DENVER, Oct. 27, 2016 /PRNewswire/ -- Grain handlers are
anticipating an uptick in orders for feed wheat, which should allow
them to move excess wheat inventories as farmers bring in a record
fall harvest, according to a new report from CoBank.
"While all grain prices have fallen to low levels in the face of
this year's record-large harvests, wheat prices have fallen the
most," says Tanner Ehmke, CoBank
senior economist and co-author of the report. "As a result, wheat
is destined to become a staple in livestock's feed rations for at
least the next year or two and will remain competitive with other
feed grains for the foreseeable future, barring a major weather
event."
Current USDA forecasts indicate that wheat feeding and residual
use will climb to 260 million bushels in 2016, up from 152 million
bushels last year. With cash wheat prices on the plains continually
finding new lows—some local areas are posting the lowest prices in
decades—USDA's feed-wheat estimate could likely see upward
revisions given wheat's high stocks-use ratio, according to the
CoBank report.
In some areas, hard red wheat has traded more than 40 cents below the price of corn. In other areas,
soft red wheat has a 30-cent premium
to corn, as prices drop with the arrival of the new crop. The
shortfall in South American corn production has boosted U.S. corn
exports, supported corn prices, and widened the wheat-corn price
spread. Further, an abundance of lower-priced old-crop corn—which
could be discounted due to new-crop supplies—adds more pressure to
grain prices.
In contrast, a shorter supply of other feed grains such as oats,
barley and sorghum will likely add to the attractiveness of corn
and wheat in animal diets.
"A key question becomes whether farmers will be willing to sell
wheat stocks as several market factors are incentivizing crop
retention and storage," notes Ehmke. "Still, the need to make room
for the large fall harvest could ultimately motivate sales."
Storage and price matters aside, several other factors come into
play as livestock producers incorporate wheat into rations such as
the fact that wheat has less energy than corn, therefore requiring
livestock producers who add more wheat to rations to have to add
other grains with a higher energy content to compensate. However,
wheat also contains more protein than corn, meaning livestock
farmers must also consider the cost savings from reducing the
amount of competing protein sources like soybean meal.
The substitution rate of wheat in place of corn is dependent
upon the method of grain processing used prior to feeding.
"These factors, along with on-farm logistics and other animal
health considerations mean livestock producers will need to work
closely with their nutritionist, veterinarian and other key
advisors," says Trevor Amen, the
other co-author of the report and an economist and livestock
specialist at CoBank. "These relationships will be crucial as
producers consider ration ingredient changes and how to best
incorporate them."
Regardless of the individual decisions that each livestock
operator must make based on local markets, they all stand to reap
huge rewards with an abundant feed supply that is likely to grow
into 2016-17 with a potentially record fall harvest. In the
meantime, grain handlers that still hold substantial wheat
inventories are being offered an opportunity to create much needed
space by sending more wheat into the feed mix.
A brief video synopsis of the report, "Elevators Look to Feed
Wheat to Lighten Load," is available on CoBank's YouTube channel.
The full report is available to media upon request.
About CoBank
CoBank is a $125 billion
cooperative bank serving vital industries across rural America. The
bank provides loans, leases, export financing and other financial
services to agribusinesses and rural power, water and
communications providers in all 50 states. The bank also provides
wholesale loans and other financial services to affiliated Farm
Credit associations serving farmers, ranchers and other rural
borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide
network of banks and retail lending associations chartered to
support the borrowing needs of U.S. agriculture, rural
infrastructure and rural communities. Headquartered outside
Denver, Colorado, CoBank serves
customers from regional banking centers across the U.S. and also
maintains an international representative office in Singapore.
For more information about CoBank, visit the bank's web site at
www.cobank.com.
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SOURCE CoBank