Feed, export demand back in driver's seat

LIVESTOCK producers have, as a class, not been overly fond of the biofuel industry in general and the renewable fuel standard in particular.

In the "new era" of grain and commodity prices, feeders have felt the brunt of record-high feed costs that have been driven, at least in part, by increased demand from the ethanol sector and export markets.

While the biofuel markets have leveled off over the past year, Texas A&M University economist Mark Welch thinks that the livestock and export markets are back in the driver's seat when it comes to grain prices.

"Things are going to stay exciting," he told producers at a recent outlook conference, noting that the livestock and export markets are poised for growth in the coming years.

He said cattle inventories will rebound from their current levels — which are as small as any seen since the 1950s — and herd rebuilding will begin in earnest as drought conditions lift in key production areas.

Welch's colleague, David Anderson, echoed those sentiments, telling producers that the beef industry is set for a slow rebuilding process that has been largely delayed by a multiyear drought and exacerbated by last year's record, widespread drought that drove already high corn prices even higher. Beef consumption and strong export demand signal the likelihood of strong cattle prices continuing for the foreseeable future.

Following the release of the September "Crop Production" report, analysts remained mystified about why the U.S. Department of Agriculture did not make major revisions to its estimates of planted and harvested acreage given the excessive moisture during planting and the assumption of a large area of prevented plantings.

When USDA's Farm Service Agency (FSA) released farmer-reported prevented plantings, it only added fuel to that speculation last week.

FSA reported that 3.573 million acres of corn didn't get planted, along with 1.687 million acres of soybeans. Both figures were considered friendly to prices initially, but analysts later realized that the data were not all that conclusive, at best.

Even so, the implication is that the figures for planted and harvested acres used to calculate USDA's September "World Agricultural Supply & Demand" estimates are probably high, as the trade has assumed all along.

Based on limited historical data, the FSA data could imply a corn crop that will be nearly 300 million bu. smaller and a soybean crop that's down some 60 million bu., based on USDA's current yield estimates.

In its September "Feed Outlook," the Economic Research Service noted that larger corn and sorghum yields will boost 2013-14 feed grain supplies nearly 70 million tons higher compared with the previous year.

Total feed usage is expected to increase by 10.7 million tons, and corn is projected to account for 93% of total feeding this marketing year.

With more feed available, producers' decisions to expand — or not — could well be the difference between grain prices hitting the low end of marketing-year expectations or trending toward the upper end of price projections.

Volume:85 Issue:39

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