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High feed costs, weakened economy pressures livestock productionBy Jennifer Bremer
Iowa State University Extension grain economist Chad Hart said the recent crop report showed the USDA expects the second largest corn crop in history, despite concerns with flooding in the Midwest and drought in the South. "Yields in the Upper Midwest are expected to be the same or higher than a year ago, but while production is up, so is usage," he explained. "Corn used for feed is up 100 million bushels and corn used for ethanol is up 150 million bushels." He expects an average price for the coming year of $5.40 per bushel, with strengthening of up to $6.40 for July 2009. Long-range, Hart expects prices to average $6.40 for 2009 through 2011. Soybeans are another story, according to Hart. While soybean production is down, so is usage. He expects prices to be in the $12.20 to $12.50 range. Hay production has taken a hit with increased grain prices and approximately 1 million less acres than 2007. Yields continue to stay high, but quality is down from previous years. This year's price for alfalfa is nearly $50 per ton higher than a year ago, at $177 per ton. "Any news of an early frost will affect prices for grain and feed," said Hart. "A tighter stock situation will put pressure on the market and livestock producers will be forced to make adjustments to stay profitable." Higher meat production Higher quantities of all types of meat are available for consumers. January to June meat production was up 6 percent, according to Iowa State University Extension livestock economist Shane Ellis. "Higher feed costs are not limiting livestock supplies yet, but it looks as if herd reductions are on the way," he said. Domestic demand for red meat has weakened in the past year as food and fuel costs have increased and the slowing economy has hurt the sale of meat in restaurants and at the supermarkets. Fewer cattle on feed On the cattle side, 4.2 percent fewer cattle are on feed than have been in the past. Cattle slaughter remains about the same as years past, but cow slaughter is up, which makes many believe a herd reduction is happening. "Returns for the cow-calf producers have been negative, which is leading to liquidations," said Ellis. "Cow inventories are down and the number of heifers kept for replacements is down also." For the coming year, he expects the smallest beef cow inventory since 1990, which is mostly blamed on high input costs. "Prices for 2008 should average in the $95 to $96 range with a little higher prices expected in 2009--in the $96 to $100 range," he said. Exports drive hog market Exports continue to be the key for both the cattle market and the hog market. Pork exports have increased nearly 68 percent for 2008, according to Iowa State University Extension livestock economist John Lawrence. "Prices have increased nearly $37 since March due to exports of cutout and lean hogs," he said. "For the week ending August 15, we saw record high pork prices." He does caution, however, that prices for weaned pigs and 40-pound pigs will likely move lower as corn prices move higher. Exports are the big driver of pork prices. June exports were up 113 percent over June 2007 numbers. "Consumers in other parts of the world are willing to pay more for our product than consumers domestically are; therefore, less pork has been available domestically for consumers--27 percent less," added Lawrence. He stressed the importance of staying profitable and said prices will have to stay in the $79 live-cost range for producers to stay profitable. "Red ink is expected in the hog industry through the spring of 2009. Exports will continue to carry the market and herd liquidations are underway," he said. "It's important for producers to look for opportunities to protect a margin in order to stay profitable." Jennifer Bremer can be reached by phone at 515-833-2120 or by e-mail at jbremermaj@hotmail.com. 9/1/08 Date: 8/28/08 Advertisement
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Market Snapshot Inside Futures |
Farmers are expected to harvest more corn and soybeans this fall than originally thought, but exactly what effect that will have on livestock producers is yet to be determined.