(The author is a Reuters market analyst. The opinions expressed are his own.)
CHICAGO – European Union wheat exports are already projected to hit a record 26 million tonnes in 2013-14, but thanks to an abundant supply of cheap corn making its way into feed rations at the expense of wheat, the total amount of wheat available for overseas shipment may creep even higher in the months ahead.
Corn feed demand is expected to surpass wheat feed use in the EU this year by the largest margin in close to 30 years as feedlot managers in the region capitalize on the cheapest corn prices since 2010 to fatten up their herds. Given that total EU wheat supplies are nearly double that of corn, this clear preference for corn over wheat is a testament to corn’s better weight-gain performance in feed rations, and suggests that additional corn price weakness over 2014 may increase its presence on feedlot menus and steer even more of the region’s wheat towards overseas markets.
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Up until the late 1980s, EU feedlots routinely fed more corn than wheat to their animal herds. Indeed, it was only after the vast swaths of wheat land located across Eastern Europe were counted as part of the EU following the fall of the ‘Iron Curtain’ that the region’s wheat production officially dwarfed corn output to trigger a widespread change in livestock feed components.
Wheat’s dominant status in EU rations persisted until the 2012/13 crop year when a dip in the region’s wheat supplies coincided with the area’s largest corn crop in decades to encourage feedlot managers to tweak rations in favor of more corn once again.
Another year-over-year increase in corn supplies in 2013 has continued that trend, which looks to extend well into 2014 as well with corn values still trading at a historically large discount to wheat.
At the same time that EU feedlots are expected to dial up corn consumption, they are also expected add more distillers dried grains (DDG) to the feed mix, following a close to fourfold increase in imports of the ethanol by-product from the U.S. in 2013.
This higher combination of corn and DDG feed usage is likely to pare back wheat feed demand, which is projected to remain depressed at around 50.5 million tonnes, the lowest level since the mid-1990s, despite the fact that E.U. wheat supplies are at five-year highs.
Indeed, there is projected to be more than 96 million tonnes of EU wheat potentially available for other uses after the 50.5 million tonnes total for feed demand is subtracted from total EU wheat supplies for 2013/14, which is the second highest such total on record, and the largest figure since 2008/09.
A record 26 million tonnes, or 26.8 percent, of that supply has been earmarked for export by the U.S. Agriculture Department, leaving roughly 71 million tonnes for other consumption.
The USDA has penciled in around 69.2 million tonnes of demand from the food, seed and industrial (FSI) sectors, which would account for the lion’s share of that overhang and potentially serve to keep overall EU inventories quite snug going into 2015.
But that FSI use projection is potentially a little on the high side given that that category of use has contracted in four of the past five years and is likely to come under additional pressure in 2014 thanks to a strong rebound in the production of alternate grains across the region.
Indeed, the combined output of other EU grains such as corn, barley and oats is projected to show its largest year-over-year increase since 2008-09 this coming year, offering grain consumers their richest choice of grain variety in years.
Should consumers pick up their consumption of other grains this year at the expense of wheat, EU wheat exporters may find themselves in a position to surpass their projected sales totals as long as they can offer the grain at an economically attractive price relative to other origins.
EU-based wheat exporters are already expected to have a banner year in 2014, thanks to waning supplies out of other regional sellers such as the Black Sea, which is filtering demand from the Middle East, Africa and other areas towards Romanian, French and German suppliers. A lengthy logistical jam that is slowing the pace of Canadian wheat shipments is also aiding EU shippers.
But if corn supplies continue to displace wheat at feedlots across the EU over the coming months, the area’s wheat exporters may be able to offload even higher tonnages of the grain than are currently being projected. (Reporting By Gavin Maguire; Editing by Marguerita Choy)
