Power Hour: Feed Demand One Key Bright Spot for Corn

August 9, 2013 09:45 AM

 The specter of a 2 billion bushel corn carryover for 2013/14 is sobering price news, but keep your eyes peeled on one of the most important demand hot spots that spells good news: livestock.

Feed use of corn led all other categories in 2007/08, at 5.9 billion bushels, but for 2012/13 it was just 4.4 billion, according to USDA projections. That’s a 1.5 billion bushel drop in corn feed demand, and feed use today has fallen to the No. 2 demand spot behind ethanol. Just think where December 2013 corn futures would be with that 1.5 billion demand back right now.
"It is conceivable that feed use could increase to the 5.2 billion bushel range in front of us as the livestock sectors grow," says Scott Brown, ag economist at the University of Missouri. That’s huge, and would mean an additional 800 million bushels of corn demand, and catapult feed use back ahead of ethanol as the No. 1 use category. It also would be an incredible welcome demand story with sobering growth prospect news at the moment on the export and ethanol fronts.
What would allow feed use to rebound? Cheaper feed costs, no question, the outlook for a growing U.S. and global economies, and in many states, the end of a several-year-running drought. The combination of these factors—should they all occur as expected—will allow livestock producers—with the exception of the fed cattle business—to become profitable this fall and 2014, if they aren’t already, Brown says. Increasing profits equals industry growth and more feed demand.
"Livestock producers got hit with the double-whammy of high feed costs, and the worst economic downturn in decades that curtailed meat and dairy demand," Brown says. "Overall, this has been the worst situation ever for livestock profitability," he adds.
The best news for both livestock producers as well as feed producers is the bright outlook for U.S. exports of livestock products. Many experts look for dramatic improvement on the livestock export front over the next decade, even for dairy, which until fairly recently, was largely a domestic industry. Exporting more is the most important factor to vibrant livestock sectors moving forward, given the outlook for the U.S.
"We’re a mature market," says Derrell Peel, ag economist at Oklahoma State University. From 2007 to 2013, per capita meat consumption declined by 20 lbs. per capita, to 200 lbs. With a stronger U.S. economy, Brown sees the possibility for the industry to earn back 10 lbs. of that, but only that. Moreover, the U.S. population growth rate has declined from 1.1% to 0.7% since 2009, another factor decreasing U.S. demand growth.


All this points to the importance of exports, both for future livestock profits as well as that of crop growers needing to grow their demand markets, too. However, the U.S. will have competition from other countries, certainly, such as Brazil, who wants a piece of that export pie. Over the next decade, however, most believe the U.S. will score well on improving exports.



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