Year's Best Commodity Rally Turns Chicken Feeders Into Winners

May 26, 2016 12:43 PM
Year's Best Commodity Rally Turns Chicken Feeders Into Winners

This year’s best-performing commodity is chicken feed. And cow food.

Soybean meal, made from crushed soybeans and used to feed poultry and livestock, has jumped 56 percent in 2016, the biggest gain among the 22 components of the Bloomberg Commodity Index. Prices are soaring after flooding reduced crops and limited supplies from Argentina, the world’s biggest exporter of the meal. Meanwhile global meat production will rise to a record, stoking demand.

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The rally in meal prices is boosting margins for soybean processors including Archer-Daniels-Midland Co. It’s also spurring some livestock owners to seek cheaper alternatives to the meal, such as corn.

Even as corn demand grows, the grain is still cheap relative to soybean meal. The commodities are trading in the widest spread since November 2014.

“Livestock producers will use as much corn as possible because of its discount to soybean meal,” said Mark Schultz, the chief analyst at Northstar Commodity Investment Co. in Minneapolis.

Soybean-meal futures for July delivery rose 1.4 percent to $412.90 per 2,000 pounds at 11:27 a.m. on the Chicago Board of Trade. Prices reached $419.80, the highest since June 2014.

The gains for meal mean that American ethanol producers are also enjoying better margins. Dried-distillers grains, or DDGs, are a byproduct of the process to make the biofuel and can be fed to livestock and poultry. The price of the protein, which represents about a quarter of ethanol-plant margins, is at the highest since August. Like corn, DDGs are still cheap relative to the soy product and are an attractive alternative.

“It’s icing on the cake,” for ethanol makers who are also seeing improving demand for the gasoline additive as oil prices rally, said Chris Wilson, an analyst at Atten Babler Risk Management in Galena, Illinois. “They’re kind of in the sweet spot.”

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