Pay attention to the raw materials market forecasts for October

Pay attention to the raw materials market forecasts for October

  September stabilizes prices adapting to market supply

Throughout September, harvest data in the northern hemisphere have been confirmed for volumes in winter cereals, as well as for corn and soybeans, with harvesting activities having started in the U.S. where great results are expected for October, as we will see in detail later.

Demand will now regulate balances, depending on the relative prices between different products.

Image 1. Illinois harvest status Sep 17, 2018

The trade war between the U.S. and China continues to completely condition the flows of this market and affects the availability of competitive nutrients collaterally.

In Spain, after years of working to maximize the incorporation of alternative protein ingredients, we find ourselves again in a period where soybean meal is displacing them, being the focus of decision in positions by the manufacturing.

Map 1. Current condition (SEP 18) world harvests

  Cereals  

As we have commented in previous months, for October, almost final production data and investment fund positions will be updated.

Wheat

In the first half of August, wheat rose from 184/5 €/tm port on July 20 to 217 €/tm.

Now it has lost part of its price as funds have retracted their long positions.

Wheat is now around 202 €/tm replacement in the peninsular port.

Graph 1. Final wheat productions 2018

Graph 2. World wheat production main exporters

Graph 3. Investment fund positions in wheat. Current and last 6 years.

Corn

In the case of corn, the U.S. harvest will be the second best in history.

In Eastern Europe, the volume will also be greater, especially in Ukraine, and therefore prices in recent weeks have also approached the lowest possible limits in the peninsula, about to re-enter the Levy application calculation.

Even for the entire year 2019, offers slightly above 172 €/tm ports have been seen and for the Aug/Dec 2019 period levels of 168 €/tm.

Map 2. Good – Excellent condition for U.S. corn (Sep 16, 18)

Graph 4. FSU harvest estimates Sep 18.

Graph 5. Investment fund positions in corn. Current and last 5 years.

   Soy and alternative proteins  

Soy

The political situation between the United States and China has caused consequences in the markets:

Evidently, prices in Chicago have declined and this has caused investment fund interest to position short, both in beans and oil and also in meal.

Graph 6. Soy shipments to China by origins

In the long term, the consequences are expected to be greater.

  China  

China will increase its protein production as much as possible, while reducing soybean incorporation in animal feed formulations to the maximum (in pigs, soybean demand may drop by up to 20 million tons).

   U.S.  

Productions in the U.S. may balance towards corn in upcoming plantings.

  SOUTH AMERICA  

However, in South America, the area dedicated to soy will be expanded.

Graph 8. Possible evolution of soy production in China

Map 3. U.S. soybean crop conditions (Sep 16, 18)

For now, in terms of production, we expect a record harvest in the U.S. with conditions in most states exceeding 70 Bu/Acre and even in some plots up to 80 Bu/Acre, which for Europe specifically theoretically announces a downward market.

  Alternative proteins  

Sunflower & Rapeseed 

Meanwhile, the demand for European alternative proteins for Asia (Sunflower and Rapeseed) continues to keep prices elevated percentage-wise vs. Soy.

  October 2018 forecasts  

SPAIN

In Spain, we continue with a significant discount on port price replacement, especially in cereals for October.

The large harvest is keeping prices low even with a more open demand in purchases than usual, especially for the Sep/Dec period.

Therefore, if the supply remains withheld, it is possible that prices could rise between 6/8 €/tm for Wheat and Barley.

However, the large supply of corn at competitive prices will hold this possibility. There we will see the fight between them during the next month.

INTERNATIONAL

Wheat & Corn

Regarding the international market, we think that wheat is too high to compete with corn, despite the price drop mentioned at the beginning.

Although it could be that, if it maintains this differential for a certain time, wheat demand will be low and then world stocks would be regulated upwards. Europe has quality Wheat that has not yet surfaced and should appear at lower prices.

Soy

Proteins will move downwards led by the large supply of soy.

Oils, for now, do not seem to be able to rise, since the crushing margins of oilseed extractors do not allow the price of meals to drop.

Consequently, this situation will pressure seeds, with harvests starting in Europe with Rapeseed and Sunflower mainly. Their production is marketed in the producing countries in Europe and with higher demand from China, leaving little supply at attractive prices in their usual destinations in southern Europe.

The most tense in Spain are fibrous products. We have detected exports of Alfalfa, Straw, and fibrous cereals like Oats to northern Europe, both in small ships and in containers.

After that, Bran remains at cereal prices and soybean hulls continue without dropping until Argentina recovers new crop production normally.

This situation will continue until December and especially while the field does not receive autumn rains that reduce the demand for maintenance feed from the interior.

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