Corn's rise may steer U.S. wheat into feed channels

By Julie Ingwersen - Analysis

CHICAGO (Reuters) - Two months after wheat futures on the Chicago Board of Trade hit all-time highs, prices have retreated enough that the grain is poised for increased use in animal feed rations this summer.

The strong corn market has played a key role in the anticipated threefold increase in the use of wheat as animal feed this year. Prices for corn, the primary U.S. feed grain, rose to all-time highs well above $6 a bushel this month, enticing livestock producers to shop for cheaper alternatives.

So far, analysts report few bookings of new-crop wheat among cattle and hog feeding operators, but that could change by the start of the U.S. winter wheat harvest in late June.

"People are anticipating that they will be able to use wheat this year" as feed, said Prudential Financial analyst Shawn McCambridge.

About 5 to 10 percent of the U.S. wheat crop is used as feed every year, mostly in June and July as the wheat harvest begins and cash prices are low. Corn supplies are typically tight at that time, with the fall harvest still months away.

But wheat feeding declined this past year as wheat prices soared, particularly in relation to corn.

McCambridge and others said wheat feed usage could jump to 200 million bushels or more in 2008/09. That would be more than triple the 60 million bushels estimated by the U.S. Department of Agriculture in the 2007/08 marketing year ending May 31, less than 3 percent of the 2.067 billion bushel U.S. crop.

"That might be conservative. The price relationships over the next couple of months will tell us," McCambridge said.