U.S. Hog, Poultry Firms To Extend Use Of Feed Wheat

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The surprise drop in U.S. corn feed demand this summer may be only the beginning of a yearlong reduction as chicken and hog producers break a long-held aversion to blending more wheat into rations.

What initially began as a summer fling sparked by an unprecedented premium for corn prices over wheat has turned into an enduring trend as livestock producers lock in longer-term wheat deals many of which can t be quickly undone even as the corn price premium finally recedes.

Some livestock producers initially resisted the switch, fearing it would slow weight gain of their animals, or disrupt their eating habits. Now they have embraced its financial benefits, injecting a new dynamic into grain markets.

We are going to continue feeding (wheat) so we can stretch the corn crop through the whole season. I think (corn) availability is going to be an issue this coming year as well, says Tim Thomas, an independent pig producer in Timberlake, North Carolina, who has been using a 50-50 mix.

Some groups of hogs won t like the flavour as well as they will straight corn, but normally we can blend up to 50-50 and don t have any problems getting them to eat it, he said.

In most years, wheat feeding is a short-term phenomenon that occurs in June, July and August, after the U.S. winter wheat harvest. But some American chicken and hog producers are looking to extend their use of feed wheat throughout the year.

The implications run deep into the corn market, which has slumped 12 per cent since Sept. 1 on signs that demand rationing essentially consumers being priced out of the market is far more widespread than first believed.

In April, wheat futures on the Chicago Board of Trade dipped below corn for the first time in nearly 15 years. Since June, CBOT wheat has been trading at an average of 10 cents below corn, the longest such inversion since at least the early 1970s. Cash prices were at times even more favourable for wheat buyers.

Wheat prices have periodically rallied back above corn, but the change in feed habits should stick.

A different mix

The changing feed mix follows a summer in which U.S. corn stocks threatened to shrink to near their tightest since the Second World War. Corn prices surged to a record above $8 a bushel, while swelling global wheat supplies depressed prices.

In the United States, plentiful supplies of wheat especially soft red winter wheat grown in the southern Midwest provided a welcome alternative for livestock feeders in the Southeast.

Nutritionally, wheat offers more protein than corn but less energy from fat, so most operations have to recalibrate rations to accommodate wheat as a substitute ingredient.

Wheat has found favour among large-scale poultry producers.

We are steadily increasing its usage, said Margaret McDonald, director of communications at Pilgrim s Pride, the No. 2 chicken producer in the U.S.

As long as prices make sense, we will keep maximizing its usage.

With U.S. corn stocks expected to remain scarce through 2011-12, setting the stage for another year of high cash corn prices, price signals telling feeders to use wheat could strengthen.

For the foreseeable future, we are going to have high-priced input costs, and grain is going to be expensive, and the industry is going to have to adjust, which I think it s doing, said Mike Cockrell, chief financial officer for Sanderson Farms Inc., the No. 4 U.S. chicken producer.





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