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Livestock Feeds Will Not Be At Bargain Basement Prices This Year

published: June 17th 2009
by: Stu Ellis
source: University of Illinois Extension

Livestock producers trying to get as close to breaking even as possible have received a setback with the latest analysis on feed grain supplies and prices. Production will be lower because of planting delays that will retard yields, and subsequent prices will be higher because of demand. Additionally, the protein meal market continues to rise because world supplies are down and Chinese demand for US bean meal is up. So profitability in livestock production may not be rooted in feed costs for some time to come.

USDA’s June Feed Outlook followed the latest USDA grain supply and demand report, which pointed to a lower national corn yield because of planting delays in the Eastern Cornbelt and that pushed corn production under the 12 billion bushel mark, well short of expected demand for the year. Since the shortfall has to come from unused old crop corn, the reduced surplus means higher prices can be expected.

At the same time feed grain production is declining, so is demand from the livestock sector. USDA says the demand for the four feed grains plus wheat has declined about two and a half million tons from last month, based on lower projections for red meat and poultry production and lower residual use from the lower corn yield. The USDA economists believe higher forecast feed prices will reduce prospects for pork and broiler production. Grain consuming animal units are project at 91.1 million, down slightly from May, and feed use per animal is also down slightly from last month.

Domestic corn production is about 97% planted compared to intended acres, but many unplanted acres will either switch to soybeans or to short season corn that will have a smaller yield capacity. With the wide variation in crop maturity across the Cornbelt, expect wide variations in harvested yields. Through September 1, USDA is projecting average corn prices at $4.10 to $4.30 per bushel, with the new crop ranging in price from $3.90 to $4.70 per bushel. An estimated 19% of old crop corn remains unpriced by corn growers.

When USDA raised the expected price for new crop corn, it also raised the price projection for new crop sorghum to a range of $3.30 to $4.00 per bushel, with the old crop remaining in the $3.20 to $3.40 range. An estimated 18% of the old crop sorghum is still available from producers. Barley prices are well below levels of last year because of export weakness, and are in the range of $3.85 to $4.55 per bushel. However, livestock feeders are competing with the malting industry, but the overall supply is growing, as is the supply for distillers’ grains where feed demand is also increasing. Oat prices remain steady from last month in the range of $2.30 to $3.10 per bushel.

US livestock producers also know they compete with the global market for feed grains, and internationally, feed grain production abroad is up slightly. Overall, a decline in US corn production and a lower foreign barley crop are pulling down the totals for global feed grain production. With the supply cut, stocks will be down, and that forces up the volume of US corn being exported.

US livestock producers looking to buy soybean and other protein meals will find a tighter market and a 3 decade low in US soybean supplies at the end of August which is a 3.6% stocks to use ratio. That is the essence of USDA’s latest Oilseeds Outlook and is underpinning the old crop price range of $8.45 to $10.45 and has raised the farmgate range of the new crop to $9 to $11 per bushel. And the carryover in August of 2010 is not expected to be much larger because of continuing world demand by China. Whether the new US soybean crop will have a reduced yield because of delayed planting is an uncertainty. Most of the Eastern Cornbelt is catching up on its planting, and soybeans may be planted with a reasonable chance of maturity. USDA’s Supply and Demand Report did not forecast a reduced yield or production for soybeans, but used the acreage number from the March Planting Intentions report.

The business for domestic soybean crushers has picked up with global demand for meal and oil. Estimates have been raised for soybean meal exports. USDA says, “Soybean meal values in central Illinois, which averaged $292 per short ton in March, surged to $380 in May. The higher price outlook prompted a $15 increase in the season-average price forecast to $320 per ton. Soybean meal prices should ease somewhat in 2009/10, but the June forecast was raised to $275-$335 per ton, versus $260-$320 last month.”

Summary:
US livestock producers needing feed will probably find their needs, but at a higher cost than in recent months. Both feed grains and protein meals are climbing in price, putting a further pinch on profitability, when the latest USDA estimates for crop production and prices are evaluated. US corn production will be down because of planting delays, and higher corn prices will also push sorghum higher. The US soybean crop is still being planted, but global demand because of low production in Argentina and high demand in China will draw US soybean supplies to minimum levels both this year and likely next. Soybean prices are climbing as a result, pushing soybean meal prices higher as well.