Market Matters Blog
Katie Micik DTN Markets Editor

Wednesday 02/26/14

PED Virus Could Trim Corn Consumption

How much will PED virus trim from pork supplies? No doubt, it's one of the huge issues facing the pork industry. At the recent USDA Outlook forum, economists said they expect tighter supplies of hogs available for slaughter during the second quarter of 2014. They expect slightly larger expansion in the second half of the year at producers increase farrowings in response to higher profit margins. Thus, USDA expects a 1% increase in pork supplies in 2014.

Purdue economist Chris Hurt estimates that PED virus-reduced herd numbers in the second quarter could trim corn use by 45 million bushels. But as he points out in the slide above, poultry is the largest consumer of corn and faces fewer challenges to expansion. (Photo courtesy of Purdue University)

A few folks I spoke with at the Outlook Forum seem to think USDA missed the mark and underestimated the impact of PED virus, and think pork production will be pretty similar to 2013. Purdue Ag Economist Chris Hurt suggested during a webinar earlier this week that the futures' market disagreement with USDA's forecasted live prices shows the market's concern (with a little speculation thrown in, perhaps). He, however, thinks producers will continue to feed hogs to heavier weights this year to take advantage of profitable feed costs, and that will lead to some increase in pork supplies.

There's a question for grain producers in all this: how will the PED virus affect corn use? Hurt said hogs make up 29.5% of grain consuming animal units. As of February's supply and demand reports, USDA estimated total feed demand at 5.3 billion bushels. If hog supplies drop 3%, it could shave about 45 million bushels from corn use.

"That's about a nickel impact on corn prices. I don't think this is really large, but it's a bit negative," Hurt said.

Corn's feed use has been one of the more controversial columns in USDA's demand reports. It kept growing while the cattle herd kept shrinking. One of Hurt's slides (the illustration with this blog, or slide 19 in the presentation here: http://bit.ly/…) offers a little bit of an explanation. Poultry is by far the largest grain consuming animal sector at 33.6% of total corn use, followed by hogs. Beef cattle come in third at 25% and dairy trails at 10.4%.

Unlike hogs and cattle, poultry faces the fewest barriers to expansion, particularly in the broiler sector. High broiler prices in 2012 set farmers on a path to increasing flocks, but it was generally kept in check by higher feed prices until the second half of 2013, when bird numbers increased 4% over the prior year, USDA's outlook for poultry stated. Bird numbers are still increasing, but at a slower rate. USDA expects moderate expansion in 2014. Like hogs, USDA expects a certain amount of expanded broiler meat production to come from heavier bird weights, due to cheaper feed costs.

Could PED virus have a noticeable impact on corn use for feed? Yes, a 45 million bushel reduction is large enough to matter, but current projections for 2014's feed usage compared to 2013, 5.3 bb and 4.3 bb respectively, it's important to remember that at the end of the day, overall feed usage will be larger than last year.

Posted at 4:11PM CST 02/26/14 by Katie Micik
Comments (1)
Purdue in their presentation are projecting a 3.7% drop in the number of head going to market. They also show a 0.9% increase in pork production. The higher production comes from higher slaughter weights. They estimate the futures market is expecting a 3.1% decline in pork supplies. Hogs are less efficient users of feed as they become heavier. So from Purdueâ?™s own projections they should expect corn use to increase. The economics will drive any additional increase in slaughter weights. Should available floor space be used for heavier hogs, the lower feed efficiency of heavier hog will consume more feed than if production; in number of head, had not dropped. Freeport, IL
Posted by Freeport IL at 1:01AM CST 02/28/14
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