Market stable as the festive season nears
December 10, 2015
The PKE market remains delicately balanced between ongoing talk of the El Nino drought and tight cash flow on farm. However, given that the logistics are largely planned 2 - 3 months in advance and the supply side of the equation is largely set into March only a flurry of farmer buying in the interim will unbalance the relatively orderly market place.
The big unknown this year is the influence of cash flow over farming expenditure decisions. Undoubtedly, farm cash flow is the tightest it has been for many years. Feedback from the farm suggests that a slowdown in supplementary feed use may be under way, however this is not reflected in PKE import stats. Approximately 2.1 MMT of PKE was imported over 2015 which is virtually identical to 2014. In addition product movement out of store reflects steady supplementary feed use as per previous years. There is no doubt however that a lot of farms have made fundamental changes to stocking rates and altered the ration to cater for less expensive commodity alternatives. PKE prices continue to range from $215 - $240 depending on timeframe.
The Monsoon rains coincide with seasonal lows in production. Therefore crushers are not pressured to move product which allows them to hold prices for longer. Large scale bush fires throughout south east Asia have not only caused haze issues but the flow on impact of reduced photosynthesis and potentially lower fresh fruit bunch (FFB) yields at the plantation. At this stage, expectation remains that 2016 production will be similar to 2015. Low season of production is January – March with a slight increase into April – June.
Europe continues to see an overall increase in milk production in the post quota era as countries look to position themselves as the most efficient producers in the region. Often the response to low prices is to produce more to dilute the fixed costs per unit. In addition, the region remains well supplied with cheap feed crops. Europe has increased the use of PKE usage in 2015 vs 2014.
Other commodities continue to remain soft as abundant supplies persist. The chart below shows that CBOT corn (maize). The Australian winter crop harvest is drawing to a close. ABARE are reporting reasonable production estimates – wheat 23.9m mt, and barley at 8.2m mt. The upcoming sorghum crop (harvest Feb-June 16) is forecasted at about 2.0m mt as NNSW and Qld experience a solid start to the growing window.
CME Corn Dec 2013 to Oct 2015