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Raw Material Market Update

Raw Material Market Update

The past six months have seen one of the most volatile periods for raw material markets in the last 20 years, with prices across the board substantially up since the autumn. There are several factors that have impacted the high prices we have seen; Brexit, COVID-19, strikes in South American ports, droughts, and floods, but fundamentally it comes down to supply and demand.

Demand from the Chinese has ramped up considerably over the past six months as they restock their pig herds following two years of reduced stock numbers because of an Avian Swine Flu epidemic. This had kept their demand for world feed commodities in check, as they ran down their commodity stocks during this period, they are now replenishing said stocks and their demand continues unabated no matter what the raw material price. Added to this world stock levels for soya, maize and wheat are at very low levels for some of the reasons mentioned before. Take soya as an example, the US carryout crop is forecast at 3MMT, usually, this figure is closer to 15MMT. It is a similar story for the other key products of maize and wheat after Northern Europe and US suffered from low yields due to poor plantings and harvest during 2020.

The factors mentioned have caused some huge increases in the raw material markets and pushed many to record highs over the past few months. Spot soya hitting £490 delivered to farm, wheat and maize both at £240PMT delivered.

There are some positives to consider;

  • A signed-off Brexit trade agreement is now in the rearview mirror and we have more certainty as to our trading relationship with the EU than we have had in the past five years.
  • The UK vaccination rollout is going well and can give the nation some optimism that the months ahead will be better than those behind us. Hopefully, some of the business sectors that have suffered through lockdown over the last 12 months will start to reopen which could result
    in increased demand and better prices for agricultural produce.
  • Raw material prices for May/Oct are lower than the high spot prices we are currently experiencing.

Summary

So, in summary for those who contracted early last year, yes, they will see an increase in feed prices but not at the levels of today’s spot market. However, there are no guarantees that as we approach the summer period that the May/Oct offers will not have gone up in price. It would be advisable to look
early at contracting the summer period rather than waiting closer to the time. Most commodity stocks are low both domestically and worldwide, there are potential logistical issues that lie ahead in terms of supply from South America, Europe, and Russia for early May, and that is before any other unforeseen issues that may crop up.

If you are wary of contracting the summer in full at these levels then consider the option of spreading your risk and possibly covering 30%, 50% or 70% of your usual feed requirement.

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