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Long-Term Feed Price Rises Predicted

by 5m Editor
3 September 2009, at 8:40am

UK - A leading independent feed compounder has warned poultry producers that there will be even greater volatility in the price of feedstuffs in future.

Market movements are increasingly moving away from the long-term fundamentals, being far more influenced by factors that are harder to predict, said Martin Humphrey of Hampshire-based Humphrey Feeds.

Poultry World for Farmers Weekly Interactive (FWi) reports that he told a packed meeting of the Severn Valley Poultry Discussion Group near Ross-on-Wye, Herefordshire that factors as diverse as investment funds, bio-fuels, the vagaries of the international freight market, capacity for soya and the outbreak of swine flu had all impacted on the market in the last 18 months, he said. "Not enough of us know where the market is going because it has moved away from the logic of fundamental factors."

He encouraged producers to become more involved; "challenge your compounder to provide you with some price guidance for the future. It's something you need to do and to take more responsibility for. It is your greatest input cost"

A particular problem is the investment funds, which have now injected more volatility into commodity markets. "Funds have had a massive influence on the market over the last few years. They have taken the common sense out of it. The drop in wheat prices over the last two months has been accelerated by funds," said Mr Humphrey.

All this is having serious repercussions for users of cereals. "Bearing in mind we are in an increasingly volatile age, with these funds being involved, how on earth do we bring improved equality to the supply chain, so that farmers are fairly rewarded for their produce rather than having to absorb cost increases?" he asked. "That is the challenge. Farmers do not want to keep paying high prices without being fairly rewarded with similarly higher prices for your eggs."

Mr Humphrey also predicted that supplies of non-genetically modified (non-GM) soya would eventually run out, reports Poultry World. The main source of non-GM is Brazil. Although there are traders there who would supply non-GM soya – as long as users were prepared to pay a premium – there are already increasing problems with contamination with GM soya. "The silly thing is we are paying a premium for non-GM soya, and occasionally, when it is tested, it is not always quite as non-GM as it should be. Other compounders are doing the same tests and coming up with the same unpalatable answers" said Mr Humphrey.

"Ultimately non-GM will cease to be available, it will either run out, become too expensive for retailers to continue paying the premium for or retailers will not want to pay an increasing premium for a product that is not as it should be. At this point things will become very muddled for everyone involved in the supply chain, but in the mean time, the premium over GM soya will become bigger and bigger – it is just a matter of time." The key thing would be managing the situation – helping the retailers during the inevitable transition back to GM soya, he predicted.

Looking ahead, Poultry World reports that Mr Humphrey forecasts a rise in the price of wheat as it is trading at beneath the cost of production, and would cause arable farmers to plant less, and scarcity will force the price back up.

The fundamentals were looking equally unfavourable. World wheat supply was expected to be 5.8 per cent down for 2009-10. "That's pretty significant and will have an impact."

Demand for biofuels is also set to return as a major upward driver. It has been less of an issue recently but in the coming year, with another big biofuel factory coming on line in the UK. "It's going to take another million tonnes of UK wheat a year" commented Mr Humphrey.

Following the large harvest of 2008, there is a larger than usual carry-over into the 2009 harvest but the 2009 harvest is smaller, with biofuels taking a larger proportion of the demand figures. The current lower prices will encourage even less wheat to be planted for harvest 2010 and even more wheat will go for biofuels and processing. "Follow that trend for another couple of years and that's going to have quite interesting implications," said Mr Humphrey.

After the 2010 harvest, he indicated that there may not be enough wheat to export or even enough for domestic use. At that point, the UK would have to start importing

"Look at Ireland. They pay £20 more than us for wheat, and that is because they have to import grain, they are not self sufficient," he said.

Turning to soya, the next price movement was uncertain. "It is still around £300 delivered to the mill, and that is historically pretty expensive.

"Having said that, South American production has fallen by nearly half and US stock levels are low, so prices could still move upward," concluded Mr Humphrey in the Poultry World report.