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Understanding contributions of rising feed prices for dairy producers

Dairy producers around the world have seen an uptick in bought-in feed costs as the global market pulls through a pandemic, extraordinary weather events, logistic disruptions and growing competing markets for raw feed ingredients

Arlan Suderman, analyst, Agricultural & Soft Commodities Market for StoneX trading group, said, “The purpose of the market is to bring supply and demand into balance. Low prices discourage production while stimulating demand. The opposite is true as well. Global feed demand has been increasing for a number of years, but several years of low prices discouraged sufficient expansion of production. Several contributing factors acted to speed up draining supplies while money supply raised US$4.6tn during the pandemic. A portion of that money made its way into the markets, making it easier for buyers to bid up prices in a short market which amplified and sped up market response. The role of high prices currently is to encourage expanded production in the world to bring it back into balance with this expanding demand base.”

Weather impacts soybean supplies

While dairy ration composition will vary region to region based on local crop production, soybeans and their by-products are common denominators in global dairy diets due to their high energy and protein density. By-products like soya hulls are effective at stretching forage and supporting rumen function as a high-quality source of digestible fibre. Requiring a combination of heat, sunlight units, humidity and moisture, soybean production is limited to a handful of countries, with Argentina, Brazil and the US accounting for more than 80% of the global soybean crop from 2020-21. Following China, the European Union is the second highest importer of soybeans in the world. 

This has come at a time when US soybean production is still at a point of recovery following the impact of extreme weather conditions during the 2019 spring planting season, which went on to impact the 2019 autumn harvest, leading to tighter stock supplies. 

Corn (maize) reaches record highs 

In 2020, the US produced nearly 32% of the global corn crop, followed by China with 23% of production share and Brazil with nearly 10%. Even with its high levels of domestic production, China is the world’s largest importer of corn, followed by Mexico and the European Union. 

Given the synergistic climate relationship between corn and soybeans, delayed soybean plantings and harvests seen in Brazil this year were also experienced in its corn crop. 

“In Brazil, the delay pushed planting the second corn crop, which is the largest share of Brazil’s production, later beyond the optimum planting window. That meant that the critical reproductive phases of the corn crop were pushed back beyond the end of the rainy season, significantly reducing production prospects for the current year, further tightening global corn supplies at a time when global demand is surging to record high levels,” explained Suderman. 

According to recent reports by the USDA, Brazil’s 2020-21 marketing year corn crop yields is estimated to be down 10% from last year’s crop, which is 5% lower than the 5-year average. Producers in the states of Paraná, Mato Grosso do Sul, Minas Gerais, and São Paulo account for 36% of Brazil’s second-season production and have experienced drought from March throughout May. 

Competing with soybean acreage, US corn producers have been challenged with the same environmental challenges during the 2019 season with delayed planting and fewer production acres resulting in a 4.8% decrease in production compared to the previous year. Improved growing conditions saw the 2020 harvest back to typical production levels. 

Growing markets contribute to the grain and oilseed rally

Bill George, senior agriculture economist for the United States Department of Agriculture Foreign Agricultural Service, said, “China represents close to 60% of global trade in soybeans and is a major importer of many agricultural products. Growing Chinese demand across the board for many products underlies the global demand growth that helps support prices.  For soybeans, this growing demand has been pressuring the soybean market for more than 15 years and has helped strengthen prices required to support acreage expansion to meet this demand.”

In 2018, China’s national pig herd, the world’s largest, was cut in half within a year as African Swine Fever (ASF) ripped through the country. As a result, competition for feed commodities decreased. In the 4 years prior to 2018, average annual growth in China soybean imports was just over 8 million tonnes. 


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