US livestock revival may bolster grain prices

 

 

The recovery in the US livestock markets may be close to providing a prop for grain prices, by sparking hopes of rising demand for feed, according to analysts.

 

The length of animal life cycles means that the livestock price revival - which took lean hogs to a record high in Chicago last month, and live cattle near to a record in April, will take some time to stimulate a rise in herd numbers.

 

With pigs taking six months to become sexually mature, and gestation then taking a further four months, it may take until mid-2011 for hog herds to show much growth, with expansion of cattle numbers taking two years from the initial decision to raise numbers, according to the American Farm Bureau Federation.

 

However, grain markets may react farm more quickly, and even on the first signs of herd rebuilding.

 

Analysts said the reduced demand for feed grain has been an important bearish factor over the past months, adding that the changing environment for meat production may turn the market sentiment on demand before the demand actually increases.

 

One likely trigger point was a US quarterly report on hog market dynamics, which in March showed an unexpectedly large drop in the breeding herd.

 

Also, analysts are not expecting to see a significant increase in the breeding herd number in the June release, but the September issue will almost certainly show a much larger figure, triggering a bullish impact on grain markets.

 

US livestock prices have been revived by a recovery in consumer demand - both in the domestic market and for exports - at a time when producers have slashed herds, in response first to 2008's soaring grain prices, and then the global economic crisis.

 

The decline in animal numbers prompted a sharp drop in purchases of grains by US livestock farmers. US feed use of corn is expected in 2010-11 to come in at 5.35 billion bushels, 10% lower than a peak three years before.

 

For wheat, feed use is expected at 190 million bushels in 2010-11, down by more than one quarter on a 2008-09 peak, according to USDA estimates.

 

However, a Societe Generale index illustrated the extent of the recovery in the livestock sector's fortunes, showing hog farmer profitability hit US$0.60 a pound last month, its highest since 2005; while Iowa State University data shows hog finishing turning profitable last month at US$0.30 per animal after two years of losses.