October 14, 2011
US hog, poultry producers to continue using feed wheat
US chicken and hog firms are blending more wheat into rations, thus, corn feed demand may drop further after this summer.
According to Reuters, what initially began as a summer fling with an unprecedented premium for corn prices over wheat has turned into an enduring trend as livestock producers lock in longer-term wheat deals, many of which cannot be quickly undone even as the corn price premium finally recedes.
Some livestock producers initially resisted the switch, fearing it would slow weight gain of their animals, or disrupt the eating habits. Now they have embraced its financial benefits, injecting a new dynamic into grain markets.
"We are going to continue feeding wheat so we can stretch the corn crop through the whole season. I think corn availability is going to be an issue this coming year as well," said Tim Thomas, an independent pig producer in Timberlake, North Carolina, who has been using a 50-50 mix.
"Some groups of hogs will not like the flavour as well as they do for corn, but normally we can blend up to 50-50 and do not have any problems getting them to eat it," he said.
In most years, wheat feeding is a short-term phenomenon that occurs in June, July and August, after the US winter wheat harvest. But some US chicken and hog producers are looking to extend their use of feed wheat throughout the year.
The implications run deep into the corn market, which has slumped 12% since September 1 on signs that "demand rationing", essentially consumers being priced out of the market is far more widespread than believed.
In April, wheat futures on CBOT dipped below corn for the first time in nearly 15 years. Since June, CBOT wheat has been trading at an average of US$0.10 below corn, the longest such inversion since at least the early 1970s. Cash prices were at times even more favourable for wheat buyers.
Wheat prices have periodically rallied back above corn, including as recently as this week, but the change in feed habits should stick.
"We hear of wheat feeding being booked all the way through the spring in the southeast markets," said Rich Feltes, vice president for research with R.J. O'Brien in Chicago.
Nutritionally, wheat offers more protein than corn but less energy from fat, so most operations have to recalibrate rations to accommodate wheat as a substitute ingredient.
Wheat feeding has been less common this year in the big cattle feedlots of the southern US Plains because a drought slashed production of the region's hard red winter wheat crop.
Some cattle feeders were able to book a four-month supply of hard red winter wheat this past summer as local cash corn prices surged, but wheat has become less competitive since then, said a grain merchandiser.
An analyst said cattle producers try to ensure they have enough supply to stay switched for six months to a year. Booking large quantities enables them to blend new ingredients into and out of their feed rations slowly, over several weeks.
"They do not want to use feed wheat and then a month later, go back to the other mixture. It is not something they like to do on a short-run basis," Johnson said.
The USDA on Wednesday (Oct 12) lowered its estimate of the amount of US wheat used for animal feed in the 2011/12 marketing year to 160 million bushels, or 8% of all wheat production but still the highest share in three years.
Wheat has found favour among large-scale poultry producers.
"We are steadily increasing its usage," said Margaret McDonald, director of communications at Pilgrim's Pride, the number two chicken producer in the United States.
"As long as prices make sense, we will keep maximising its usage," she added.
Tyson Foods Inc, the biggest US chicken company, has also been using wheat in its feed rations.
"We continue to use small amounts of wheat in some of our poultry complexes," Tyson spokesman Gary Mickelson said.
With US corn stocks expected to remain scarce through 2011/12, setting the stage for another year of high cash corn prices, price signals telling feeders to use wheat could strengthen.
"For the foreseeable future, we are going to have high-priced input costs, and grain is going to be expensive, and the industry is going to have to adjust, which I think it is doing," said Mike Cockrell, chief financial officer for Sanderson Farms Inc , the number four US chicken producer.
Sanderson is not currently using wheat in its poultry rations but has not ruled out adding it in the future.
"There is no doubt that at least for the next crop year, we have got high-priced corn. Until these supplies rebuild and the balance sheets improve," Cockrell said, "that is just a fact of life."