Feed demand shifts underscore food stability

by Morton Sosland
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After nearly a decade when industrial use, mainly for making ethanol, served as one of, if not the dominant uncertainty affecting grain prices, it has been instructive to note this year how feed use looms so large as a grain market force. Across the totality of wheat and coarse grains, growth in feed use accounts for more than half of the expected demand gains in this 2011-12 crop season. That sharply contrasts with prior years when industrial processing had a similar role and feed usage registered insignificant changes. Worldwide food use, the third leg of the demand influences on global grain markets, has posted consistent annual gains of 1 to 2%, with this year’s gain at the lower end of that range. Industrial use in 2011-12 nearly matches food in its expected increase, while feed use, forecast to rise at more than double that pace to 769.3 million tonnes, has assumed greater importance as a force in driving grain price moves.

Not only is feed use of that total, as estimated by the International Grains Council (IGC), setting a new record, its share of total global grain disappearance, at 42%, is striking. While industrial use has climbed in importance in the past decade, due primarily to U.S. ethanol programs, its 2011-12 share of global use, 17%, emphasizes how forecasting this use has given way in significance to feed demand. Food use of grains, expected to total 628.8 million tonnes, continues to account for a trifle more than a third of global demand for wheat and coarse grains combined.

This more important influence for feeding may be credited to governmental limits on ethanol, steady food demand and the marked recovery of Black Sea production that includes more grain suited to feeding. Also deserving attention are the nations where feeding has sharply expanded. Livestock sectors in China, the European Union and the United States account for more than half of the anticipated gain in feed use of grains. In the case of the latter two, increased feeding is contrary to the dismal economic prognosis that has dampened consumer spending. The latter is being affected more by concern about jobs than by changes in the quality of the diet. Of course, it is China, with its booming middle class population, as well as some of its neighbors in Asia, like South Korea and Malaysia, that have boosted livestock and poultry production to the point that imports for feeding have greatly increased.

As might be expected, it is the coarse grains, especially maize (corn), that have mainly experienced the price impact of expanded feed demand. Yet, wheat markets have also felt their share of this influence. Feed demand may be more of a force in wheat prices this season than in a long while. Not only has China bought wheat on world markets for use as feed, but the E.U. has managed its import duties to allow for greatly increased quantities of feed wheat to come in free of duty. Stable demand for food wheat contrasts with the expected 50% rise in world trade in feed wheat, according to estimates by the IGC. The global trade in wheat for feed purposes is projected to reach 12.2 million tonnes, which would be the largest in nine years.

Demand for grains for feeding has only just begun to react to the threat of economic slowdown that is the source of great concern in many countries. Wary consumers worried about jobs do not buy as much meat or poultry as when conditions are brighter than now. Cutbacks in poultry and cattle numbers under way in America will most certainly cause a feeding reduction, emphasizing the way that feed demand is much more sensitive to external forces than is food use. Among lessons learned from such a fast-changing, highly volatile situation, none stands out more than the great benefits of stable food demand.