Supported by growing world population and higher incomes in developing countries, which leads to increased demand for animal proteins, the global feed grain sector is expected to expand in the upcoming years.
The major purpose of feed grains is to supplement or enhance diets for livestock, but they are also used for human food, seed and industrial (FSI) requirements, including ethanol.
Over the past five years, global consumption of feed grains has been balanced between livestock feed use (45%) and FSI (55%). This compares to 47% for feed use and 53% for FSI in the five years leading up to 1998-99.
By far, the top three feed grain consumers are the U.S., E.U., and China. They consumed an average of 442 million tonnes per year (nearly 60% of total global consumption) over the five-year period of 2004-05 to 2008-09.
Although not a top consumer of feed grains (it ranked 13th at 9 million tonnes per year), Australia ranked among the top three countries in feed grain exports during that period and was the focus of a recently released study by Utrecht, Netherlands-based Rabobank.
The study, entitled "Australasian Feed Grains," found that the major issue for Australian feed grains is the consistency of grain supply at the right price for feed grain end-users. Rabobank said that to overcome variable international grain prices and unpredictable Australian production, which in recent years has been hampered by drought conditions, endusers will need to manage feed grain input and marketing decisions by carrying grain inventory or taking forward positions more actively.
Rabobank said that with the exception of the cost of replacement livestock, Australian intensive livestock enterprises generally see feed grain inputs as the single biggest marginal cost incurred in the production of a kilogram of beef, pork, dairy product or poultry meat. It is estimated from the Australian Bureau of Agriculture and Resource Economics (ABARE) crop data that Australia’s feed grain consumption, by volume, has increased from 6.5 million tonnes per year in the mid-1990s to current levels of around 9 million tonnes. The increased feed grain demand has largely occurred within the eastern states, with wheat providing the dominant share. The Stock Feed Manufacturers’ Council of Australia (SFMCA) estimates that the beef, dairy, poultry and pig sectors are the primary consumers of feed grains in Australia.
Increasing demand has been driven by a general rise in livestock numbers on feed and further investment in expanding overall livestock feeding capacity. While overall numbers of livestock on feed have risen since the mid-1990s, these numbers are highly variable.
Rabobank said that over the last two years a number of factors have contributed to a reduction in the number of cattle on feed grains, although the numbers are still above mid-1990 levels. Major factors behind the decline have been:
- the high cost of feed grains and the surge in the value of the Australian dollar;
- improved seasonal conditions, allowing more cattle to be grown out on pasture; and
- reduced short-term demand for grain-fed beef during the recent global financial crisis as consumers trade down to lower-cost products.
The sheep and lamb sector accounts for only a small percentage of Australia’s feed grain use, at less than 4% of total consumption. However, in periods of drought, when pasture production is low, ABARE estimates that feed grain demand from sheep, lambs and grazing beef cattle can comprise 10% of total feed grain consumption.
According to the SFCMA, the total feed supplement used by the dairy sector doubled between 1993 and 2008, from 1.5 million tonnes to 3 million tonnes annually. This trend has been sustained despite the Australian dairy herd being of similar size during that 15-year period.
Feed grains represent one of the largest output costs for dairy producers. Factors contributing toward the jump in feed grain use have been:
- the reduction in traditional pasture feed sources because of drought and reduced irrigation water;
- improvement in technology that are available for automated feed systems;
- increasing knowledge and awareness of dietary needs;
- demand by processors for year-round milk production;
- the use of U.S. genetics to breed herds for higher yields benefiting from supplementary feeding; and
- several years of favorable milk prices relative to those of feed grains. Increasing animal protein in diets in developing countries has increased global demand for dairy products over the last decade. However, since mid-2008 the global financial crisis has slowed this growth, impacting on feed grain demand both domestically and globally. Rabobank noted that although prices of feed grains have reduced considerably for dairy farmers, a similarly significant fall in dairy prices caused many Australian dairy farmers to reduce feed costs significantly in 2009.
According to ABARE, Australian per capita poultry consumption has seen a large increase over the last 10 years, reaching 38 kilograms (kg) per capita in 2008, compared to an average per capita consumption of 31 kg in 1998. ABARE’s medium-term projections suggest poultry production in Australia will increase, underpinned by population growth as well as increases in domestic per capita poultry consumption.
The poultry meat feed grain supply chain is highly integrated, with the majority of feed manufactured internally or under contract supply arrangements. While the poultry feed conversion is one of the most efficient of all meat products, the industry has faced some challenges in recent years due to the high price of feed grains, with the industry almost exclusively geared to intensive grain-fed production.
During the last three years, the pig industry has endured high feed grain costs, a stronger Australian dollar and increased competition from imports. According to ABARE, during this period annual consumption of pork in Australia grew steadily to around 25 kg per capita in 2007-08. However, this has been mainly through increased imports at higher prices.
The fall in feed grain prices in 2008-09 and the weakening Australian dollar have presented a brighter picture for the future of the Australian pig industry. ABARE projects that pig production will increase by 6% in the 2009-10 financial year in response to higher onfarm pig prices, which is expected to keep upward pressure on domestic feed grain demand.
Biofuel demand for feed grain sources in Australia is forecast to change domestic grain usage over the next few years. A state government mandate in New South Wales will require fuel retailers to sell all standard unleaded gasoline as a 10% ethanol blend by July 2011, up from the initial mandate of 2% legislated in 2006.
The Queensland state government may also introduce ethanol mandates at some point. Queensland’s ethanol needs are expected to be met largely by the sugar industry, but there will also be some use of feed grains such as sorghum.
To manage these biofuel mandates along with increasing feed grain demand, the Australian grain industry will need to look closely at productivity and supply during periods of low grain production, with drought conditions, in particular, placing considerable pressure on grains stocks.
This may lead to higher grain stocks being carried in Australia, which may mean that readily available storage will be utilized more actively, especially in deregulated grain markets with more grain merchants managing stock levels year-to-year.
In summarizing its findings, Rabobank said that while the current global economic slowdown is testing the demand outlook, this is being offset as livestock producers become increasingly aware of the advantages available from using feed grain.
The overall outlook for Australian feed grain, Rabobank said, is for demand to strengthen as the global economy recovers and to remain at levels above historic averages.