Posted by: usset001 | October 13, 2011

Wheat feeding in 2011/2012 revisited

Wheat Feeding in the U.S., 1990-2011

Over the course of several posts in late July, I was commenting on the outlook in the wheat market (see here and here). In the last of these posts (here), I offered my opinion on one particular aspect of the wheat market – I thought USDA was underestimating the amount of wheat that would be fed in the year ahead. USDA was projecting 220 million bushels of wheat fed and, based on low wheat prices relative to corn, I thought this figure would be higher.

Subsequent WASDE reports proved me right, then wrong. USDA raised their wheat feeding projections to 240 million bushels in the August and September reports. In the October report, however, USDA jerked the number back down to 160 million bushels. This figure is just half of what I was thinking three months ago. What’s happening?

I am reluctant to cry out that the USDA has the numbers wrong, because they reconciled grain stocks (and usage) figures in September. Wheat feeding is traditionally heaviest in the first quarter of the new crop year (June-August). I can only conclude that USDA is not seeing the level of wheat feeding that one would expect from a low wheat/corn price relationship.

As I said in July, the amount of wheat fed in the U.S. hinges on two factors; price and quality. The price of wheat remains low relative to corn. As of last night, for example, USDA Grain Market News reports soft wheat at 20-40 cents per bushel less than corn at various interior elevators in Illinois. This is a relatively modest discount and price is just half the issue. The 2011 HRW and SRW crops were of very good quality. In years past, poor wheat quality would lead to sharp discounts and push wheat into feed channels. Are sharp quality discounts there today? I think not.

There may be another contributing issue. The boom in ethanol production has led to a boom in DDGs (distillers dried grains) which is a higher protein feed. Before the ethanol boom, one of the advantages of feeding wheat was higher protein content. The growth of the DDG market may have neutralized that advantage.

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