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Livestock profits possible despite high costs

Livestock profits possible despite high costs

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Dramatically higher grain prices over the past few months put a dent in livestock profitability.

Much of that price hike is due to stronger domestic and international demand, says Lee Schulz, Extension livestock marketing economist with Iowa State University.

“The supply is there, but demand has grown, especially with exports,” he said. “Right now (March 29) we have corn futures in the $5 to $5.50 range. We have a growing season in front of us, and any issues with the crop is going to possibly push prices higher.”

The USDA’s most recent Hogs and Pigs report indicated a drop in breeding herd numbers as well as marketing and farrowing intentions. Schulz says this report was surprising and reminiscent of 2014, when numbers dropped due to PED and other factors.

The report sent hog futures higher, which should help offset rising feed costs.

“We’re looking at about $25 per head more in feed costs,” Schulz says.

Despite higher feed costs, he expects to see hog producers post a profit in 2021.

“We have an upward trend for hog prices, and we are forecasting a profit of over $20 per head now,” Schulz says.

He says other factors are contributing to higher production costs. Those include higher gasoline and propane prices, as well as higher labor and new construction costs.

Higher corn costs are certainly challenging the bottom line for feedlots, says Derrell Peel, Extension livestock marketing economist with Oklahoma State University.

However, he says the futures market indicates both feeders and cow-calf producers should have some level of optimism.

He says prices this spring for lightweight feeder calves have been strong.

Peel says feedlots went through an extended period of fairly flat prices, but feed cattle prices have rallied lately.

“Seasonally, we are in a time frame where prices usually start to go down some, but June prices actually look better than April,” he says. “The fed cattle market looks like it wants to carry this rally into early summer.”

Peel says higher feed costs could boost demand from feedlots for heavier feeder cattle.

Drought conditions could also play into feed costs. Many parts of the country remain in some level of drought, he says.

“If we see prolonged drought, then all bets are off,” Peel says. “We have drought in part of the Midwest, the South and in the West. In some areas, it’s as bad as it was in 2014.”

The USDA released its Prospective Plantings report March 31, which indicated farmers plan to plant 91.1 million acres of corn in 2021, up less than 1% from a year ago. Soybean acres are estimated at 87.6 million acres, up 5% from 2020.

“I don’t think there is much likelihood that grain prices are going to come down much,” Peel says. “Producers may want to price some of their feed needs now, with maybe a call option to protect against the upside. If there is a good pricing opportunity, you need to be in a position to act on it.”

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