest estimate and an additional 570,000 tonnes from other sources, including Brazil.

For maize, USDA has reduced its estimate of the world harvest by a modest 286,000 tonnes. This includes a million tonnes reduction of Argentine maize production compared to the January estimate. It is understood that this reflects dry conditions that affected maize planting, reducing the area planted to the crop.

An article in a recent edition of the Economist newspaper, notes that incessant intervention by government has turned agriculture into a ‘source of weakness’ adding that ‘The government has meddled in wheat production since 2006 by raising export taxes and setting export quotas’.

US export prices for both wheats and maize have firmed in the first half of February compared with January. For maize in particular, this appears to reflect a rapid rundown of estimated domestic US end-of-season inventories.

For soybeans, USDA has raised its estimate of world production by 865,000 tonnes compared to its January estimate. Brazilian production is estimated at a million tonnes higher, sufficient to knock the US into the Number 2 producer spot. Unfavourable weather has affected soybean prospects in Argentina, with production down by 500,000 tonnes on January’s projection but Paraguay is rated 300,000 tonnes higher.

US soybean export prices FOB Gulf in the first three weeks of February firmed on January by $8.35 or 1.6 per cent while nearby soybean futures over the same time frame firmed by 36.4 ¢ a bushel or 2.8 per cent. May and November futures also firmed.

Economics Update

The Purchasing Managers’ Index (PMI®)) for UK manufacturing in January 2014, at 56.7 in January was down from December’s 57.2 and stood at its lowest level in three months. However, it is still well above the series average of 51.3 and the headline index has signalled an improvement in operating conditions in each of the past ten months. Rob Dobson, Senior Economist at survey compilers Markit noted that UK manufacturing had made ‘a strong start’ to the New Year, continuing what he called ‘the robust upsurge’ in production seen at the end of 2013.

As regards construction, after adjustment for seasonal factors, the Markit/CIPS Construction PMI® registered 64.6 in January, up from 62.1 in December and above the neutral 50.0 value for a ninth successive month. Moreover, the latest index reading pointed to the sharpest overall expansion of UK construction activity since August 2007.

The UK service sector remained on a strong growth footing at the start of 2014, with both overall activity and new business both continuing to rise markedly although at their slowest rates since mid-2013.

Chris Williamson, Chief Economist at Markit, the surveys compiler noted that, ‘Taken together, the three PMI surveys are signalling quarterly GDP growth of 0.8 per cent’ for the first quarter of 2014. This would be above the preliminary estimate of GDP growth in the fourth quarter of 2013 – 0.7 per cent.

One piece of less favourable news, UK retail sales weren’t as good as expected in January. Month-on-month, they fell 1.5 per cent, after December’s particularly strong 2.5 per cent rise on the back of bumper Christmas shopping.

African swine fever in Poland

Poland has reportedly confirmed two cases of African swine fever following tests on carcasses of wild boars found near the frontier with Belarus. A buffer zone has been set up along parts of the frontiers with Belarus, Lithuania and Ukraine and farmers have been ordered to take a variety of precautionary measures and monitor shipments of live pigs out of the zone.

The disease remained restricted to Africa until 1957, when it was reported in Portugal. A further outbreak occurred in Portugal in 1960. Subsequent to these initial introductions, the disease became established in the Iberian Peninsula with sporadic outbreaks occurring in France, Belgium, and other European countries during the 1980s. Both Spain and Portugal managed to eradicate the disease by the mid-1990s through a slaughter policy.

11th February 2014

ForFarmers’ Net Spreads Wider

Netherlands-based ForFarmers, barely a year after it acquired BOCM PAULS, has bought, as of 3rd February, the entire share capital of Crewe-based HST Feeds for a price, based on HST’s enterprise value, of €15 million including cash. HST, established in 1972 and which, according to its own accounts, manufactures approaching 140,000 tonnes of mainly ruminant and poultry feeds, recorded sales of £30.81 million and operating profits of £1.02 million in the year to December 2012. Pre-tax profits were £1.03 million, equivalent to a pre-tax profit ratio of 3.36 per cent.

According to Iain Gardner, ForFarmers’ Chief Operating Officer, HST Feeds Ltd will operate as a separate business within BOCM PAULS. Tom Hiley, HST’s Managing Director, will report directly to him, with Nick Johns continuing as HST Sales and Technical Director.

In passing, I did wonder whether there were any competition issues involved in this deal, although I strongly suspect that ForFarmers is the sort of outfit which would have made completely sure that the regulatory road did not contain any unwelcome surprises.

Great Britain Feed Production 2013

With the publication, on 6 February, of the December feed production figures for December 2013, we are now able to round up the data for 2013 as a whole. This includes average product group prices for compounds for the last quarter of 2013, allowing us to calculate a rough value for production of compound feeds in Great Britain during the year.

At 10.79 million tonnes of compounds, blends and concentrates, output in Great Britain was at its highest since records began to be kept in their present form in 1992 and were 585,000 tonnes or 5.7 per cent up on the volume produced in 2012. Cattle and calf feed output, at almost 4.3 million tonnes was 277,100 tonnes or 6.9 per cent up on 2012; again, this was their highest recorded level since 1992 with major contributions to the increase coming from dairy compounds and from feeds for non-dairy cattle.

At almost 1.7 million tonnes, output of pig feeds was marginally up on output in 2012 but was significantly down on the levels of the late 1990’s when production averaged 2.35 million tonnes a year.

Poultry feed output, at 3.31 million tonnes, was 140,100 tonnes or 4.4 per cent up on the levels of 2012 with the overwhelming proportion of the increase coming from broiler feeds, up by 132,500 tonnes or over 10 per cent over 2012. Again, output was at its highest since records began to be kept in their present form in 1992. Finally sheep feed output, at 888,400 tonnes in 2013, was 121,300 tonnes or 15.8 per cent up on output in 2012 and over 90,000 tonnes up on the previous record established in 1999.

The value of compounds produced for cattle and calves, pigs, poultry and sheep in 2013 in Great Britain in 2013 is estimated at £2.74 billion or 13.6 per cent up on the value of production in 2012. However, the value of output in the final quarter of 2013 was 6 per cent lower than in the corresponding quarter of 2012, the first time that a quarterly fall in value was recorded since the last quarter of 2009.

Northern Ireland full year data next week.

NWF’s Half Year

The NWF Group has reported on its half-year performance ending 30 November 2013.

At 259.1 million, the Group’s sales were up by 1 per cent compared with first-half 2012. Operating profits were up by 28.6 per cent to £3.6 million while pre-tax profits, excluding £0.4 million net finance costs in both 2012 and 2013 in respect of defined benefit pension schemes and, where applicable, the ensuing tax effects were up 37.5 per cent to £3.3 million as against £2.4 million during the same period of 2012.

The Group’s Net Debt of £16.8 million as of 30 November 2013 was up on the equivalent figure a year earlier of £13.7 million but, as NWF point out, this was after paying the cash consideration of £6.0 million for the acquisition of S.C. Feeds.

As regards feeds, sales increased by 3.3 per cent to £68.4 million as against £66.2 million in 2012 as a result of increased feed volumes which were up 5.1 per cent to 225,000 tonnes compared with 214,000 tonnes during the first half of 2012. Operating profit was £1.4 million, compared to £1.6 million for the same period of 2012 which included some one-off gains from commodity price increases.

NWF notes that ‘Farming customers have enjoyed improved conditions in the first half of the year with improved silage quality and increased milk prices along with an overall 4 per cent increase in milk production.’

English Farm Business Incomes Looking Up

DEFRA have published their first estimates of Farm Business Incomes for English farms in the twelve months that ended in February 2014.

DEFRA expects average Farm Business Income in England to be higher across all livestock farm types in 2013-14. This reflects increases in output value from livestock enterprises; for example, taking weekly clean cattle prices, the average price in 2012-13 was 191.76 pence / kg liveweight whereas in the eleven months from March 2013 to January 2014, it was 204.6 pence, up by 6.7 per cent. Sheep prices were, respectively, 367 pence and 396 pence per estimated kg deadweight, an increase of 7.9 per cent while pig prices on the same basis were, respectively, 152.8 pence and 167 pence, an increase of 9.3 per cent. Milk prices averaged 28.31 pence in 2012-13 whereas they rose to 31.97 pence in the ten months ending in December 2013, up 12.9 per cent.

However, DEFRA point out that there is still likely to be a negative impact in terms of additional costs and a fall in productivity from the cold and late spring of 2013. As regards the weather, the Meteorlogical Office’s ‘anomaly map’ of the UK, which shows regional differences from ‘normal’ (‘normal’ in this case being the average of Spring temperatures between 1981 and 2010) shows a sea of blues of various intensities; Wales was particularly badly hit by a string of temperature values for March, April and May that were more than 2°C below normal. The map also shows patches of deep blue in the southwest of England (for map, see http://www.metoffice.gov.uk/climate/uk/summaries/2013/spring).

Average temperatures over the UK for the ‘spring’ of 2013 were 6.0°C, 1.7°C below the long-term average. March was 3.3°C below the long-term average for the month, April 1.1°C below, and May 0.8 °C below. March was colder than any of the winter months besides being the coldest March for the UK since 1962. It was also the fifth coldest since 1910.

What about additional costs, particularly for feed?

During the spring of 2013, defined as March through May, compounders in Great Britain produced 1.15 million tonnes of cattle and calf compounds and 395,000 tonnes of compounds for sheep. These figures compared respectively with 986,500 tonnes and 271,300 tonnes, representing increases during the ‘spring’ of 2013 of 16.8 per cent and 45.6 per cent over the same months of 2012.

Volumes are, of course, not the whole story. Although it is not possible to make a direct comparison between March and May 2013 and the same three months of 2012 in that compound prices are only available by calendar quarter (instead of monthly as they used to be) the April-June average price in 2013 for cattle and calf feeds was £253 as against £223 in 2012 while sheep feed prices were £257 as against £222. Multiply out these figures against the higher tonnages of 2013 and one gets an indication of the additional cost burden with which ruminant farmers had to cope during the ‘Spring’ of 2013.

DEFRA point out that their first estimate of English Farm Business Incomes in 2013-14 include the effects of the 2013 harvest and the 2013 rate of Single Farm Payment. They are looking for Average Farm Business incomes to almost double on dairy farms in 2013-14, to £101,000. This is in sharp contrast with 2012-13 when dairy farmers’ average Farm Business Incomes fell by 40 per cent. The increased income is primarily driven by higher milk prices, up by ‘around 14 per cent’ according to DEFRA.

As already noted, input costs are also expected to increase, particularly for feed, on account of the delayed turnout due to the spring of 2013. Higher milk prices are also likely to have encouraged an increase in production and DEFRA think that this will have led to higher volumes of purchased feed throughout the year, particularly as farmers sought to replenish forage stocks which were severely degraded, both qualitatively and quantitatively, during the wet conditions in 2012.

DEFRA is also forecasting a recovery in average Farm Business Incomes on grazing livestock farms with a 33 per cent increase to £26,000 on grazing livestock farms in the less favoured areas and a 15 per cent increase on lowland grazing livestock farms to £19,000. These increases largely reflect increased output from sheep enterprises reflecting higher values for store and finished lambs and increased numbers as stock held over from the previous year were brought to market.

Total input costs are expected to increase slightly although feed costs are expected to remain similar to those in 2012-13 despite falling cereal prices and improved grazing and foraging conditions. This is because feed prices were at their highest during the cold spell in the spring of 2013 and during the lambing season when demand for feed was at its maximum.

Results based on actual survey data will be available in October this year. I shall be interested to see how they compare with these first estimates.

First Look at UK Weather 2014

The Met Office has just published its ‘anomaly’ diagram for January 2014.

To no one’s surprise, the UK as a whole received 151 per cent of its ‘normal’ rainfall in January. Again to no one’s surprise, the UK was 1.1 °C warmer than normal. England received 191 per cent of its normal precipitation; in other words, almost double its usual January quota.

More detailed data on regional temperatures and rainfall will become available in the next few days.

3rd February 2014

Welsh Farm Income Data Disappoints

The Welsh Government has recently released data on farm incomes in the Principality for the twelve months ending in February 2013.

Although not unexpected, the data are, nevertheless, disappointing. For cattle & sheep farms in the Less Favoured Areas of Wales, average farm business income per farm decreased by 34 per cent to £22,900. Within this figure, average farm business incomes for cattle and sheep farms in Severely Disadvantaged Areas fell by 32 per cent to £24,400. Cattle & sheep farms in Disadvantaged Areas (DA) fell by £19,300, equivalent to a fall of 39.3 per cent.

Average farm business income for Lowland cattle & sheep farms fell by 17.7 per cent to £30,200, its lowest in four years.  Over the same period, average farm business incomes for dairy farms fell by with a fall of 33.5 per cent, to £45,100; again, the lowest in four years.

No data is available, at least not yet, on how the farm business incomes recorded for the various categories of farms discussed breaks down into its components: agriculture, agro-environment payments, diversification and – inevitably – the Single Farm Payment or its equivalent.

International Grains Council Pronounces

The International Grains Council has just issued its January 2014 update of its Grain Market Report.

As one might expect at this stage of the 2013-14 season, there are no unexpected surprises. The wheat component of IGC’s Grain and Oilseeds Price Index has fallen by 8 per cent since November last year (IGC do not publish a grain market report in December) due to large global wheat supplies. IGC have increased their projection of world wheat production in 2013–14 by 9 million tonnes to a record 707 million tonnes. Consumption is reduced from IGC’s November figure by 1 million tonnes but, at 691 million tonnes, this is still up by 3 per cent year-on-year. Global end-of-season stocks increased by 7 million tonnes, to 188 million tonnes, equivalent to 99 Days Consumption Equivalent (DCE), a significant improvement over the situation in 2012-13.

IGC reckon on the global area planted to wheat in 2014-2015 increasing by 2 per cent but, because of yields returning to average levels, production is likely to fall by 1 per cent to 697 million tonnes. For the 2014-15 season IGC, which last month forecast a world wheat crop of about 686 million tonnes in 2014-15, has raised its estimate to 697 million tonnes, second only to the current season’s 707 million tonnes.

The maize component of IGC‘s Grain and Oilseeds Price Index has risen by 4 per cent since the end of November 2013, driven by strong world export demand. Although South American prospects are not looking as good as they promised earlier in the season, IGC are looking for world production of 959 million tonnes, up 11.4 per cent year-on-year in 2013-14, driven by major yield increases in the U.S. Despite strengthening demand from feed and industrial users, leading to what IGC describe an ‘unusually strong’ increase of 7 per cent in 2013-14, total end-of-season stocks are projected to amount to 188 million tonnes, equivalent to 62 DCE, a more comfortable level than the average 55 DCE that has characterised the previous three seasons.

IGC’s soyabean index is down by 8 per cent since end-November 2013, influenced by improving weather and the start of the Brazilian harvest; the extent of the decline appears to have been limited by strong world export demand. IGC are looking for a 6 per cent increase in world soybean production in 2013-14 to a record 288 million tonnes; despite a 6.3 per cent increase in consumption, IGC say that end-of-season stocks are set to increase for a second consecutive year.

IGC think that global soyabean trade in 2013-14 will increase by 12 per cent, driven by ‘an expected rebound in China’s demand’. Given recent economic news, this assertion will bear watching.

Wynnstay Shines

The Wynnstay Group has reported a highly creditable, indeed a record set of results for its financial year ending 31 October 2013.

Turnover for the year increased by 10 per cent to £413.48 million as against £375.78 million in 2012. Sales of agricultural supplies contributed £323 million against the previous year’s £295.19m, an increase of 9.4 per cent. Before exceptional costs, the Group's pre-tax profit was £8.46 million, an increase of 8 per cent on the previous year.  Agricultural supplies, including joint ventures, contributed £4.90 million to operating profits as against £4.71 in 2012.

As regards feeds, Wynnstay’s volumes increased by 9 per cent over 2012. This partly reflected the extended winter conditions in March and April – taking Wales as Wynnstay’s back yard, average temperatures in March 2013 were 3.4 °C below normal and there were almost thirteen more days characterised by air frost than usual. This created ‘exceptional demand’ for ruminant feed.

Wynnstay also encountered increases in the costs of servicing their customer base, driven largely by their use of third party manufacturers to cover exceptional demand. Distribution costs were also higher reflecting ‘inclement conditions’. Wynnstay have thus decided to invest further in their own production facilities to order to accommodate additional demand, particularly in the South Wales region – which investment is currently underway.

Weather once again stirred the pot as Wynnstay approached the end of its financial year with mild weather conditions – in October 2013, average temperatures in Wales were 2°C warmer than normal – extending the grazing period and, in contrast to the situation earlier in the year,  ‘tempering’, as Wynnstay put it, demand for ruminant feed. Over recent years, Wynnstay has ventured into the poultry feed manufacturing; sales of such feeds, which typically stay at a more constant level of demand throughout the year, were good and, combined with increased activity within Wynnstay’s trading department, contributed to the performance of the feed division. Demand for dairy feed continued to be encouraging, reflecting the long awaited increase in milk prices – average milk prices during Wynnstay’s 2013 financial year were 30.92 pence as against 27.98 pence in 2012 – a development that ‘has brought a degree of confidence to the dairy sector’. This was also evident in the trading performance of Wynnstay’s joint venture business, Bibby Agriculture which has continued to perform well.

More detailed analysis when Wynnstay’s full Annual Report and Accounts becomes available.

UK Economy Update

Contrary to most commentators’ expectations, including those of this column, the preliminary estimate of Gross Domestic Product (GDP) in the fourth quarter of 2013 rose by only 0.7 per cent compared with the third quarter of that year. Most observers were looking for an increase at least equal to that of the third quarter – 0.8 per cent – while some were looking for as much as 1 per cent.

Taking the economy as a whole, output increased in three of the four main groupings within the economy in the fourth quarter of 2013 compared with the third quarter. Output increased by 0.5 per cent in agriculture, 0.7 per cent in production, including manufacturing which grew by 0.9 per cent, and 0.8 per cent in services. However, output in the construction sector fell by 0.3 per cent.

In the fourth quarter of 2013, GDP was estimated to be 1.3 per cent below its peak reached in the first quarter of 2008. From its first quarter peak to the trough in 2009, the economy shrank by 7.2 per cent.

GDP was 2.8 per cent higher in the fourth quarter of 2013 compared with the same quarter in 2012. It is estimated that the UK’s GDP increased by 1.9 per cent in 2013; this is the highest rate of annual GDP growth recorded in six years.

The Office of National Statistics points out that the data content of the preliminary estimate of GDP is less than half of that required for the final estimate of GDP in the last quarter of 2013, due for publication in March. As a result, the estimate is subject to revision as more data become available; however, these revisions are ‘typically small’ between the preliminary and third estimates of GDP.

27th January 2014

Raw Material Price Developments
Those barometers of the world grain situation have continued their gradual decline which saw Hard Red Winter wheat FOB ex-Gulf averaging $290 in the first half of January and its Soft Red Winter counterpart dipping to $263, its lowest since June 2012. The nearby wheat contract on the Chicago Exchange has been falling since October last year and, at $5.78 a bushel during the first three weeks of January 2014, was $1.10 down on the average of December 2013. The nearby wheat contract averaged $4.26 a bushel in the first three weeks of January 2014 compared to $7.15 during the same month of 2013. Only soybeans have displayed any reluctance to join the downwards tendency, reflecting contradictory reports from Argentina and markets’ perception of strong world demand, particularly from Asia.
Closer to home, the average nearby LIFFE contract for the first three weeks of January put wheat at £155.95 a tonne, over £8 down on December 2013 and more than £50 down on January 2013. Oilseed values ex-store or ex-mill were also easier than in December 2013 and showed significant falls on their late summer and early autumn values.
Based on these data, raw material buyers should be seeing a fall in the unit values of their purchases. It is still a slow process but prices would, at least, appear to be heading in the right direction.


Northern Ireland Feed Production
Figures released by the Department of Agriculture and Rural development early in January this year showed that feed production in Northern Ireland during the first eleven months of 2013 reached 2.1 million tonnes, 112,300 tonnes or 5.6 per cent more than the 2012 total and a record.
Northern Ireland can be excused for being blasé about breaking records; not since 2000 has feed production in the province fallen below prior year levels. Taking developments in November, production of 191,700 tonnes represented a record for the month, 1,400 tonnes or 0.7 per cent up on the same month a year earlier. Cattle and calf feeds were higher by 600 tonnes or 0.5 per cent with a major contribution to the increase coming from dairy compounds, although dairy coarse mixes and blends showed a 9.5 per cent fall compared to November 2012. Poultry feeds put on 800 tonnes or 1.4 per cent with the largest positive contribution coming from turkey and other poultry feeds, up by 1,000 tonnes or 8.8 per cent. It used to be possible, using the strange notation used by DARDNI, to split composite categories like this into their components; the practice appears to have stopped as the result of an indiscrete inquiry from this office!
The major loser in November compared to the same month a year previously was, predictably, sheep feeds, down by 1,200 tonnes or by more than a quarter of November 2012’s outcome. Temperatures in Northern Ireland in October and November 2012 were 1.5°C and 1.0°C respectively below ‘normal’; October 2013 was unseasonably warm with the province enjoying balmy conditions 1.4 °C above normal. Weather will not have explained it all in 2012 but the less-than-ideal conditions will have played a part in encouraging flockmasters to feed more prepared feeds.
Taking the first eleven months of 2013 as a whole, the additional 112,300 tonnes of feed was made up of a massive 90,400 tonne contribution from cattle and calf feeds. In proportionate terms, the largest contributor was the 40,300 tonnes or 17.1 per cent increase in output of coarse mixes and blends for beef cattle. Output of dairy compounds was up by 21,300 tonnes or 4.9 per cent while compounds for beef cattle increased by 12,200 tonnes or by 10 per cent. At 1,168,200 tonnes, this was the highest volume of cattle and calf feed recorded for the period in question
The big gainer in the 8,300 tonne increase in production of feeds for sheep and lambs was compounds for breeding sheep which put on an additional 10,000 tonnes or 12 per cent compared to the first eleven months of 2012. Conversely, growing and finishing compounds saw tonnage fall by 2,200 tonnes or 8.5 per cent. The 77,000 tonnes of sheep and lamb feeds produced during the first eleven months of the year was, by some distance, the largest volume recorded for the period in question.
Production of poultry feed in Northern Ireland recorded a 16,000 tonne or a 2.5 per cent increase during the first eleven months of 2013 compared to the same period of 2012 and, at 649,500 tonnes was the highest volume on record for the period.
The largest gains were recorded by layer and breeder feeds, up by 9,600 tonnes or 4.9 per cent and, at a total of 207,400 tonnes, the largest volume for the period on record. A rough estimate suggests that about 55 per cent of total production of layer and breeder feeds consists of the former. There were also smaller increases for broiler feeds and feeds for turkeys and other poultry, two-thirds of which is estimated to consist of feeds for turkey.
The only sector to experience a fall in volumes during the period under review was feeds for pigs which contracted by 6,600 tonnes or 4.3 per cent. The decline in production of feeds for breeding pigs was most marked, down by 7,000 tonnes or 21 per cent, and there was also a 4,600 tonne decline in the output of finishing feeds. Perhaps significantly, however, both pig starters and creep feeds and link/early grower feeds displayed growth compared to the same eleven months of 2012, the former group by 1,400 tonnes and the latter by 3,600 tonnes, equivalent to 17 per cent and 18.4 per cent respectively.
Even with the unwinding of the 2012-13 weather effect, Northern Ireland looks set to deliver record output in 2013 as a whole. 2.4 million tonnes, compared to 2012’s 2,198,300 tonnes? It certainly looks to be on the cards.


IMF Spreads Economic Cheer
The International Monetary Fund has sharply raised its growth forecast for the UK economy in 2014. It now expects the UK economy to grow by 2.4 per cent this year against its previous forecast of 1.9 per cent. The revised rate is faster than any other major European economy. Germany is forecast at 1.6 per cent with France at 0.9 per cent; Italy and Spain trail behind at 0.6 per cent. The only major economy forecast to exceed the rate of UK growth – besides China and India, of course – is the US with a projected growth rate of 2.8 per cent, increased from the IMF’s October estimate of 2.6 per cent.
Earlier, the Ernst & Young Item Club of economists said it expected the UK economy to grow by 2.7 per cent in 2014. The IMF is forecasting UK growth in 2015 at 2.2 per cent.
Finance Directors may have been spooked by last week’s announcement that unemployment had, unexpectedly, fallen to 7.1 per cent, close to the 7 per cent that the Bank of England had said would trigger a review of currently low interest rates. However, Bank Governor Mark Carney was quick to point out on the BBC’s Newsnight programme that he saw ‘no immediate need to increase interest rates’.

21st January 2014

November Feed Production in Great Britain

The weather effects of 2012 and the first half of 2013 seem to be unwinding as far as feed production in Great Britain is concerned.

Output of compounds, blends and concentrates in November last year, at 852,900 tonnes was 25,500 tonnes or 2.9 per cent less than in the same month of 2012. Of this, a substantial proportion was constituted by reduced sheep feed volumes, down by 11,300 tonnes or 20.6 per cent on year-earlier production levels. As regards cattle and calf feeds, there was a very small fall amounting to just 200 tonnes - 0.1 per cent. Dairy blends and compounds for non-dairy adult cattle showed the most marked falls compared to November 2012, down by 4.7 per cent and 7 per cent respectively. Pig feed production was down by 5,100 tonnes or 3.4 per cent while poultry feed production fell by 4,100 tonnes or 1.6 per cent with layer and  turkey feeds taking most of the losses. ‘Miscellaneous’ feed production declined by 4,400 tonnes or 13.5 per cent; much of this category is said to be fish feed.

Taking the first eleven months of the year together, although the effects of 2012 and the first half 2013’s weather appeared to be winding down last November, 2013 looks to have been a good year, at least in volume terms. At 9.8 million tonnes, total output of compounds, blends and concentrates was almost 609,000 tonnes up on the first eleven months of 2012 - 6.6 per cent. A very substantial contribution – 276,300 tonnes – came from higher cattle and calf feed output with the biggest contribution in volume terms coming from non-dairy cattle compounds, up by 81,900 tonnes or 14.4 per cent. However, there were also substantial contributions from dairy compounds and non-dairy cattle blends. Output of all cattle and calf feeds during the first eleven months of 2013 was at its highest since records started to be kept in their present form in 1992.

Still on the ruminant side, production of sheep feeds amounting to a cumulative total of 827,400 tonnes was 145,000 tonnes or 21.2 per cent up on output during the same period of 2012 - again, a ‘record’. The clear winners were compounds both for breeding and growing/finishing sheep.

On the monogastric side, output of pig compounds in the first eleven months of 2013 rose by a paltry 6,400 tonnes or 0.4 per cent. Poultry feeds, however, increased output by 5.1 per cent to 3.03 million tonnes, the first time that the 3 million tonne ceiling had been breached. The 147,700 tonne increase over the first eleven months of 2012 was dominated by increased broiler feed, up by 130,500 tonnes or 11 per cent. Some of this tonnage appears to have come from the integrated sector, down by 84,100 tonnes or 4.7 per cent over the first eleven months of 2013. However, the effects of the recession and pressures on consumers’ disposable incomes may also be playing a role; in the first ten months of 2013, UK broiler production amounted to 1,176,410 tonnes compared to 1,117,700 tonnes in the same period of 2012 - 58,710 tonnes or 5.25 per cent more.

Northern Ireland Update

The province chalked up record output of 191,700 tonnes in November 2013, beating the previous record of 190,400 tonnes established in November 2012. Cumulative production in the first eleven months of 2013 broke through the 2 million tonne barrier for the first time. More on this in next week’s issue.

Price Effects

It looks, finally, as if some key raw material prices are starting to move in the right direction.

In the first half of January, the International Grains Council’s useful Grains and Oilseeds Index (GOI) fell to 249 (January 2000 = 100) from 254 in December and stood at its lowest since December 2011. Over the same period, Soft Red Winter wheat FOB ex-Gulf averaged $266 a tonne while Hard Red Winter on the same basis averaged $291; both these prices were at their lowest since June 2012. Maize values on a similar basis were at their lowest since August 2010 while soybeans at $518 were also continuing their downward trend.

On the Chicago exchange, nearby futures wheat plunged to levels not seen since mid-July 2010. Nearby maize futures averaged $4.25 a bushel in the first half of January 2014, not the lowest of recent months but a far cry from the average $7.15 recorded in January 2013. Very recent soybean nearby futures have been firm, mainly on account of ‘the prospects of additional crop stress in Argentina’. Conditions described as ‘less than favourable’ have led some market analysts to cut their estimates of Argentine soybean production, with prices being helped further by expectations of a big US soybean crush in December.

Nearby LIFFE wheat values were also easier in January, averaging £157.70 a tonne during the first two weeks of the month as against an average of £164 for December – and an eye-watering £211 in January 2013.

Forecasting Inflation

Freebie newspaper Metro, under the headline ‘Experts tip an inflation rise from 4-Year low’ reported that inflation was expected to creep up slightly when the figures for the December Consumer Price Index were published last Tuesday with petrol and household energy prices fuelling the increase.

In fact, from 2.1 per cent in November, the Consumer Price Index fell to 2 per cent in December, its lowest level since November 2009 and equal to the Bank of England’s inflation target. The largest contributions to the fall in the inflation rate came from prices for food & non-alcoholic beverages and recreational goods & services, partially offset by an upward contribution from motor fuels. The overall price increase for gas and electricity in December 2013 was slightly larger than the rises a year earlier, resulting in a small upward contribution to the overall inflation rate.

The preliminary estimate of Gross Domestic Product (GDP) in the fourth quarter of 2013 will be released on 28 January. The Guardian newspaper, not known for its pro-coalition stance, reported that Markit/PMS survey data for the service sector released at the beginning of January, together with strong readings from both manufacturing and construction, was signaling faster GDP growth in the final three months of 2013 than the 0.8 per cent rise recorded in the third quarter.

More on this in the 3 February edition of this newsletter.

13th January 2014

USDA Update
The United States Department of Agriculture has recently updated its projections of world grain and oilseed supply and demand during the 2013-14 run.
USDA has boosted its January 2014 estimate of world wheat production in 2013-14 by 1.24 million tonnes to 712.65 million with production increases for China and the FSU-12 more than offsetting reductions for Argentina and the European Union. Production is raised by a million tonnes for China. The estimate also incorporates an addition 600,000 tonnes for Russia and 300,000 tonnes for Tajikistan, both based on the latest official indications. Production in Argentina is reduced by half a million tonnes on account of a lower harvested area while production for the EU is cut by 200,000 tonnes as the result of small downward revisions for the UK, Finland, and Denmark.
USDA has increased its estimate of world maize production by 2.63 million tonnes. Chinese production has been boosted by 6 million tonnes. However, while output in Argentina, the EU and Russia has been reduced by a collective 1.75 million tonnes, US production has been cut by an unexpected 1.6 million tonnes. Market reaction to this was immediate and violent, maize prices soared after the USDA cut its estimated domestic supplies, in marked contrast to the plunge in wheat prices to a two-year low after end-of-season stocks were raised above expectations. In contrast, maize futures for March 2014 soared 5 per cent at one stage on the Chicago market after USDA challenged expectations of domestic over-supply by cutting estimated US end-of-season stocks by 160 million bushels, to 1.63 billion bushels, equivalent to 51 Days Consumption Equivalent, as against 56 DCE in their December 2013 estimate.
USDA’s estimate of world soybean production has been increased by 1.89 million tonnes since their December 2013 estimate as the result of increased production in both the US and Brazil; despite this, USDA are saying that Brazil will not overtake the US, at least, not in 2013-14. Nevertheless, at 89 million tonnes, the Brazilian soybean crop will constitute a record. Brazil’s own estimate was 90.3 million tonnes and the Brazilian farm minister was quoted as saying that a far higher result could ‘easily’ be achieved.

EU Arable Prospects
Arable crop production in the EU will reach 316 million tonnes by 2023 while EU feed and food demand are expected to increase only marginally, according to a report ‘Prospects for Agricultural Markets and Income in the EU 2013-2023', published by the European Commission.
The Commission based its conclusions on annual yield growth rates of 0.6 per cent on average. EU cereal production in 2013 is expected to be 304.3 million tonnes or 8 per cent on 2012 from a marginally increased sown area.
The outlook for arable crops in the medium term is seen as relatively positive, reflecting firm global demand and robust prices. EU demand for cereals for livestock feed and food is expected to increase only marginally; the most dynamic area for growth is expected to be for biofuels. The report notes that as far as production is concerned, growth will be dependent on increasing yields as the area sown to arable crops is expected to fall slightly in line with long-term trends.

Ukraine Crop Prospects Boosted
Ukraine's cereal crop will amount to 60 million tonnes in 2014, boosted by a strong start to autumn-sown crops, provided concerns over thin snow cover are not realized and extensive winter kill is avoided.
Ukrainian consultancy UkrAgroConsult, in its first forecast for 2014 grains production in the country once known as the Soviet Union’s breadbasket, estimated it at 60.1 million tonnes, up by some 3.5 million tonnes on 2013. The projection is in sharp contrast to earlier estimates that reflected the dismal start to autumn sowings which were, in common with Russia, delayed well beyond the ideal planting window by persistent rain. However, warmer-than-usual conditions in October and November and sufficient soil moisture allowed Ukrainian farmers substantially to make up on delayed planting, according to UkrAgroConsult, which also reported that the proportion of the crop rated as ‘good’ or ‘satisfactory’ was well in excess of 90 per cent, the best for five years.
We shall see. There are still six months or so until the Ukrainian 2014 harvest gets under way and, as the saying goes, ‘there’s many a slip’ and so on. However, the picture is looking far better than it did a month ago, although there remain concerns over absence of snow cover in some areas with the possibility of winter kill.

Mole Valley Farmers Shine
Despite what were described as ‘challenging economic conditions’, Mole Valley Farmers, firmly rooted in cooperative principles, has achieved a record turnover of £400.7 million for year ending 30 September 2013, an increase of £50.3 million or 14.4 per cent over the previous twelve months. Pre-tax profitability increased to £5.7 million, a margin of approximately 1.41% of turnover, an improvement over the previous year’s 1.2 per cent.
During 2013, MVF’s acquisition of Farmway expanded the Group’s geographical reach to the Scottish borders. Improving market conditions and easing feed raw material prices saw aggregated volumes across the Group’s feed business exceeding 620,000 tonnes, made up of more than 400,000 tonnes of compounds and blends, 203,000 tonnes of straights and 20,000 tonnes of minerals. Turnover increased within Mole Valley Feeds Solutions by 24.6 per cent to £154.8 million, whilst the Three Counties Feed business increased sales by 17.8 per cent to £26.4 million.
More detailed analysis of what appears to have been a very successful year for this farmer-owned business when their annual reports and accounts become available.

Horse Meat Effects Linger On
Industry analyst the Kantar Group has reported that British consumers bought 550,000 tonnes less red meat in 2013 as sales of frozen burgers and ready meals containing beef slid in the wake of the horse meat scandal.
It’s a year ago that horsemeat was discovered in burgers sold by British supermarkets, and industry insiders say the scandal is continuing to exert influence on shoppers' buying habits. Kantar say that sales of beef were down nearly 3 three per cent in the year to 8 December with frozen burgers and frozen ready meals, the foods most implicated in the scandal falling by 7.2 per cent and 7.6 per cent respectively. Sales of pork also fell but sales of lamb soared by 14.2 per cent, as a glut of New Zealand lamb pushed prices down.
A survey carried out by Ipsos MORI and The Grocer magazine showed that more than 30 per cent of adults say the scandal has changed the way they buy and choose food; 10 per cent of adults say they are now eating less processed meat as a result.
Damaging though the scandal was, closer analysis of the data suggests that other factors were also in play. The move away from red meat also reflects economics as consumers look for ways to save money given their disposable incomes remain under pressure despite apparent signs of economic recovery.

16th December 2013

USDA Updates 2013-14 Prospects

The US Department of Agriculture, in its latest, December, update of world agricultural supply and demand prospects, has added a shade over 5 million tonnes to its November estimate of world wheat production in 2013-14. This largely reflects a 4.3 million tonnes or near-13 per cent increase in their estimate of the Canadian wheat crop to 37.5 million tonnes; Statistics Canada put the harvest at a record 37.05 million tonnes, although there have been some doubts expressed about quality.

USDA has also upped their estimate of the Australian wheat crop by a million tonnes to 26.5 million tonnes. There have been a series of contradictory reports about Australian wheat prospects in recent weeks; however, ABARES increased its harvest estimate last week to the third-largest ever because of a bigger Western Australian crop. However, exports may be lower this year in that stockpiles have been run down with inventories totalling about 1.6 million tonnes on 30 September from 6.9 million tonnes a year earlier.

Overall end-of-season wheat stocks have been increased relative to projected consumption, from 93 to 95 Days Consumption Equivalent (DCE).

USDA has boosted its estimate of the 2013-14 maize crop by 1.45 million tonnes to 964.3 million tonnes, a record. This reflects a 1.1 million tonnes increase in the Canadian crop and a million tonnes increase in the Ukrainian crop. Sharply lower prices, however, have increased USDA’s estimates of consumption with the result that overall end-of-season stocks relative to consumption have been trimmed back from 65 to 63 DCE.

Nearby wheat futures on Chicago took on a distinctly weaker tone with the approach of the December WASDE report although the nearby maize contract appeared to have factored in the size of the harvest. In the UK, the nearby LIFFE wheat contract remained firmly rooted in the mid-£164 area during the first week of December. Overall, the International Grains Council’s sub-index for wheat eased for the second successive week.

Soybean Prospects

USDA has increased their estimate of the world soybean crop in 2013-14 by 1.4 million tonnes, reflecting higher output in Argentina and Canada. According to HGCA data, U.S. soybean exports FOB Gulf in November averaged $529 per tonne, slightly higher than the previous month, supported by strong foreign demand. FOB values increased further in the first week of December.

Currently, USDA estimate world end-of-season soybean stocks at 29 per cent of the projected soybean crush. This is, if anything, slightly above the ten year average and although soybean meal costs remain on the high side, this seems likely to reflect robust demand rather than problems in the supply chain. For example, as of the week ending November 28, U.S. soybean commitments - outstanding sales plus accumulated exports to China - totaled 24 million tonnes compared to 17.5 million a year ago; total commitments to the world were 37.6 million tonnes compared to 28.4 million for the same period last year.

Pork Problems

Manufacturers of compounds and other feed products for pigs will be pleased to learn that BPEX, the body that represents pig levy payers in England, has recently reported that supermarkets have boosted their purchases of British-farmed pork, ham and sausages since the horsemeat scandal. All retailers have stepped up British lines in some categories over the past year and some have improved across all categories, according to BPEX’s ‘Porkwatch’ survey.

The National Pig Association has singled out Waitrose and M&S for their long-term support of British-farmed meat. Both achieved 100 per cent British produce or very near it in all pork and pork product categories. The National Pig Association’s acting General Manager, Lizzie Press, said the results showed that retailers were listening to their customers, adding that ‘We are delighted with the current trend because it is allowing pig farmers to reinvest in their businesses after three very difficult years caused by high feed costs’. DEFRA’s voluntary survey of compound feed prices shows that these increased from an average of £214 a tonne in 2008, to an average of £284 in the first nine months of 2013, although prices declined in both the second and third quarters of the year compared to the preceding three months.

The National Pig Association’s Chairman, said ‘Horsegate has proved a game-changer’, adding that whereas shoppers had previously frequently been inclined to choose British meat, many were now insisting that their purchases must be British.

On the other side of the coin, it has recently been announced that family-owned Dent Limited – one of the largest outdoor reared pig producers in the UK with over 100,000 pigs held on around 80 farms operated by third-party growers across the North of England and the Midlands – has gone into administration, although administrator Deloitte says that the firm will continue to trade. The Company has 67 employees and is headquartered in Penrith, Cumbria.

Family Food 2012, the successor to the National Food Survey, which has just been published, shows household consumption of carcass pork at 55 grams per person per week. Although this was slightly down on 2011 consumption of 56 grams, it compares with a 7.2 per cent fall in consumption of beef and veal and was the only red meat to show any growth relative to 2009.

Northern Ireland Feed Production

The weather effect appears to be unwinding in Northern Ireland in that output in October, although at a more-than-respectable 205,300 tonnes, was a thousand tonnes less than in the same month of 2012.

Overall cattle and calf feed production, at 114,000 tonnes was 2,100 tonnes or 1.9 per cent up on the same month of 2012, reflecting a surprise jump in output of dairy compounds, up by 10.5 per cent on the same month in 2012. Pig production was also up, by a thousand tonnes or 6.7 per cent. Poultry feed output, on the other hand was down by 1,900 tonnes or 2.8 per cent; this reflected declines in layer, breeder and broiler feed output although too much should not be read into a month’s figures. Feeds for sheep and lambs were also down on year earlier levels, by 1,700 tonnes, equivalent to a third.

With two months to go, however, unless something really dramatic happens, 2013 looks to be a record year as regards production in Northern Ireland since 1996. Output, at 1.92 million tonnes in the first ten months of 2013, was almost 111,000 tonnes more than in the same period of 2012, an increase of 6.1 per cent. Output of cattle and calf feeds topped a million tonnes for the first time, an increase over year earlier figures of 9.2 per cent. Pig feed production, on the other hand, was lower by 6,900 tonnes or 5 per cent as the result of falls in finishing and breeding diets although link and early grower feeds increased. Rising output of layer and breeder feeds together with increased broiler feeds resulted in a 9,300 tonne or 5.2 per cent increase in poultryfeed output while output of breeder diets led the charge as regards sheep and lamb, up by 9,500 tonnes or just under 15 per cent.

In volume terms, at least, the weather in 2013, particularly the cold spring still appears to be exerting a benign effect. As the effect unwinds, it seems inevitable that demand for ruminant feeds in particular will abate.

Avian Flu Alert

Hong Kong has confirmed a second case of H7N9 bird flu.  An 80-year old man who lives in the neighboring city of Shenzhen tested positive for H7N9 in a Hong Kong hospital on Friday while seeking treatment for a chronic illness, the government said late yesterday.

Some 140 people died in a H7N9 outbreak in mainland China earlier this year. Hong Kong’s first H7N9 case was an Indonesian domestic servant who tested positive after visiting a live poultry market in neighboring Shenzhen in mainland China. The Guangdong province health authority has subsequently examined 70 samples from 13 live poultry markets in Shenzhen city; three samples tested positive for the H7N9 avian influenza virus.

It is generally agreed that the increase in poultry production worldwide, particularly in the populous areas of Asia and Africa, is creating the ideal breeding grounds for new flu variants, including those that are transmissible between humans. Although not much talked about, I understand that many countries are developing pandemic programmes. A future pandemic may not involve the same scale as the 1919 disaster but it is better to be safe than sorry. Manufacturers of poultry feed are in an excellent position to report unusual symptoms amongst their customers’ flocks to the appropriate authorities.

9th December 2013

October Compounds Output – Great Britain

Total production of compounds, blends and concentrates in Great Britain during October amounted to 861,300 tonnes, according to DEFRA data released on 5 December, remarkably early. This total compares with 836,000 tonnes in October 2012 and represents an increase of 25,300 tonnes or 3 per cent. Putting the figure in context, output in October 2013 was the third highest for the month going way back to 1992.

It looks, on first sight, as if the effects of the eighteen months of appalling weather in 2012 and the first half of 2013 are still reverberating around the industry. Cattle and calf feed output was up by 11,200 tonnes or 3.2 per cent in October compared with the same month in 2012 with the major growth taking place in dairy compounds. However, while cattle and calf feed output was at its highest October level of output for eighteen years, sheep and lamb feed output was down by 6,600 tonnes or 17 per cent on the same basis of comparison with breeding and finishing compounds the major losers. Output of pig feeds was up by a modest 900 tonnes while poultry feed production rose by 5,700 tonnes or 2.2 per cent with the largest contribution coming from broiler feed production, up by 7,900 tonnes or 7.6 per cent, a figure which tends to confirm the view that the recession has increased the demand for chickens relative to other meats.

Looking at the year-to-date, production in the first ten months of the year was at its highest since records for feed output in Great Britain started to be kept in their present form in 1992. Despite the downturn in October, output of sheep and lamb feeds, at a cumulative 784.000 tonnes was also at a record high – record meaning, since 1992 – as was cattle and calf feed output. Interestingly, so was poultry feed output, with broiler feed leading the pack. We shall have to wait until February before knowing how the year as a whole turned out but, at least in volume terms, the feed industry in Great Britain would seem to be heading for a good year in 2013.

Raw Material Price Indications

Figures for November suggest that key raw material prices are still stuck at uncomfortably high levels.

The International Grains Council’s average estimate for US Hard Red Winter wheat in November retreated from its October rebound of $333.75 FOB US Gulf but only to $319, a figure well above the average for the June – September run of $313.50. EU wheat FOB Rouen averaged $276.66 in November, virtually unchanged from the previous month while soft red winter wheat FOB Gulf pulled back to $280, down $15 on the previous month’s average but still well above the average of the June – September run.

There is modestly better news as regards soybeans; these average $519.67 FOB US gulf in November, down on the $541.50 that they reached in September. In the UK, soybean meal costs continued their gradual decline in progress since the late summer and autumn with Brazilian 48 per cent material ex-store Liverpool quoted by HGCA at £413 a tonne while Hipro ex-store East Coast averaged £370. In contrast, rapemeal at Erith hardened in November, averaging £206.50 compared to £200.50 a month earlier.

The gloom and doom merchants have been busy in recent days and weeks with worries being expressed over Russian and Ukrainian wheat planting delays due to the wet autumn; however, conditions in the U.S. are reported to be good with USDA rating 62 per cent of the wheat crop as ‘good’ or ‘excellent’ as of 24 November. The International Grains Council noted that winter wheat ratings ‘are an important indicator for the US wheat market, and are often referred to when considering crop prospects’. However, it warned against reading too much into the data at such an early stage in the growing season. The Food and Agriculture Organization estimates that overall wheat plantings for the 2014 harvest could increase slightly compared to last year after a ‘broadly decent autumn sowing window’, and with prices encouraging planting the grain as well.

Economic Update

The second estimate of UK Gross Domestic Product in the third quarter of 2013, published in November, confirmed the preliminary estimate of 0.8 per cent published in October.

There was a sharp fall in the rate of inflation in October as represented by the Consumer Price Index. At 2.2 per cent, compared to the previous month’s 2.7 per cent, it was at an equal low with September 2012; to find a lower monthly figure, it is necessary to go back to November 2009. The November 2013 figure will be published on 17 December. The closely watched Markit/CIPS survey results for November also showed encouraging results.

Markit’s Chief Economist Chris Williamson observed that the upturns in the manufacturing and construction sectors combined with sustained growth in the service sector indicated that economic growth would have accelerated in the fourth quarter, rising to above 1.0 per cent. Indeed, the UK looks set to grow faster than any other Western economy, according to the body representing English and Welsh accountants. Its monitor of business confidence, sponsored by accountants Grant Thornton, suggests economic growth of 1.3 per cent in the fourth quarter of 2013.

2nd December 2013

NWF Group plc: Acquisition of SC Feeds

NWF Group plc has announced that it has acquired the entire issued share capital of animal feed manufacturer SC Feeds Ltd, based in Stone, Staffordshire. 

The total consideration for the acquisition is up to £6.75m on a cash free, debt free basis (subject to completion accounts). This is comprised of an initial consideration of £6.0m in cash, which will be satisfied from NWF’s existing banking facilities and up to £0.75m to be satisfied by the issue of new ordinary shares in NWF. The final quantum of the equity consideration payable will be determined following the agreement of completion accounts in early 2014. The acquisition will be earnings enhancing in the first full year.
NWF, with its heritage in agriculture, is a leading national player in the production and supply of ruminant animal feed for dairy cows, beef and sheep from its operations stretching from Scotland to Devon. NWF supplied 481,000 tonnes of feed in the financial year ended 31 May 2013.

SC Feeds has supplied ruminant feed since 1991 from its mill in Stone and produces in excess of 80,000 tonnes of compound and blended product per annum. In the year ended 30 April 2013, SC Feeds reported profit before taxation of £0.76m and net assets of £1.25m.

Richard Whiting, Chief Executive of NWF Group, commented, "I am delighted to announce the acquisition of SC Feeds which joins the NWF group of companies. This exciting acquisition is in line with the strategic ambition we have set out to develop the Group towards a greater focus on agriculture and meeting the needs of farmers in the UK.”

25th November 2013

Raw Material Price Pointers

Data up to mid-November suggests that the bump in many raw material costs during October may be easing as we move towards the end of the year.

The two key 'world' wheat prices - Hard and Soft Red Winter FOB US Gulf - averaged $313.00 and $270.80 a tonne respectively in the four months June through September before jumping to $334.40 and $295.80 in October; during the first half of November, they eased slightly but only to $319.60 and $280.20. The nearby CBOT wheat contract which had been moving down from testing the 900 ¢/bushel as the extent and the severity of the US drought of 2012 became apparent averaged $641.40 in August 2013 before hardening to $689 in October; since easing back to $652 in the first half of November.

As regards maize, US No. 3 FOB Gulf declined from a drought-stricken price of $323.66 a tonne in November 2012 to $219.88 in August 2013, firmed marginally in September, dropped by $10 a tonne in October before firming by $3 during the first half of November. The nearby CBOT contract, which averaged 803.50 ¢/bushel in August 2012, eased subsequently if slightly erratically, averaging $426.60 in the first half of 2013. Nearby soybean values have fallen back from their average June value of 1,524.50 ¢/bushel albeit the decline has been erratic with average values in the first half of November slightly up on October at 1289.25 ¢/bushel. 

Where UK values are concerned, the Corn Returns suggest that spot values for wheat have hardened since September from £147.85 to £159.20 in the first half of November, with three months forward values rising from £150.80 to £163.75 over the same period. Nearby LIFFE wheat values and the May 2014 contract shows much the same pattern. As far as proteins are concerned, Hipro soybean meal ex-store East Coast and Brazilian material ex-store Liverpool are beginning to retreat slowly from their summer heights albeit that rapeseed values have firmed since August, suggesting that the trade is finding current soybean meal values to be still on the high side.

Livestock farmers will not be best pleased at finding third-quarter 2013 compound feed prices significantly higher than in the same quarter of 2012 when all the talk is of the very satisfactory Northern Hemisphere harvest.

For whatever reason, prices are tending downwards - but very slowly. It will be a long time before we see average third quarter cattle and calf feed prices of £127 or pig and poultry feeds at around the £152 mark as they were in 2006 - if ever.

AIC Confers

The Agricultural Industries Confederation (AIC) held its annual conference on 13 November with the theme of 'Setting the Agribusiness Agenda'. 

Vigorously chaired by BBC Countryfile presenter Tom Heap, and following an introductory paper by AIC Chief Executive David Caffall, Lord de Mauley, Parliamentary Under-Secretary of State for the natural environment and science, delivered his contribution by video link, stressing the close relationship between AIC and DEFRA in a number of policy and strategic areas. The conference then received a number of presentations. These included a paper by Ed Garner, Communications Director of Kantar Worldpanel on supermarkets' efforts to get away from purely price-based marketing and to differentiate their image from their rivals. Mark Beresford-Smith, Head of Economics UK Commercial Banking at HSBC presented a paper entitled 'UK farming and the economy - is the outlook for the economy and agriculture improving?', concluded that while there were some disappointing aspects regarding the UK economy, notably as regards exports and investment, there were other much more optimistic indicators. In a paper entitled 'Sustaining Innovation in Farming - Opportunities and Challenges', Prof. Chris Pollock discussed research strategy in the past and as laid down in the recently published Foresight Report. In a paper entitled 'Rising energy costs and the impact on agricultural supply chain', Jon Ferris addressed the question of how to deal with the cost of energy, including procurement from alternative sources, improving energy efficiency and the increasing significance of non-commodity costs such as transmission infrastructure. Finally, Dr Andy Clements, Chief Executive of the British Trust for Ornithology presented a paper on the inter-relationship between wild bird numbers and agricultural practices. 

This was a good conference with the organizational competence that we have come to expect from AIC. Your correspondent was particular impressed with the standard of food served at lunch, not always a strong point at many conferences faced with the challenge of mass catering.

At the time of writing, AIC's website has a video of Lord de Mauley's address to the conference together with PDF presentations made by other speakers. http://www.agindustries.org.uk/news-and-events/events/agribusiness-2014-presentations/

Scottish Census Results

The final results from the Scottish June census are now available. These show that total cattle numbers decreased by 42,800 head - 2.3 per cent - to 1.8 million between June 2012 and 2013; in fact, Scottish cattle numbers have declined every year since 2006 with the exception of 2010. It should be noted that these data are derived from the cattle Tracing Scheme and are thus likely to be more robust than the data for other species which are derived from survey data. Beef cattle numbers fell by 16,400 head - 2.2 per cent - to 725,950 head while dairy cattle numbers remained almost unchanged at 265,900. Calf numbers fell by 4 per cent

Scottish sheep numbers fell by 165,400 head - 2.5 per cent - to 6.57 million, having fallen nearly every year since 1998. This year's reduction was due chiefly to a fall in lamb numbers of 166,700 head - 5.1 per cent. 

The total number of pigs fell by 44,000 -12.1 per cent - to 319,400 head, continuing an almost uninterrupted decline since 1998. There was a fall in fattening pig numbers of 40,700 - 12.6 per cent - and the breeding herd also decreased by 3,400 head - 10.6 per cent. There was an increase in the number of gilts over 50kg expected to be used for breeding.

Poultry numbers which, in recent years, have fluctuated between 13 and 15 million fell by 522,000 - 3.6 per cent - to 14.17 million. This was largely driven by a fall in the number of broilers and other table birds of 988,000 - 10.9 per cent - although this decline was partially offset by an increase of 444,800 - 14.4 per cent - in the number of pullets and hens in the layer flock.

Overall, a slightly depressing picture for the Scottish feed industry although the stable dairy herd will give ruminant feed manufacturers some comfort.

11th November 2013

USDA Update

After the enforced shut-down of the US government in October and following the November estimates for the World Agricultural Supply and Demand Estimates (WASDE), USDA has just published its November Production, Supply and Distribution (PSD) estimates.

USDA has downgraded its estimate of world wheat production in 2013-14 by 2.5 million tonnes, largely due to a 4 million tonne reduction in the Russian and Kazakhstan harvests; there is no change in Ukraine’s projected output. Argentina has also taken a million tonne hit compared to USDA’s September assessment. The EU’s wheat harvest has been upgraded by 447,000 tonnes and the domestic US harvest by 425,000 tonnes.

USDA’s estimate of end-of-season wheat stocks worldwide has been increased by 2.2 million tonnes but, taking changes in usage into account, this makes little material change to the stocks-to-use ratio, up to 93 Days Consumption Equivalent from 92 DCE in September.

Maize production, the source of much debate in recent weeks, has been increased by 6.15 million tonnes