Posted by: usset001 | June 14, 2011

Wheat / Corn : Food Grain / Feed Grain

Corn is the most important feed grain in the world. Wheat is one of the most important food grains in the world. Trivia question: What is the second most important feed grain in the world?

The answer is wheat. Statistics show that, worldwide, about 20% of the wheat grown in the world each year is fed to animals.

While it seems like a foreign concept to my friends in the Northern Plains – producers of high quality hard red spring wheat – wheat feeding is also common in the United States. Since 1990, the U.S. has fed as much as 500 million bushels in one year (18% of total production in 1990/91) and as little as 16 million bushels (1% of production) in 2007/08. The most common classes of wheat fed are soft red and hard red winter wheat. There is very little hard red spring or durum wheat fed, and the bushels fed are generally off-grades of very poor quality. There has been a modest amount of soft white wheat fed, but not in the past 5 years.

The amount of wheat fed in any year depends on two factors; price and quality. Today, the price of wheat (particularly soft red wheat) relative to corn is very cheap. Based on June 13 closing prices, July wheat futures in Chicago were trading at a 28 cent discount to July corn futures. The last time July wheat traded at a discount to July corn was 1996. A normal spread – if there is such a thing – would be July futures at a 30-50% premium to corn, not a 5% discount.

The spread is even more dramatic if we look at current cash prices for wheat and corn. A quick query on my CashGrainBids.com website (How did I survive before this service existed?) shows that in North Carolina, soft wheat currently cost $1.50/bu. less than corn. North Carolina is a very important hog feeding state and, in terms of feed quality, soft red wheat is better than corn for feeding pigs.

In eastern Colorado, the price of corn and hard red winter wheat are essentially the same. That’s when you compare 12% protein HRW to corn. What if the wheat is discounted for lower protein or other milling quality concerns? My guess is that today, there are eastern Colorado cattle feeders with access to HRW wheat at prices less than corn.

In the latest WASDE report, USDA projected wheat feeding at 220 million bushels in the 2011/12 crop year – the year that began less than two weeks ago. Here’s my bold prediction: With wheat prices trading low relative to corn, the actual number of bushels fed this year will exceed 300 million bushels.

 

 


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