As corn futures plunged Sept. 30 after USDA reported surprisingly high stocks, analysts wondered what livestock and poultry have been eating in place of corn.
And they figured that traders would turn quickly from the stocks report to yield prospects for the new crop.
USDA reported Sept. 1 corn stocks of 1.13 billion bushels, about 166 million bushels more than the widely accepted average of pre-report trade estimates. Even ahead of the report, some analysts pointed out that grain stocks reports in recent years have tended to raise questions. A year ago, the stocks report put corn inventory about 300 million bushels higher than expected.
Now, some analysts figure USDA had underestimated the 2010 corn crop and others expect markets have already set the course toward lower feed demand in 2012.
"This is implying that feed use during the June-July-August time frame was 166 million bushels smaller than expected," said Ben Parks, risk management consultant at FCStone LLC, Kansas City. To make that size of a cut in feed use, livestock and poultry numbers must be down or the animals must be eating something other than corn.
Latest reports on animal numbers are mixed:
- Producers of broilers, a major market for corn, have trimmed production for lack of profits. In each week of September, the number of broiler-type eggs set to hatch fell by 7% to 9% from a year earlier. Placements of chicks for grow-out during September were down about 5 percentage points.
- Beef feedlots started this month with 5% more cattle on feed than a year ago and August marketings rose 7% from year ago. However, August placements in lots fell 1%. The number of cattle slaughtered in August rose 5% from a year ago but average weights fell 7 lb. to 1,270 lb. Drought in the South and Southwest have forced cattle into feedlots earlier than normal and pushed more cows to slaughter. August slaughter of non-dairy cows rose one-fourth from a year ago.
- Pork producers, thanks to relatively strong pork prices, reported 1% higher inventories of market and breeding hogs as of Sept. 1, and they intend to trim their September-November farrowings only slightly from a year ago. August hog slaughter was up 5% from a year ago and average weights slipped 1 lb.
- The dairy herd in August was up about 1% from a year earlier.
Jim Hilaker, Michigan State University economist, said that while those feed demand indicators are mixed, exports seem to have slowed slightly and ethanol demand eased seasonally ahead of harvest.
Price Response Difficult to Gauge
"We're in an area we've never been before," said Hilaker. "Any time we operate outside the data, it's less clear what price might really start hitting use pretty hard. We have only so much corn, so we have to ration it."
Reduced broiler egg hatch and chick placements clearly will curb feed demand. Beef feeders can save feed costs by marketing lighter cattle. However, pork producers don't have as much leeway in the weights of hogs they market, said Hilaker.
Because of strong corn prices, many analysts had raised their estimates of wheat feeding during the summer.
"But the wheat stocks number was larger than we were expecting," said Parks. "This tells me we weren't feeding as much as we expected. This is demand rationing at its best."
Still, Parks expects the effects of the stock report won't last long. "Next Monday, we start trading yield estimates again," he said after USDA issued its Grain Stocks report. And traders will look ahead to the Crop Production and supply-demand reports to be released Oct. 12. "That will be a bigger deal than we saw this morning," said Parks.
Feed Demand to Fall, says Rabobank
"Meat and poultry production in the U.S. is headed for a precipitous fall in 2012," said a report from Rabobank analysts. They projected that by the middle of 2012, U.S. meat and poultry production could fall by nearly 5% from a year earlier.
Tighter supplies of proteins will lead to another year of record prices in most of the world, said Rabobank in its Sept. 29 report, "Where's the Beef?"
Reduced livestock and poultry production is likely to cut corn feed demand by 50 million bushels in the third quarter and by 100 million bushels in the fourth quarter of 2012, compared to 2011 demand, said Rabobank. Another 25 million bushels likely would come out of demand earlier in the year.
Global demand will continue to drive protein demand and feed costs, said Rabobank, but it also said this about corn prices:
"We believe that long-term prices for key protein-production inputs such as corn and soybeans will gravitate towards the incremental cost of production, which we estimate to be near $5/bu. and $12/bu., respectively, plus a factor for return on capital."
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