Devastating U.S. Bird Flu Further Weakens Local Grain Market

The devastating U.S. bird flu outbreak is further weakening already low grain markets as poultry producers who have lost millions of birds are selling their stocks of feed on the local market. More than 38 million birds have died as a result of the outbreak to date. Given that the average bird eats five pounds of grain per month, the toll is equal to an estimated 25 million bushels of corn or 710,000 tons of soymeal demand. While these numbers are still too low to affect the overall supply and demand picture or the futures market, grain dealers near the affected poultry operations that will need to make room for this year’s upcoming harvest, will have to deal with the increased feed volumes and lower prices.

Sunrise Farms in Harris County, Iowa, had stocks of 1 million bushels of corn worth approximately $4 million when its operation was infected with avian flu, and has begun selling its feed on the open market. This added sales volume, combined with the drop in demand, could push local corn prices down by another 6%, according to Greg Atherton, manager of the Co-op Elevator Association in nearby Ocheyedan.

Soymeal basis offers typically improve in the spring as the old crop supplies run thin, however, in places where avian flu has hit the hardest, cash prices for soymeal have already begun to decline. The spread between the futures price and the cash price has dropped by $7 per ton to $12 per ton across Iowa, the biggest U.S. egg producing state - the lowest in more than six months.

There are signs indicating that the drop in feed demand could stretch into next year, especially if this autumn proves to be cool, causing the virus to spread. But there are some in the industry that remain more optimistic.

"The chickens can repopulate really fast," Bill Gentry, a broker at Risk Management Associates in Chicago tells Reuters. "It might be a blip on the radar but it's not going to be a longer term thing."

Areas that have not been affected by avian flu have not seen a further weakening of local grain markets, as on-farm storing of grain by farmers in the hopes of higher prices, routine maintenance shutdowns of soymeal processing plants, and record soymeal exports of 799,315 tons for the month of April have all combined to help support prices.