June 15, 2011

US livestock takes more, cheaper wheat over corn since 1996

US livestock producers are feeding more wheat to cattle, hogs and poultry after the grain became the most economical alternative to corn in 15 years.

Effingham Equity, a feed and farm-supply company based in Effingham, Illinois, will add wheat in its hog-feed rations for only the second time in at least 26 years, said Mark Tarter, the grains-department manager. The company also used wheat in 2008, the last time corn reached a record, he said.

"We work really closely with producers to help them control their costs. Right now, with the inverse between corn and wheat, wheat works pretty good. You can't substitute one for one, but it can go into a diet pretty easily," Tarter said.

Corn futures for July delivery reached a record US$7.9975 a bushel last week on the CBOT, and closed at a 40.5-cent premium to July wheat on June 9, the most expensive for the month since 1996. Corn as much as doubled in the past year after wet weather delayed US planting and demand increased for ethanol and livestock feed. Wheat prices, up 70% in the past year, have pared gains as outlook for US supplies improved.

Wheat is usually more expensive than corn, the primary source of animal feed. Before 1996, July wheat futures last traded at a discount to corn in 1984, exchange data show.

The corn rally means livestock operations face losses because feed prices make up their biggest cost, said Chris Hurt, an agricultural economist at Purdue University. Midwest farmers started harvesting wheat this month, adding to supply. The USDA estimates corn stockpiles will be the tightest since 1996 before the September harvest.

"We're not going to be short on wheat this next year, and we're really short on corn," Hurt said. "It's certainly more than likely that we'll see a considerable amount of wheat feeding."

Effingham may replace about 20% of the corn used in hog feed rations with wheat, Tarter said. Normally, corn makes up about 50-65% of hog feed, with soymeal and other grains supplying the rest.

Springdale, Arkansas-based Tyson Foods Inc., the largest US meat producer, is using "limited amounts" of wheat in some poultry operations, spokesman Gary Mickelson said. On May 17, before corn prices overtook wheat, Tyson Chief Executive Officer Donnie Smith said the company was unlikely to use wheat, even as "we're always looking at alternative ingredients."

Sanderson Farms Inc., the fourth-largest US chicken processor, does not plan to begin feeding wheat at this time, spokesman Mike Cockrell said. The company has signed contracts for much of its corn and soy needs through July, Chief Executive Officer Joe F. Sanderson Jr. said May 24.