Global wheat stocks would build in 2015-2016 as production outstripped consumption for the third consecutive year while lower US corn production in the same period was expected to tighten the global supply and demand balance.
Predicted El Nino weather to the end of summer would present added challenges and currency fluctuation would continue to be a key driver into 2016.
While New Zealand grain prices had fallen 20-30%, global prices had also moved lower but expectations were for some lift in prices in the second half of 2016 in line with a dairy recovery.
“The expectation is that we have reached the bottom of the cycle and we may well see an upside in prices in the second half of next year as we also see improved demand for feed products.
“We still believe a dairy recovery will begin in mid-2016,” Chong said.
The weather remained dry in Indonesia and Malaysia, threatening palm production into 2016.
“Rising palm kernel feed imports have been a significant factor both in NZ grain prices and stocks so it could be interesting to see how this will impact the clearance of grain carryover as feed mix changes.”
The Black Sea continued to dominate in the global export market with very competitive prices.
Overall the outlook was all about stocks, Chong said.
Market trends were best described as a “perfect storm” brewed by both supply and demand issues, AgriHQ data analyst Emma Dent told the forum.
Demand was down from China and Russia, milk production was up globally because of long periods of high prices in 2014, the European Union had dropped milk quota in April and Fonterra’s milk price forecast for 2014-2015 fell from $7/kgMS to $4.40.
Canterbury feed wheat and barley were at the lowest prices AgriHQ had recorded and were still trending downwards on the four-year average, Dent said.
Grain prices historically trended with milk prices. Dairy prices plummeted this year leading to the grain price slump, she said.
But the market outlook did shine brighter.
“Fonterra’s revised milk price up to $4.60 and improvement in global dairy trade auctions has AgriHQ’s milk price forecast now sitting at $5.39.”
Despite the positive news in the dairy sector, grain prices were expected to remain subdued for the near future,” Dent said.
“Reports of large poultry operators influencing the domestic market could influence dairy farmers to purchase grain now while prices are at record lows.”
Emma Dent
AgriHQ
Interest had picked up in feed grains with a slight increase from dairy farmers for next season’s feed wheat and barley.
Renewed interest for both wheat and maize was coming out of the poultry sector because of the lower prices available.
While poultry and pork farmers played a small role in the domestic grain market, a substantial return of both sectors could change market dynamics significantly, Dent said.
“Reports of large poultry operators influencing the domestic market could influence dairy farmers to purchase grain now while prices are at record lows.
“Should this occur we could see prices recover faster than originally anticipated,” Dent said.
There was plenty of feed grain available with stocks unlikely to clear before the next harvest.
In the lead-up to the Global Grains Event 2015 in Geneva next month, international futures research analyst David Hightower reported the 2016 outlook for grains presented a less significantly bearish view than was present at the beginning of 2015.
Extreme weather in the United States and Europe had brought production concerns and this could be followed by a severe El Nino event in the year ahead that could adversely affect growing conditions in Asia and Australia.
Combined, these events suggested major lows had already been forged in grains, Hightower said.
In looking ahead, players should expect surprise impacts from soaring global ethanol demand, a surprisingly strong recovery in global feed demand, prospects of lower crop inputs in the face of crimped profitability and increased index fund interest in grains on any return to the 2015 summer lows, he said.
Early impacts from El Nino might be felt first in palm oil prices because previous El Nino events had shown a tendency to adversely affect growing conditions in southeast Asia, including Indonesia and Malaysia.
Grain traders should also be aware of the added significance of India and China in the world supply and demand equation since the last major El Nino event in 1997-1998.
With India and China making significant attempts to become less reliant on foreign food inputs over the past 16 years, even a small measure of weather adversity might end up having an outsized influence on food prices, Hightower said.
