Tyson says stops buying wheat for feed due to cost

Mon Jun 11, 2012 5:48pm EDT

* Tyson used wheat in feed until CBOT wheat rally in May

* USDA, some analysts still see rise in '12/13 wheat feeding

* Wheat competitive with corn in U.S. Southeast cash market

By Julie Ingwersen and Theopolis Waters

CHICAGO, June 11 (Reuters) - Tyson Foods Inc, the largest poultry company in the United States, has stopped using wheat in its feed rations due to prices rising above those for corn.

Tyson joins some livestock and poultry producers in ending the use of wheat as feed that began about a year ago when wheat prices fell below corn's for the first time in 15 years.

"We bought some wheat earlier this spring but are not currently buying any due to the higher price levels," Tyson spokesman Gary Mickelson recently told Reuters.

"If the price spread between wheat and corn narrows some more, we may work it back into our feed ingredient formula."

The prospect of livestock feeders using less wheat and more corn threatens U.S. corn supplies that are already set to drop to their lowest level in 16 years this summer. But some analysts say wheat's exclusion from feed rations will be short-lived.

"I think we will do significant feeding of wheat compared to last year," said Jim Robb, director of the Livestock Marketing Information Center in Denver, Colorado.

"In terms of order of importance, it will be poultry, then hogs, then feedlot cattle," Robb said.

The U.S. Department of Agriculture has projected feed and residual use of U.S. wheat for the 2012/13 marketing year that began June 1 at 230 million bushels, a 50 million-bushel rise from the previous year and the highest level in four years.

PRICE RATIO

Until last year, Chicago Board of Trade wheat futures had not fallen below the price of corn for 15 years. But since June 2011, wheat has traded close to corn, often dipping below corn futures due to historically tight corn supplies.

That trend shifted in May as CBOT nearby contract for wheat gained sharply, rebuilding its premium over corn as commodity funds covered short positions in wheat, part of a broad move to limit exposure to commodities and other risky assets. Worries about crop damage in Russia added support.

Spot CBOT wheat futures moved from a discount to corn of nearly 59 cents per bushel on May 7, to a premium of more than $1 a bushel over corn by May 25. Wheat's premium to corn has since eroded to about 38 cents a bushel.

WHEAT COMPETITIVELY PRICED IN SOUTHEAST

As the harvest of soft red winter wheat progresses in the southern and eastern Midwest, wheat is competitive with corn on the cash market. In North Carolina, for example, cash prices for soft red winter wheat last week were as much as 75 cents per bushel cheaper than spot corn.

Adding to wheat's value, a standard bushel of wheat weighs 60 lbs while a bushel of corn weighs 56 lbs.

As a result, wheat is finding favor with operations like North Carolina-based Prestage Farms, which feeds about 3.5 million hogs and 15 million turkeys per year.

"Right now, we are buying more wheat than normal, only because for us, we had a very good-yielding, local wheat crop," Prestage Farms senior vice president John Prestage said.

"Whichever one we can buy the most of at the cheapest price per pound relative to the other, that's the one we'll always feed the most of," said Prestage.

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