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Corn feed use key

Agriculture.com Staff 11/16/2006 @ 2:41pm

The corn market is constantly looking for clues to reassure itself that the USDA supply/demand report is close to the truth. The market will find several answers in USDA's January reports, but that's a long ways in the future when corn prices are substantially over $3.00.

In other words, the market spends time looking at the weekly export report, the various livestock reports (broiler hatchery, cattle on feed, etc.), the amount of ethanol produced each month, etc. The supply/demand situation is perceived to be so squeaky tight that every tidbit matters.

Ethanol production has attracted a lot of attention, but the biggest demand category for corn is still feed. How will livestock producers respond to high corn prices?

Chicken producers currently have a "double whammy" to deal with—high feed prices and low chicken prices. Chickens are basically worth what the breast meat is worth (a practical oversimplification) and a boneless skinless breast price below $1.00 is very low. The market has seen two things happen to the industry—eggs set and chicks placed on feed has been three percent below year ago figures and dressed weights have declined. It seems chicken producers have begun to respond to the change in economics.

For cattle and hogs, the production cycle is longer and, therefore, reaction times are longer. But the first thing that can happen is that carcass weights are reduced. For example, there may be more cattle on feed (around 104% of year-ago figures), but if carcass weights would decline, total meat production would be less than 104% and feed use would decline from the present pace.

This sort of reduction in weights has begun to happen, at least for hogs. Hog carcass weights have slipped below year-ago figures. Cattle weights are still higher, but they are not as extreme as in the beginning of the year. If this trend continues, it means feed use per animal is being reduced slightly. This is an important balancing act, as the total number of hogs and cattle are still projected to be up in 2007. The market needs to see continuing evidence of reduced feed per animal.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The corn market is constantly looking for clues to reassure itself that the USDA supply/demand report is close to the truth. The market will find several answers in USDA's January reports, but that's a long ways in the future when corn prices are substantially over $3.00.

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