Livestock profits looking up

The last couple of years have offered many challenges for the livestock industry with higher feed costs, though many have turned to alternative feed sources to weather the extended period of expensive feed.

“We use alternative products to feed. We used distillers, corn screenings, potato waste and increased our corn silage a little bit,” said Phil Watts, who raises cattle and is the president of Granville Milling Company in Licking County. “We did what we could do to bring that ration cost down. It has been challenging, — there is no doubt about it — and there are definitely not as many cattle being fed in the country as there used to be.”

With a business that is involved with both crop and livestock producers, Watts is looking for crop price levels that are acceptable for both sides of the equation.

“Even the crop guys were saying $7 corn was too high,” Watts said. “With corn in the $5 or $6 range, it would good for corn guys and the cattle, dairy and hog guys can make some money at that too. As corn gets too high it distorts the market. It is a whole lot easier to sell $5 or $6 corn than it is when the price is really high.”

While crop producers bemoan the current price trends, the lower prices as of late have brought some relief for livestock producers.  Hog producers finally have a profitable outlook.

“This year, the hog outlook is almost the opposite of what it was last year,” said Chris Hurt, a Purdue Extension agricultural economist. “Feed prices, especially corn, have been falling sharply. The hog outlook is profitable, so producers are more likely to be retaining or building the breeding herd and weights are expected to increase as producers hold onto market hogs longer to gain profits on every pound.”

With an improved outlook, Hurt said breeding herd expansion has likely started and hogs are being held to higher weights. With fewer animals headed to market, prices are strengthening.

“Given low slaughter numbers, cash prices of hogs have been sharply higher than in the same period in 2012 when they averaged $55 per live hundredweight,” Hurt said. “With lower slaughter this year, they have averaged about $68 since mid-August.”

Looking forward, with the cost of production estimated at $57 per hundredweight, Hurt said cash prices in the mid- to high-$60s would mean profits of more than $20 per hog.

“These profits will enable producers to recover losses of about the same amount in the past year due to the drought,” he said.

Hurt said similar trends are taking place in the beef business. Finished cattle prices hit their summer lows in early August at slightly below $120 per hundredweight, and have climbed back toward $130 in anticipation of small beef supplies.

“Lower priced feed and the expectations for increasing finished cattle pries over the next four to five months should also encourage feedlot managers to feed to heavier weights,” Hurt said.

Low cattle numbers mean feedlots and packing facilities have a lot of unused capacity. Capacity is a fixed cost that doesn’t go away with limited cattle supplies.

“The combination of excess capacity and high fixed costs means that both will tend to bid strongly for the limited cattle numbers,” Hurt said. “Ultimately, this strong bidding gets back to the brood cow producer in the form of record-high calf and feeder cattle prices.

“Unfortunately, these conditions also mean that the margins for both packers and feedlots, while better than in the past year, will still be narrow and likely less than their total costs.”

Strong cattle prices and aggressive bidding by feedlots and packers are likely to lead to a year or more of additional downsizing.

“If beef cow numbers begin to slowly turn upward in 2014, downsizing of cattle feeding capacity might end in 2015 and the packing industry by 2016,” Hurt said. “The years beyond 2016 should provide some expansion for the beef cattle industry, but still a slow upward growth.

“A slow upward trend is not highly optimistic, but much better than declining trends of recent years.”

 

 

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