farmgate: With Low Profit Margins, Will Livestock Producers Have To Compete For Feed?
As many Cornbelt farmers prepare for spring fieldwork, they are hoping for stronger grain prices to ensure a profit margin. But as livestock producers continue to cut production to ensure profitability, will they have to compete with ethanol and exports for feed? Will there be any "winners" in this market, or will it be a year of survival?
As noted in the April 14 edition of the farm gate planting intentions indicate a limit to acreage, and consumption may require 12.5 billion bushels of corn to supply demands of the livestock feeders and the ethanol market. With feed grain stocks declining, will there be sufficient feed for livestock feeders and will it be affordable? USDA economists have released their latest Feed Outlook following the recent supply demand report, which indicated the corn carryover would fall to 1.7 billion bushels. They are looking to identify that delicate balance desired by corn growers, livestock producers, and where it fits into the international demand for US grain. Compared to last year, the economists say overall feed grain demand will be down this year. US supplies will be down by 15 mmt compared to last year, but feed grain use will be down slightly more than that on a calendar year basis. On a marketing year schedule, feed grain and wheat use will be up reflected in heavier weights of feedlot livestock.
Projected corn use for the year will be down due to lower exports, feed, and residual use, partially offset by ethanol and other industrial uses for corn. Feed use will be up to 5.350 bil. bu., compared to 5.938 bil. bu. last year. The ethanol and industrial uses will be an estimated 4.990 bil. bu., with a fade in starch and sweetener use in addition to less ethanol refining. Ethanol will consume 3.700 bil. bu. which is still up 31% over the same period a year earlier. Exports will be 1.700 bil. bu., down 732 mil. bu. from the year earlier. Comparatively, sorghum is selling at a discount to corn, versus the premium price it demanded last year due to strong export demand. Barley and oat use will also decline as part of the lower livestock feed demand receding.
Internationally, the demand for US corn has been soft from burdensome supplies of low quality feed wheat in many foreign markets. USDA’s Wheat Outlook says there has even been a decline in feed wheat use in foreign countries because of the abundance of feed grains and non-grain feed ingredients. That has depressed the potential for corn exports and has made more US corn available for domestic feeders. The USDA economists say global production of coarse grains will reach 1.097 mmt, down from last months estimate due to changes in the way production is counted in some countries, and a cut on Chinese production.
Factors that will impact the global demand for US corn and what US livestock feeders have to pay for it, come in part from a decline in Argentine crops, where corn production has been cut by nearly one-third. USDA says global carry-in of stocks were down, but historical revisions in Chinese feed grain supply and demand will raise internal use. Globally consumption of coarse grains is down, with lower foreign use more than offsetting higher US use of corn and feed grains. Some of the lesser feed grain demand is the result of lower demand for meat. While global ending stocks are down, most of the reason is the lower US carryover.
The positive note for grain producers is USDA’s projection for increased world trade in feed grains, but most of the grain will come from ample supplies in eastern European countries. Brazil will export less corn, but only because more soybeans will be shipped out before the marketing year ends. US corn export projections of 1.7 bil. bu. remain in place, and USDA is not expecting that to increase, keeping US corn supplies available for domestic livestock feeders. However the pace of exports is expected to pick up in the later part of the marketing year due to the diminished crop in South America.
The positive note for livestock feeders is the apparent strong supply of all types of feed grains that are available at stable prices devoid of the volatility seen in the past two years. With slack demand from exports and ethanol refiners, the livestock industry should have ample supplies.
Summary:
For the livestock feeder, who is facing slim profit margins, the availability and cost of feed may be welcome news. Both domestically and internationally, the economy has reduced demand for meats and in the US, there has also been a weakness in demand for ethanol and exported grain, which reduces the competition for feed grains. Reduced production of grain, both here and abroad will not lead to burdensome supplies and low grain prices, but supplies will be more in line with demand in many nations, including the US. The reduced opportunity for grain price volatility may be the best news for livestock feeders.
Posted by Stu Ellis on April 15, 2009 12:40 AM to farmgate