Lower Feed Costs Improve Profitability Outlook

by 5m Editor
11 July 2011, at 2:19pm

NORTH AMERICA - A US-based agricultural economist says a drop in feed costs resulting from the recent surprise increase in the USDA's planted area estimate for corn has dramatically improved the profit outlook for North American pork producers, writes Bruce Cochrane.

In its 30 June planted acreage report, released recently, the US Department of Agriculture increased its planted area estimate for corn to 92.2 million acres, a five per cent increase from 2010, lowered its acreage estimate for soybeans by three per cent to 75.2 million acres and raised its acreage estimate for wheat by five per cent to 56.4 million acres.

Dr Steve Meyer, the president of Paragon Economics, notes the estimates caught most analysts by surprise and have dramatically impacted feed costs.

Dr Steve Meyer – Paragon Economics

It's already provided what I think is a pretty good buying opportunity on corn and even soybean meal in the US.

We've had corn down about a dollar a bushel on the futures since then and so generally corn is priced on the futures market between five and six dollars a bushel right around six bucks.

It took cost of production down roughly five dollars a hundredweight or so just in one fell swoop and so certainly helped the profitability picture as we're looking forward through 2012.

I only project profits out through the middle of 2012 but, from June 9 until last week, that number got on average got about 14 dollars a head better than it was back in early June so it's a big change for U.S. producers and by extension Canadian producers from a profit outlook standpoint.

Dr Meyer stresses the name of the game is still managing margins so producers need to be watching lean hog futures prices, corn and soybean meal futures prices, Canadian barley prices and, in some cases, the wheat market.

He says this break in corn prices has given producers a chance to lock in some much better margins and suggests now might be the time to lock in margins on 25 to 30 per cent of the pigs that will be sold over the next six to 12 months.

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