Feed use edges higher, Brexit impact on grain markets expected to taper off: IGC

By Jane Byrne

- Last updated on GMT

© istock.com/buhanovskiy
© istock.com/buhanovskiy

Related tags International trade

US grain commodity futures took a hit on Friday following the Brexit referendum vote, but an economist does not anticipate long term ramifications from the result. 

“Certainly, it is a case of ‘wait and see’ when it comes to the future relationship between the UK and the EU. But, while there is a lot of unpredictability right now and currency volatility, we hope that things will soon settle down,”​ Amy Reynolds, senior economist, International Grains Council (IGC), told us.

But the IGC conference on supply and demand fundamentals earlier this month did stress that grain farmers need to take heed of currency fluctuations and the implications for their risk management strategies.

Feed wheat demand up

Commenting on this week’s pending IGC global grain and oilseeds report, Reynolds said feed use will be edged higher, as all indications continue to shore up predictions of more than ample crop supplies in 2016-17.

“We are seeing huge demand, in particular, for feed wheat from Pacific Asia and supply is strong,” ​she said.

Dynamic feed wheat supply is stemming from the poorer quality of the 2015-16 wheat harvest in Argentina, despite the higher yields. “More wheat shifting into the Asian feed market as a result and price movements are reflective of that,”​ said the grain market expert.

Concerns about the quality of the EU wheat output following adverse weather, mirroring US wheat fortunes, are also factoring into hedging for 2016-17, with the potential for higher feed wheat supplies arising from the deteriorating crop growing conditions, continued Reynolds.

Attendees at the June IGC conference also heard that while the Council has been downgrading 2015-16 soybean prospects in South America, world production is still expected to be the second largest on record.

And, although planting of South America’s next soybean crop is still some months away, a rebound in output in that region due to more favorable weather conditions could see 2016-17 production match the all-time high of two seasons earlier, stressed Reynolds.

The IGC, she said, now expects global grain production for 2016-17 to come in at just over 2bn tons.

“We see a rebound in global maize supplies,”​ added Reynolds.

EU barley exports to China

She also predicted that China, the second-largest buyer of feed barley, will reduce its imports of that crop in 2016-17 as it digs into more of its local corn stockpiles for livestock diets.

“The EU, a major barley supplier, has benefitted hugely from Chinese demand, but sales have dropped off steeply in the past few months. We now expect China to import only 5m tons of feed and malting barley in 2016/17, down from 7m the year before. This will impact export sales by the EU in the year ahead, as well as other suppliers, such as Ukraine and Australia”​ said Reynolds.

And the economist forecast a hike in grain shipments from Argentina on the back of increasing liberalization in that market.

“The new administration there is more inclined to international trading, with expectations of expansion in grain exports in 2016/17 consequently,”​ said Reynolds.

Moreover, if grain and soybean production trends continue in Brazil, she sees little reason why that country would not overtake the US in terms of grain trade within three of four seasons.

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