Extension Communications
Extension 4-H Youth Building
Ames, Iowa 50011-3630
(515) 294-9915
|
|
Extension Communications |
2/9/04
Contacts:
Robert Wisner, Ag Economics, (515) 294-6310, wisner@iastate.edu
Jean McGuire, Continuing Education and Communication Services, (515) 294-7033,
jmcguire@iastate.edu
Grain Markets Affected by Asian Bird Flu
Corn and soybean prices dropped sharply in late January, in response to widespread global publicity about the rapid spread of a new strain of bird flu to chickens and ducks in eastern Asia. An ISU Extension economist said that although the avian flu is a potentially significant influence on the demand for U.S. corn and soybeans, grain traders may have over-reacted initially to the news.
ISU Economist Robert Wisner said countries where the bird flu has been confirmed accounted for 50 percent of U.S. corn exports and 57 percent of U.S. soybean exports in the 2002-03 marketing year. Poultry production represents a very important component of the feed market in eastern Asia. The new strain of flu has been reported in at least nine countries. Wisner indicated that reports vary on the number of chickens and ducks destroyed so far to control the disease. Some reports have indicated 25 million or more birds have been destroyed. Other reports indicate this was the number of birds destroyed in Thailand only, where the problem has been most severe.
The economist said that even if the number destroyed so far is as high as 50 or 60 million birds, that is a very small part of total poultry production in the region. He added that while data are incomplete, USDA data on broiler meat production would suggest that several billion birds are produced annually in the affected region. And that does not include the number of layers, ducks, and geese in the affected countries.
Wisner said a major uncertainty for the grain markets is the number of birds that will be destroyed in the weeks or months ahead before the disease is brought under control. A vaccine is reported to be available as an alternative method of control, but the amount of vaccine supplies is not yet known.
The new poultry flu is complicated by reports that it also has spread to humans. Wisner said that concern has caused several countries in the region to restrict imports of birds and poultry meat.
According to the economist, the grain markets are likely to be especially sensitive to new developments related to the disease because of very large long commodity fund positions in both corn and soybean futures. These positions have been quite profitable since last fall, but fund traders may decide to exit their positions if news about the bird flu becomes more negative. He added that the way out of long positions is to sell them, which could temporarily weaken prices. February will be a critical period for this component of the market, since speculators holding positions in March 2004 contracts will want to close those positions out before delivery becomes a risk factor in March.
Wisner added that soybean prices weakened more than corn in late January, as China shifted over 40 million bushels of 2003-crop soybean purchases to delivery next fall when the 2004 crop will be available. Depressed Chinese processing margins, possibly related to the bird flu, appeared to be a factor in its decision to shift from old-crop to new-crop delivery. France also shifted a small amount of soybean purchases to fall delivery.
The economist added that even with recent changes in Chinese delivery dates, weekly U.S. soybean export sales from February through August will need to be about 75 percent less than a year earlier to match the tight U.S. supplies. That assumes that domestic crushings from January through August will be down 14 percent from a year earlier. Wisner noted that soybean prices from September through December were not high enough to significantly reduce the domestic soybean crush. Crushings during that period were only 0.9 percent below a year earlier. While soybean export sales have dropped sharply in the last two months, Wisner said corn export sales remain well above official projections and may tighten corn supplies further this spring and summer, putting upward pressure on prices.
-30-
ml: isufarm