Corn prices a boon for growers
WORTHINGTON -- While corn growers throughout the region continue to cash in on historically high prices -- at more than $3.30 per bushel -- those pouring the golden-yellow kernels into the feed bunk or mixing it into hog rations are likely wondering if they can make a profit in livestock production these days.
With corn prices at $1.80 per bushel or higher than they were a year ago, University of Minnesota Extension Educator Dave Bau said it will cost producers that much more to feed their livestock. For a dairy cow and her replacement (calf), that amounts to an additional $216 worth of corn fed in a year, based on an annual ration of 120 bushels of corn. Pork producers would likely spend an extra $189 per sow and her litter (105 bushels/year ration), while beef producers are looking at an extra $81 worth of corn (45 bushel/year ration) to feed their finishing steers.
"What the corn price does, that will be the impact," Bau said. "Unfortunately, both the feeder market and the hog market are going down, and I don't know if they can net out a profit right now."
Bau said farmers don't usually budget for such high corn prices, which may cause some to look for alternative feed sources to provide the energy their livestock needs.
"Maybe producers will use soybeans in their ration more -- or other commodities," he added. "They'll look at whatever the cheapest source of ration is (in place of) their corn."
Feed nutritionists can help livestock producers determine the best ration in place of corn, whether it's barley, beans or ethanol byproducts such as dried distillers grain (DDGs).
Chris Luther, purchaser of feed ingredients for New Vision Co-op in Worthington, said most producers he's talked with are opting to replace corn with DDGs. The ethanol byproduct can make up about 10 percent of a swine's diet and significantly more when fed to cattle, he added.
"The producers want to use the products that they help supply, and DDGs is a big one," Luther said.
At the same time, DDGs are proving to be a cost-effective alternative to corn.
"Supply has been getting a little tight lately, and that's just because there's more and more using the product," Luther added.
While Luther said there's no huge urgency among farmers to replace corn in livestock rations now, that may change if the corn price continues to climb.
"All ingredients go up when commodities go up. Bone meal and fish meal rise in relationship to the corn price," he said. "That makes soybean meal and DDGs a real viable feedstuff."
Bau said the impact high corn prices have on livestock producers depends on how long the prices remain above $3 per bushel. Historically speaking, corn prices have risen above the $3 mark just 7 percent of the time in the last 25 years, and 4 percent in the last five years. Already, price projections for cash corn in 2008 and 2009 are high at $2.90 per bushel, he added.
"How long corn prices will stay at $3 will be a determining factor of when livestock producers will return to profitability," Bau said. "The longer they are unprofitable, the less time they can exist."
That's a concern for pork producers like Larry Liepold of rural Okabena. He said the price of corn will be addressed in two separate resolutions appearing before the Minnesota Pork Producers Association at its annual meeting today, including one to discuss the government subsidies for ethanol production.
"Depending on what part of the country you come from, you have a different outlook on (the subsidies)," Liepold said.
In the Midwest, many pork producers may also be shareholders in their local ethanol plant. In the South, however, where ethanol plants are non-existent, support for ethanol subsidies is non-existent as well.
Liepold, a past president of the MPPA, said there has been "loads" of talk in the swine industry about the price for corn and how the pork industry will be able to sustain itself long-term. While it's possible the corn price could come back down if the export market slackens, there is no indication that will happen.
"I don't foresee prices will start to drop anytime soon," he said. "There's no reason for it."
In fact, if crop producers experience a drought or some other crop disaster in 2007 or 2008, the price for the commodity will continue to rise. While crop insurance protects farmers in case of disaster, Liepold said there's nothing to protect livestock producers when feed prices make it impossible for them to maintain their herds.
He said if corn prices continue at more than $3 per bushel, changes in the pork industry can be expected.
"There will be some consolidation in the industry," Liepold said. "Producers that have, in my opinion, buildings no longer suitable for livestock, they won't put livestock in them -- they'll sell the grain. Those that are in it for the long haul will do what we can to be efficient."
At this point, Liepold said the high cost of corn isn't a "sky is falling scenario" for pork producers. He's optimistic the corn price will eventually come back down.
"I don't think (the high corn price) is going to last forever, but it's a fear of many," he said. "I don't think it's the end of the world. I could be wrong. I definitely could be wrong."
Chuck Feikema, president of the Minnesota State Cattlemen's Association and a rural Luverne beef producer, said he doesn't see high corn prices as a bane for the beef industry.
"Typically, the old saying is cheap corn brings cheap cattle and higher-priced corn means higher cattle prices," Feikema said. "In the long run, higher-priced corn is typically good for the farmer-feeder in Minnesota -- if you grow all the corn for your cattle."
Whether the beef market follows the corn market, however, remains to be seen. The price for a 600-pound feeder today is about $1 to $1.10 per pound, compared to $1.25 to $1.30 per pound three months ago.
"If you bought cattle before the price of corn went up, you paid too much for the feeders," Feikema said. "Now that corn has gone up, the price of feeders has come down to compensate for the price for the corn."