Grain Prices: Reality Catches the Flu

Perception is often reality. Many medical experts have been quoted that people cannot contract the swine flu by eating swine, yet China, Russia, Thailand, Jordan, Indonesia and the Philippines have temporarily banned imports of U.S. pork products. There is no way to determine how long these import bans will last, but we can consider what the worst-case scenario implications are for feed demand.

The U.S. exported more than 2 billion pounds of pork last year. Here is a quick breakdown of the major buyers of U.S. pork in 2008:

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To estimate the total feed required to grow these exports, we employ the feed-conversion ratio for pork, i.e. the pounds of feed required per pound of live weight produced. While industry estimates vary, we can use an estimate of 4.0 for our feed-conversion factor. At 56 pounds per bushel of corn and 60 pounds per bushel of soybeans (assuming standard moisture content for both grains), U.S. pork exports last year required roughly 106 million bushels of corn and 43.5 million bushels of soybeans.

This means that U.S. pork exports account for roughly 1.0% of estimated domestic corn consumption, and roughly 1.4% of estimated domestic soybean consumption. These are hardly awe-inspiring numbers, yet corn and soybeans futures sold off in Monday’s session on fears of reduced feed demand. Even with a prolonged import ban, the impact on the grains’ balance sheet seems to be minimal. Weather’s impact on planting conditions will prove to be far more influential on grain prices in the coming weeks.

Disclosure: No positions

Comments

[Ergo:]

Nice article. Good work.

Apr 29 10:00 AM