Feed prices to remain firm as global economy starts to slow

THE price of some key feed ingredients might have peaked or even eased for now, but the global fundamentals driving the market remain and will inevitably re-inject upward pressure.

That is the general feeling of many in the feed industry, who say that those farmers who have enjoyed the longest contract prices on their winter feeds will be those facing the biggest increases when they come to renew.

Concerns over the American economy and its repercussions around the world are said to have stirred up some nervousness to the extent that, as one straights trader put it, ‘everyone is selling everything’ and some commodity values were currently falling, not least soya.

But the highs that have been seen have, to a large extent, been on the back of crude oil prices and those too were now coming back.

However, while the possibility of soya falling by up to £50 – and some other key ingredients falling pro-rata – would be no great surprise to him, it was a fall from unprecedented highs.

On the compound feeds side, managing director at Carrs Billington, Paul Steeples, felt prices were inevitably going to remain high and, while high-energy dairy feeds had currently hit the £230/tonne mark and could come back slightly, customers should be looking at £180-£220/tonne going forward.

“Some people believe that we as compounders have everything bought forward, but that is not necessarily so and the lack of maize by-products from the States, for example (because of GM restrictions), has limited out ability to source raw materials.”

Like the FTSE 100, feed prices would inevitably bounce back from whatever lower values they might temporarily hit.

“Remember that these markets are not being driven by UK supply and demand, but by global forces, hedge funds and alternative markets, not least biofuels,” said Mr Steeples.

In dairying, a large number of milk producers have been cushioned from the current highs having bought forward. But compounders say upward moves in the marketplace during these forward contract periods mean those producers will be facing £50, £60 or even greater increases per tonne on renewal, which could translate into perhaps 2ppl.

Haulage costs were cited as a significant additional inflationary item and the costs of trace elements and minerals were also increased.

“There is no doubt that dairy farmers will continue to experience input price rises for the rest of this year,” said Promar national dairy consultant Derek Gardner.

“While high feed and fertiliser prices will grab the headlines, costs such as water, fuels, and insurance will all rise at above the rate of inflation.”

Mr Gardner believes that prices will also be affected as much by farmer buying patterns as by global developments in markets this year.

“Many farmers are locked into feed contracts which were based on feeds sold forward in 2006/7.

“When their contracts are renegotiated, it is inevitable that prices will rise, reflecting the overall increases seen over the last 12 months. The same is true for fertiliser, with fewer farmers now buying spot.

“Despite the input price rises, the higher milk prices now being paid mean that the milk price feed price ratio is expected to allow good farmers to make a good profit.”

He recommended shopping around for competitive quotes. “They can’t escape the cost rises but there is still a lot that can be done to mitigate them,” said Mr Gardner.