Maize prices in India on the rise and US production surges; Vertical integration is the best bet against bird flu threat

Maize prices in India on the rise and US production surges

It seems there is no respite from increasing commodity prices in India, especially corn, which is the third most important coarse cereal in India, and is used by poultry, starch and the livestock sector. As its demand has gone up, the production has not been able to keep pace, due to several factors which include adoption of hybrid seeds, inputs costs and prices of competitive crops which can be grown in the same area among the few.

Current prices in India for some specific varieties are much higher than the Minimum Support Price (MSP) declared by Government of India. Some indicative prices are as under:

Deshi Red, Rs.6400 ($144) per MT; Hybrid Yellow, Rs.6125 ($138) per MT; Kesari, Rs.5900 ($133) per MT; Medium, Rs.5500 ($124) per MT. The prices of the same varieties in Oct 2005 was lower by an average of Rs.534 ($12) per MT at the market level, thus making the commodities more expensive at the fag end of the harvest.

In US, corn closed lower on CBOT on Nov 18 at $1.91 ($75.35) for Dec corn, lower by almost $2.27 from Nov 11, 2005 for Dec corn. FOB value for December delivery was indicated at $98 per MT, while for January 2005 the FOB value (US Gulf) was indicated at $99.50 per MT.

The freight has also shown a decline is the last 2 weeks. Even the values for domestic freght in US have declined.

Detailed market report from US Grains Council can be found at:

http://www.grains.org/buying/market_perspectives/mp_11-18-05.pdf

The WASDE report, out on Nov 10, 2005 predicted a higher corn production in the US. The production is now estimated at 11.03 billion bushels (280.2 MMT), up from 10.857 billion bushels (275.8 MMT) estimated in Oct 2005. The usage in food feed and industrial sector has also been increased to 75.2 MMT of which 40 MMT is estimated to be used for ethanol production. Report also predicts the average farm price to be in the range of $1.60 – 2.00 per bushel ($62.97 – 78.72) per MT. (The above price is the weighted average price received by the US corn farmer).

Vertical integration is the best bet against bird flu threat

Poultry specialists at the Purdue University, have stated that the business model of poultry industry is the key component in preventing the outbreak. All commercial poultry in US is company managed – under vertical integration and the processes are safer and more efficient. And having full control over the entire production process is probably a good thing.

Poultry production is big business in the United States. In 2004 the combined production value of broilers, eggs, turkeys and sales from chickens was $28.9 billion, according to the U.S. Department of Agriculture. Of that total value, 71 percent came from broilers, 18 percent from eggs and 11 percent from turkeys.

Under a vertically integrated system, a company owns parent stock - the males and females - that lay the hatchable eggs, which are transferred to a company-owned hatchery. It is possible that the parent stock could be on a contract farm and the company would likely own the birds on that farm, provide them feed and supply technical expertise to help that producer rear those birds.

Once a bird is hatched from the company-owned hatchery, it is usually transported to another contracted producer. At the end of the production period, the company comes and collects the birds from that farm and takes them to a processing facility that they own themselves or to the market.

Bio-security measures are tight throughout the production process, especially on the parent farms and hatcheries. Typical levels of bio-security include limiting visitors onto the farm and limiting the transfer of equipment from one farm to another.

By limiting visitors and equipment transfer, it is possible to limit possible routes of infection. Most producers go to great lengths to limit other sources of vectors that may transmit diseases, including rodents, flies and wild birds.

In India too, poultry is big business, valued at $6.5 billion, providing employment opportunities to almost 3 million people, directly or indirectly. Almost 80 percent of poultry production business in integrated in Southern India, while in West India, integration is limited to 40 percent. In east India almost 20 percent of the poultry production business in integrated, while in North India only 10 percent in under integration.

Many companies do see bird flu as a business risk, specially in South East Asia. Businesses in SEA have issued warnings to investors that earnings could get affected. But that is all part of the game.

More than 60 human deaths have been attributed to avian influenza, and four outbreaks have been reported in the past two weeks in China, where authorities have reportedly destroyed 2.5 million birds to contain the virus.

In order to keep the consumers informed about the disease, National Chicken Council, National Turkey Federation and Egg Safety Centre have come together to launch a website www.avianinfluenzainfo.com. The key message is "Avian influenza: It's not in your food" The avian influenza virus is not food borne and cannot survive heat.

Amit Sachdev
Representative
U S Grains Council, India
bluecross303@gmail.com

November 19, 2005