US: Feed grain buyers may see boost from large stocks, tariff tiffs
The US Department of Agriculture (USDA) released details of current feed grain stores and use in a report on Friday. Several grains reported large amounts still present, but also high usage rates.
Overall, corn and soybeans saw an uptick in the amount of grain in storage when compared to this point in 2017, the USDA said. However, stores of wheat, barley, oats and sorghum all were smaller than what was reported previously.
From a feed use perspective, the report indicates producers should not have trouble sourcing feed ingredients, said Chad Hart, associate professor of economics, crop markets specialist and extension economist at Iowa State University.
“There’s a little more feed available throughout the system even though usage has been strong,” he told FeedNavigator. “As far as feedstuffs are concerned we’ve got plenty available and spread throughout the country.”
A “wildcard” that remains for future availability of feed grains is how large this year’s crop will be, he said. “We saw more corn and soybeans being planted this spring than farmers announced they were going to do in March."
The combination potentially means that there will be a large crop coming into a system that still has stores of last year’s grain, he said. “The overall crop nationwide looks pretty good so far, but it’s highly variable."
“We’ve got some spots too dry, some way too wet, but when we average it out across the US it’s probably a better than average crop,” said Hart. “Looking at stocks and acreage reports [it appears] that going through this summer, we’ve got plenty of last year’s crop, plenty of feed from last year to get us through summer and then, when harvest comes, plenty of crop to be harvested and plenty of feed as we go through next winter.”
However, an additional variable that remains for feed crop producers and feed users is the role of the export market and tariffs being brought against US products, he said. “Starting back at the end of May we were staring at new crop corn at over $4 and new crop soy was over $10 a bushel and now new crop corn is below $3.75 and new crop soy is below $9.”
“What the market is telling you is that one, tariffs are a big deal, and we’re expecting most to be put in place this week,” he said. “There’s plenty of crop to be had with residual from last year, potential for another big crop this year and the trade disputes keeping it here in the US and making it more available for feed opportunities.”
Feed grain stock details
The amount of corn in storage as of June 1, was 5.31bn bushels – an increase of 1% from 2017, the USDA said. The usage or indicated disappearance was 3.59bn bushels slightly ahead of what was recorded last year.
Soybeans saw a 26% growth in stocks from the levels last year, the department said. However, usage from March to May of 2018 increased 15% from the same window in 2017.
“The soybeans were such a large jump – but that’s last year’s record crop,” said Hart. “The disappearance from last year was pretty strong and we’ve seen a lot of usage of these crops. We went into 2018 with incredible supplies of corn and soy, so even with strong usage, we’re sitting with more than we’ve had before – it’s a hangover from last year’s large crop.”
Wheat stocks were around 1.1bn bushels, a drop of 7%, the department said. Indicated disappearance also dropped, falling 17% from 2017 to the same period in 2018.
Stores of barley fell 11%, oats 18% and sorghum 23% from this point in 2017, the department said. Indicated disappearance of the three feed grains from March to May fell 8%, rose 8% and dropped 22%, respectively.
Tariffs, trade wars and feed use
Prices for some US feed crops appear to be trying to find a bottom in the market, said Hart. “The biggest thing holding down feed prices right now would be the trade disputes that we’re having with China, Canada, Mexico and the EU."
Uncertainty in the export market for feed grains “gums” up the market, he said. There have been some large drops in prices for corn and soybeans and there is room for both to fall again.
Previously when tariffs have been brought against some feed ingredients, there tends to be a shift to the export of other grains, he said. However, that has not been happening in the current situation.
“Here they’re all facing tariffs – when you’re talking about the US and China saying we’re going to put tariffs on $200bn each that doesn’t leave that many product lines,” he said. “That’s the issue when I’m looking at this feed market every feed I can think of faces a tariff challenge.”
Both corn and soybeans are facing the potential of new tariffs brought by China and starting Friday, Hart said. “Both will get tariffs, but they’ll have a much larger impact on the soybean market.”
There is a possibility that a deal will be reached before the deadline, or that the start of new tariffs will be delayed to give negotiators more room to work, he said. “That’s what US crop producers are hoping to see.”
Additionally, Canada and the EU imposed tariffs on select US goods starting July 1 and Mexico is looking to add other tariffs on Thursday.
“The other kicker it’s not just China that looms large here, Canada, Mexico and the EU are all moving forward,” said Hart. “There is general downward pressure across the ag market and every product faces a tariff from someone that’s going to take effect in the next week.”
The soybean markets are watching China, while corn exports are looking to Mexico along with the beef and pork industries, he said.
“You're seeing more and more feed backing up, but maybe less demand for feed,” he said. “Trade has been a large area of growth for pork and poultry – the livestock industries have been growing the last few years because of our ability to export meat, into especially the Asian market. We’ve already seen problems with China have an impact on the pork market if the problems continue with the North American partners we could see an impact on the beef sector as well.”
However, there are some brighter spots in the markets depending on how trade discussions progress, although it could also lead to a price rebound, he said. “If I can lock in feed and it makes sense from a margin perspective I would take steps to do so – this is normally a time when feed prices are still high, and we’re seeing some of the lowest prices we’ve seen all year – there is some opportunity, but I’d ease into it,” he added.
There is plenty of feed to use, and there has been solid demand domestically and internationally for crop and livestock markets – if the trade disputes could be settled, said Hart.
“Demand is holding up despite the trade problems,” he said. “If you look at the export numbers they’re still close to last year or above it – there’s a lot of underlying optimism in the market [but] if the trade situation and the tariffs don’t get settled, we’ll take the top off of the very good demand that we’ve had in the past few years.”
