By Matt Reese
The annual agricultural struggle between those who grow crops and those who feed crops has been intensified in 2012 due to the already tight supplies and the severe drought that ravaged yields throughout much of the Corn Belt.
Each year, it seems, there are winners and losers when it comes to crop prices. Dairy, pork, beef and poultry producers are feeling the pain of high crop prices this year, and stuck somewhere in between the producers and the consumers of crops are feed mills that are also facing challenges this year.
“In the last few years, it has been challenging for prices and the short crop this year will be the biggest challenge,” said Karl Keller, with Keller Grain and Feed in Darke County “We make money by selling on the basis and selling storage. We aren’t seeing many opportunities for that this year. And, ethanol is our biggest competition because they handle so much corn. In a normal year, there is plenty to go around, but that is not the case this year.”
Keller Grain and Feed is celebrating 79 years of business this month since Karl’s father took the roof off of an old school house, added bins and set up a mill and started grinding feed on Friday, Oct. 13 in 1933. In addition to the increased demand and reduced supply, the feed mill is also facing a rapidly changing dynamics in the feed industry in the heart of Ohio’s livestock industry.
“Grinding feed doesn’t make money like it used to,” Keller said. “Many big operators have their own feed mills and there are not many mid-sized operations left. Hobby farmers and 4-H projects have become a bigger part of the business, but quite of few hobby farmers can’t afford their hobbies any more. The challenge for us it to be able to compete with the bigger companies and those opportunities come from relationships with farmers. The bigger those farmers get, the more important those relationships are.”
Those relationships are important with farmers on the grain side and on the feed side of the business. And, while livestock farms are getting larger, they are also getting smaller, said Matt Aultman, who oversees much of the feed business for Keller Grain and Feed.
“The low milk and pork prices took care of most of the mid-sized farms, but we do an awful lot of bags of feed for people with five or 10 backyard chickens and we are seeing more people raising hogs for their freezer. I would say probably 65% of our feed business is with the big commercial guys and the rest is the smaller farms and 4-H projects,” Aultman said. “The people on the smaller farms usually have a pretty decent income and higher feed prices don’t always have that much impact on them.”
But, Aultman said that many of the smallest farms are cutting back, especially on 4-H animals and horses, but they are
increasingly focused on feed quality.
“We are doing more and more custom blending of show feeds for 4-H steers and other animals,” he said. “In the past, people would get six 4-H animals and pick the best four to show. Now they are not getting any extra animals, so they are buying less feed, but they get the higher end feed.”
The higher feed costs will obviously have the greatest impact on the largest livestock producers.
“So far, the big guys haven’t slowed down much either,” Aultman said. “A lot of them had their feed prices locked in at lower prices, but those contracts are running out.”
Another issue that has kept the hog farms looking forward is the recent battle with porcine reproductive and respiratory syndrome (PRRS) in the region.
“PRRS has been a big issue around here,” Aultman said. “A lot of guys have recently repopulated in this area because of that and that investment makes them pretty unlikely to cut and run with the high feed prices. I really think, though, that everybody is trying to make due until we see what the 2012 crop will do to prices through the winter.”
Aultman’s forecast for feed prices is not too favorable for the livestock industry, though, at least for the short term.
“It looks like we’re going to be short on supply and feed prices will stay high at least through next July,” he said. “People are cutting back here and there and we could end up with more supply than we think we’ll have. But, ultimately, most of the big guys have made capital improvements in the good years and they are going to be using them, so they are going to need feed.”
It will be very interesting (and likely frustrating) to see how the annual price struggle between crop and livestock producers plays out in the coming months. In the end, more moderate prices would be better for the future of the livestock industry, which is better for the future of crop producers.
“It has been an interesting year for feed,” Aultman said. “I think that $5 or $6 corn and $12 soybeans would go a long way to make everybody happy.”