Feed costs eating away at livestock profits

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WEST LAFAYETTE, Ind. – This year the story for livestock producers might not be so much about the price of their livestock products as it will be about the cost of livestock feed.

“It looks like costs of production, particularly feed costs, are going to go up this year,” said Chris Hurt, a Purdue University Cooperative Extension Service agricultural economist.

Big impact. Those rising costs will have the greatest impact on dairy and hog farmers.

“This will be the third year we’ve seen all milk prices in the United States range between $12 and $12.50 per hundredweight. Those are really the lowest prices we’ve seen on milk since 1980,” Hurt said.

“A complicating factor for dairy producers this year will be even higher feed costs.”

Hurt said corn – and especially soybean meal – prices are much higher because of tight world stocks and lower crop yields last year. This will continue to squeeze dairy producers, he said.

Good news. There may be some good news for the dairy sector. Several factors affecting milk prices have come to light since the last USDA dairy price outlook was released, said Mike Schutz, a Purdue Extension dairy specialist.

“On the Chicago Mercantile Exchange, class III dairy futures for 2004 are trading at more than $1 over the five year average,” he said. “Also, stocks of butter and cheese in cold storage are decreasing and milk supplies appear tighter.”

Consumption rises. This is happening largely because of a weather-related decrease in production per cow in parts of the United States. Dairy consumption also appears to be on the rise, he said.

“One of the most encouraging aspects of 2004 is that purchases of dairy products tend to be related to income and with rising U.S. and world economies we think that will further eat away at these surpluses,” Hurt said.

In addition to the tightening supplies, Monsanto recently announced that it will temporarily slow production of Posilac, its bovine somatotropin (BST) hormone.

Schutz said it appears that the company will restrict sales to existing customers and that those sales will be around 50 percent of historic rates.

“This could cut the milk supply in the United States by 1 percent to 2 percent,” he said.

Feed strategies. Still, the story for dairy farmers will likely be the high cost of production due to increased feed costs.

To that end, Schutz suggests producers increase the forage portion of their rations, or find a higher quality forage to feed.

He said producers also have the option of replacing a portion of the soybean meal used in dairy feed with commodity feeds such as corn gluten meal or brewer’s grains and grazing young stock and dry cows, to lower soybean meal usage on the farm.

Hog industry. There was more optimism for the hog industry. However, the January crop report showed cost of production rising perhaps as much as or more than the price of hogs.

“While we’re anticipating about a $2 per hundredweight increase in hog prices in 2004, we’re seeing costs go up at least by that amount,” Hurt said. “That says we’re going to have a year with moderate losses, maybe $2 to $3 per live hundredweight.”

Those losses would likely occur in the first and final quarters of 2004. Prices are expected to average around $40 per hundredweight for the first quarter, rise to the mid-$40 range in spring and early summer and fall to the $30s in late fall.

The winners. Poultry and beef producers look to be the winners this year in the animal sector according to Hurt.

Despite the USDA’s bovine spongiform encephalopathy announcement Dec. 23, consumer demand is not expected to change much, meaning cattle prices will remain above average.

Hurt said finished cattle prices are expected to average in the high $70 to low $80 per hundredweight range for the first quarter.

“Summer prices are expected to move lower, perhaps pushing back into the lower $70s but we’ll finish the year with a move back into the low to mid-$80 range,” he said.

Calf prices. Calf prices were near $1 per pound in 2003 and will be lower this year due to lower fed cattle prices and higher feed costs, Hurt said.

He expects calves to average in the very high $80 to low $90 per hundredweight range.

Poultry prices. Poultry prices also are expected to rise. Hurt predicts that broilers will go up by 3 percent, to 64 cents per pound. Turkey prices are expected to be about 2 percent stronger at 63 cents for wholesale turkeys in eastern U.S. markets.

Egg production is expected to be stable with prices reaching 91 cents per dozen, an increase of 3 percent.

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