Livestock Production Adds Value to Corn, Says Purdue Economist22 November 2013
US - An expanding livestock production sector could add value to corn in coming months - welcome news for growers who saw corn and soybean prices fall in the wake of an EPA-proposed decrease in the Renewable Fuel Standard for 2014, Purdue Extension agricultural economist Chris Hurt says.
The bad news for growers, however, is that it could take several months before the effects of expanding animal numbers translate to stronger crop demand.
According to Dr Hurt, the profit incentive for expansion of animal numbers is large and animal production was traditionally the way farms added value to abundant and cheap corn supplies. He used hogs as an example.
For the 2013-2014 corn-marketing year, live hog prices should average about $67 per hundredweight with a cost of production around $56, he said. That translates to an approximate $32-per-head profit and increases the value of corn marketed through hogs.
"For the current corn marketing year, hogs are offering an estimated $6.85 per bushel if the profits from hog production are assigned to the value of corn," Dr Hurt said. "This compares to a US Department of Agriculture-estimated price of $4.50 for corn producers.
"Unfortunately, it takes time to get into hog production, and gilts retained now will not have market-ready pigs until late 2014 when much of the profit incentive will be eroded."
Feed prices are expected to move into a period of moderation over the next several years, which means lower livestock production costs, and increases the likelihood that livestock producers will continue expansion.
For hogs, specifically, an expected 1-3 per cent breeding herd increase is already underway. Pork production increases should start to appear late in the summer of 2014, which likely will take hog prices down to $58 per hundredweight by late in 2014, Dr Hurt said.
"The big profits for hog producers will come during the 2013-2014 corn marketing year, reaching $37 per head of profits, on average, during the second and third quarters of 2014," he said. "While hog prices are strong, it is really lower feed costs that are providing the strong profitability forecasts."
A growing hog industry, while helpful in providing additional demand for corn, won't be enough on its own to boost corn prices to previously high levels, Dr Hurt said.
"The hog industry expansion will not be large enough to return corn prices to the previous lofty levels; however, when all animal industries are included it will be a period of growing feed-use base for corn growers," he said. "It's anticipated that in coming years there will be a better balance between the crop production sector and the animal sector.
"Assuming ethanol use is relatively level in the future, this means that corn farmers have achieved the goal of providing sufficient production for both food and fuel."
Dr Hurt's full report, Hogs Provide Near $7 per Bushel Corn Value, is available in both text and podcast formats via Farmdoc Daily from the University of Illinois by clicking here.
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