Higher numbers of hogs, cattle and broiler chickens are gobbling up animal feed, eating into supplies that were expected to grow due to the loss of 48 million chickens and turkeys in the worst-ever outbreak of bird flu in U.S. history.
The U.S. Department of Agriculture shocked markets on Tuesday when it reported that corn stocks as of June 1 were 2 percent smaller than traders and analysts had expected and soybean stocks were about 7 percent tighter.
Traders and analysts had baked exaggerated worries about bird flu into their estimates for corn supplies, said Darrel Good, an agricultural economist at the University of Illinois.
The bird flu has primarily killed egg-laying hens in Iowa and turkeys in Minnesota, but has not hurt production of broiler chickens for meat.
Traders and analysts probably "didn't pay enough attention to what was happening to broiler numbers and dairy cow numbers and hog numbers," Good said.
Indeed, production of broilers is up, with weekly U.S. data suggesting a 6.9 percent year-on-year increase in second-quarter chicken production, according to BB&T Capital Markets.
The U.S. hog herd grew 9 percent to 66.9 million head during the March-May quarter compared with a year earlier, a USDA report showed last week.
The number of cattle and calves as of Jan. 1, the most recent date for which data are available, was up 1 percent from a year earlier at 89.9 million head, USDA data show.
"The impact of the bird flu is overstated," said Ted Seifried, vice present of brokerage Zaner Group in Chicago. "Cattle are taking a lot more feed than you would think."
Improved rains in the western United States are allowing ranchers to graze cattle longer on pasture. However, many are finished on corn in feed lots, which is the most feed-intensive portion of their lives, Seifried said.
Cattle consume about 5.5 pounds of grain to produce 1 pound of meat in feed lots, compared with about 2.7 pounds for hogs and 2 pounds for chickens, according to Derrell Peel, agricultural economist for Oklahoma State University.
The USDA said corn stocks on June 1 were 4.45 billion bushels, 105 million bushels below the average trade estimate, according to a Reuters poll. Soybean stocks were 625 million bushels, 45 million below trade estimates.
The USDA likely found fewer soybeans than expected because the agency overestimated last year's harvest, economists and analysts said.
The USDA's National Agricultural Statistics Service could not immediately be reached for comment.
Analysts have misjudged quarterly corn stocks by more than 100 million bushels in seven other June reports since 1990, said Good. Their 45-million bushel miss in soybean stocks equaled the two previous largest June misses since 1990, he said.
On March 31, corn prices sank after the USDA reported larger-than-expected stocks as of March 1.
"We have been oscillating back and forth between bullish and bearish stocks numbers in corn, and the March number was bearish," said Charlie Sernatinger, global head of grain futures for EDF Man Capital. "We were due for a bull number."