Have analysts found the missing link to US animal feed supply chain?
The market has been puzzling over how livestock farmers will keep their animals fed since the US Department of Agriculture on April 8 cut its estimate for American feed usage of corn in 2010-11 by 50m bushels.
This despite data implying that America consumed a record 7.2bn bushels in the first half of the crop year – with much of the increase assumed down to animal feeding fostered by record cattle and hog prices, which are allowing livestock farmers to cash in even while paying elevated prices for grain.
"Cattle on feed in February increase 5% year on year, the poultry industry continues to grow at a pace of 2% year on year, and hogs kept for the breeding increased for the first since 2008-09," Rabobank said.
If the USDA is right, overall corn consumption plunge to 4.4bn bushels in the second half of the crop year, the biggest drop for nearly 20 years, with livestock farms expected to bear the brunt of the decline.
Analysts have come up with three answers so far for filling the apparent hole in feed supplies.
The first is to doubt the USDA forecast, which is predicated on an idea of US corn stocks ending the year at 675m bushels – way above market expectations.
Goldman Sachs on Friday became the latest in a series of commentators to question an inventory figure branded "a joke" by one commentator.
"While the USDA continues to report stabilisation in old-crop inventories at low levels, strong near-term demand, especially for corn from exports, feed and ethanol, points to further declines in inventories," Goldman said.
Informa Economics on Wednesday, in the first estimate from a major analyst since April 8, pooh-poohed the USDA figure, pegging year-end stocks at 575m bushels.
If correct, that would allow some loosening of the supply corset. Especially when combined with supplies rushed to feedlots and hog farms from the early corn harvest, which starts before the 2010-11 year finishes in August.
The second answer is to take the USDA's own assessment on board.
The department believes that soft red winter wheat, which is already in decent supply and for which an abundant harvest is expected, will take over from corn in animal feed.
That certainly makes financial sense.
At prices as of Wednesday's close, livestock farmers buying wheat would save $0.70 a bushel, using 100 pounds of the grain to replace 92 pounds of corn and eight pounds of soymeal, according to a report by Paragon Economics and Steiner Consulting.
The trouble is that switching over from corn to wheat is not as simple as it might appear.
"To include a new feed requires more than just replacing corn with wheat, it requires a change of the entire feeding regimen, the feed also needs to be handled differently and may require additional work," the groups said.
"It takes time to transition cattle into a ration that contains wheat. Some of the research we have seen recommends a transition period between 30-45 days," they added, noting that wheat's high starch content "causes digestive problems".
For poultry farmers, meat attributes such as fat colour may be an issue for customers used to, for example, corn-fed chicken.
"We will likely see some wheat feeding. But we think that this will not be as quick to implement as some may think," the groups concluded.
So can a byproduct of ethanol plants square the circle?
Dried distiller's grains, or DDGs, have a lower starch content than wheat. They do not need to be processed or ground to put into a feed rations. And, while their supplies are less closely monitored than those of the main grains, they are undoubtedly increasingly available, thanks to the growing proportion of US corn, nearly 40%, going to make ethanol.
The USDA itself highlighted the "substantial" rise in "available supplies of feed byproducts" prompted by use of corn in biofuel plants.
Nearly 30m tonnes of DDGs will be available in 2010-11 for domestic US feed use – double that five years before - according to Australia & New Zealand Bank.
Adding this to corn supplies, as proposed by the USDA, "leaves the animal feed sector with 1% greater feed rations for 2010-11" than in 2009-10.
Combined with a switch to soft red winter wheat, "these factors could well mean more downside risks already exist to 2010-11 corn animal feed usage", ANZ said.
It's an attractive idea, and not just for livestock farmers.
The ethanol industry is attempting to deflect criticism over levels of crops used in biofuels by highlighting its DDG production, and indeed won a concession last week over its labelling by the USDA.
And DDGs do have potential for taking up a bigger proportion of feed rations. Canadian hog farms are using DDGs at up to 40% in feed rations, according to the US Grains Council.
US cattle farmers can use it at rates of 35%, according to Steiner Consulting.
However, there is still the problem that animals tend do better if kept on a constant diet.
"And there is the matter over whether farmers are happy to use it," Steiner analyst Altin Kalo told Agrimoney.com.
"They need to be comfortable with handling it, and may be reluctant to start using something new."
Especially, after all, when live cattle are worth approaching 120 cents a pound on the Chicago futures market, and lean hogs more than $1 a pound too.
Only time may provide the answer as to how US animals get fed this summer.