Feed mixers and resellers who have been waiting for a seasonal decline in millfeed prices may not get their wish this summer as strong demand, tight supplies and oppressive weather pushed values contra-seasonally high.
Millfeed prices tend to hit their seasonal lows in late July, which was the case last year. An exception was 2008, when record-high feed grain prices pushed millfeed values to record highs during the summer.
Last week, millfeed prices were up 100% to 300% from a year ago. In comparison, nearby corn futures prices were up “only” about 65% (although corn has contributed significantly to the strong millfeed prices). The most extreme case was Kansas City spot rail-delivered millfeed, which was nominally bid at $189 a ton last Friday compared with $47 a year earlier.
Because millfeed prices have been so high, feed mixers mostly concentrated on nearby needs, hoping prices for delivery a month or more out would decline before they need to buy again. But by waiting, they may create more demand at the time they cover those needs, and the cycle may contribute to strong spot values over and over.
High millfeed prices were the result of a combination of factors, including widespread drought creating demand for supplemental feed and higher prices asked for alternative ingredients whose supply was tight or lacking.
Various models showed exceptional drought from eastern New Mexico through Louisiana, including Texas and Oklahoma, with moderate to extreme drought from Louisiana to the East coast and from Florida to the Carolinas. Supplemental feed was needed to compensate for burned-up pastures and will continue to be needed for some time.
The weather contributed to good demand and/or tight supplies of other ingredients. Alfalfa prices were record high in May, according to the U.S. Department of Agriculture, and supplies were down significantly in the Southwest due to drought. In its June 30 Acreage report, the U.S.D.A. forecast total U.S. area harvested for hay at 57.6 million acres, the lowest on record.
Current levels have millfeed traders worried about prices in the months ahead. Typically, prices peak between Thanksgiving and New Years as flour mills take holiday downtime and supply shrinks. Price quotes for the thinly traded October-December period last week were at a discount to August-September. But current cattle liquidation in the Southwest may reduce feed demand by the fourth quarter. December corn futures were at a discount to September futures, which may keep a lid on October-December millfeed values and at the least make buyers wary.