Margins influence animal feed ingredient crop planting

Animal feed ingredient price rises since 2008 have made all parts of animal agribusiness much more aware than before about the comparative economics of growing the different crops in the main supply countries.

Most recently, a commentary from the U.S. Grains Council pointed to the way in which Argentina’s farmers have switched their crop plantings from maize (corn) to soybeans. It quotes South American consultancy service Agripac as calculating that margins for growing corn in Argentina can be one-third more than for soybeans. Yet, the beans are favored as a freely traded cash crop, whereas corn trading is subject to some government intervention on exports, potentially affecting the market price received by the grower.

The financial reasons for Brazil’s changeover from corn to soybeans are more clear-cut. According to a calculation reported in 2012, the typical Brazilian margin per hectare is more than double for growing soybeans than for corn. It explains why another 2.5 million hectares went into soybean production for the summer crop harvested in Brazil at the start of 2013, a 10 percent increase compared with 2011-12.

Western Canada, meanwhile, has witnessed a transition to producing more canola on land that was more likely in the past to have been used for wheat. The land area planted to canola has doubled in the last 10 years. In a presentation to the 2012 annual conference of the International Grains Council, Canadian grain trader Richardson International said that canola was currently offering growers in Western Canada up to three times the return per hectare they could achieve with wheat.

Planting decisions by crop farms in the U.S. Midwest are heavily influenced by the projected ratio between soybeans and corn for expected price. Historical ratios have often tended to favor corn, but, early 2013 forecasts indicate better soybean prices that suggest an edge for margins from growing soybeans in 2013.

The message from all this seems to be that we should expect stronger international supply trends for oilseeds than for the major cereals to go into animal feeds, although the actual outcome obviously still has to depend on the weather.