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How much wheat will be fed?

09/12/2012 @ 3:06pm

In today's monthly supply-demand report, USDA estimated this year's wheat feeding at 220 million bushels, unchanged from last month but up a hefty 35% from last year. However, veteran Chicago grain analyst Rich Feltes thinks actual feeding, when the wheat year ends next May, could be closer to 250 million bushels.

"In this year of high corn prices and tight supplies, the story on wheat feeding is still unfolding," says Feltes, research director for R.J. O'Brien.

Normally, the wheat feeding story is pretty well finished by the time combines march  through the corn fields. Most wheat feeding occurs during the summer, when new-crop wheat supplies are highest (and possibly cheapest) and old-crop corn supplies are tightest ahead of harvest.

But this year, corn prices could be firm all year, keeping wheat as a year-round alternative for feeding. "We're in an extended period of unprofitable feeding margins with corn, so at the first hint of a price advantage for wheat, I expect to see livestock feeders switch to wheat," says Feltes.

Grain prices, whether wheat or corn, are historically high. But corn prices have risen faster, confounding livestock feeders who are trying to hold their heads above water. On a full-year average basis for all classes of wheat, USDA projects cash wheat to run about 12% higher this year than last year and about 66% more expensive than 2009-10.

Still, on a relative basis, corn is undergoing a sharper price rise, which may favor some wheat in livestock rations. For cash corn, USDA projects average nationwide prices to run nearly 27% higher this year than last year (September-through-August). And compared to 2009-10, cash corn prices look nearly 125% higher.

Normally, hard red wheat is too valuable to feed to livestock, but a few weeks ago, Feltes heard reports of hard wheat moving from the Plains to southern feedlots. He even heard reports of Canadian wheat moving as far as Texas. (And when Canadian wheat is fed within the U.S., USDA reports it as U.S. wheat feeding, because once it's imported it counts as part of total U.S. wheat supply.)

In the Southeast, the wheat harvest comes early, providing a fresh supply of feed before the corn harvest. And North Carolina had a bumper wheat crop this year, and plans to seed an extra 150,000 acres this fall, says Dan Weathington of the North Carolina Grain Commission. "We can feed all the wheat we grow," he says. The Southeast can also ship foreign wheat into local ports like Wilmington, N.C., at favorable prices after a sharp drop in ocean freight rates over the past two-three years, he notes. In contrast, rates for railing wheat into the Southeast from the eastern Corn Belt have skyrocketed during that same period.

Meanwhile, Feltes cites reports that China is importing feed wheat as a substitute for soymeal. Wheat doesn't have near the 40-50 percent protein level as soymeal. But at 10% to 15% percent protein, wheat has more than corn. As a result of this feed demand, USDA has raised its September estimate of 2012-13 world wheat feeding by 64.6 million bushels over July, and 20 million bushels of that increase is expected in the U.S.

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