March 17, 2004 | By: Laura Skillman
PRINCETON, Ky.

Livestock and dairy producers are facing higher feed costs in 2004 because of increased prices for corn and soybean meal.

Higher prices for soybean meal and corn are resulting in feed costs that are some 50 cents more per bushel for corn and 6 cents per pound for soybean meal than a year ago. Tight supplies and a poor growing season in much of the United States are boosting the price of soybeans and related products. Demand has sent the price of corn higher.

Hog producers in Kentucky are seeing increases in prices for their livestock gobbled up by these higher feed costs, said Lee Meyer, agricultural economist with the University of Kentucky Cooperative Extension Service. Producers estimate production costs are up $20 per head or 8 cents per pound.

The immediate impact to cash flow probably is not too great for producers who have already bought their corn or produced it in the past year, but that could change if higher prices are sustained for a couple of years, he said.

In the state’s expansive poultry industry, higher prices for poultry products are offsetting higher feed costs, Meyer said. With record wholesale prices, the industry is expanding.

To date, the higher prices have only had a modest impact on the cattle industry. For finishing cattle, the cost will increase by about $30 per head, so in the short run, feedlots are profitable.

“The real impact will be on bids for feeder cattle,” he said. “There is roughly a 8 to 1 impact of change in corn price on the prices bid for yearling feeders. So, the 50-cent increase in corn price equals a $4 negative impact on feeder steer prices. At these levels, it is a fairly modest impact, but a $1 to $1.50 increase in corn price would have a pretty major impact.”

If these high prices for soybean meal and corn are sustained throughout this year and into 2005, some structural changes will occur in the livestock industry, Meyer said. The broiler industry would likely cut production and the economics of cattle production would shift to backgrounding on forages to a heavier weight instead of using grains.

Farmers need to take advantage of risk management opportunities that may come along such as buying the product ahead or by contracting or buying futures. This is not cost or risk free but can tend to offer some stability rather than trying to out guess the markets, he said. Knowing the overall cost of production can help farmers determine where they need to try to lock in their feed costs.

It will create an incentive for producers to adopt some practices that will help them be better managers such as rotational grazing. Using forages to the optimum potential can reduce the amount of grain needed and reduce overall production costs.

In the dairy industry grains make up 25 to 30 percent of the cost of production and as prices increase profits go down, said Donna Amaral-Phillips, UK Extension dairy nutrition specialist.

Forages usually cost 2-cents per pound while grain mixes cost 7 to 10-cents per pound, she said. Therefore the more forages you can include to meet the cow’s nutritional needs, the more economical the total diet. But to do this you must have high quality forages.

Some producers also may look to find more economical feed rations, but they must remember not to cut any corners that would compromise performance, she said. For dairy cows this means not reducing milk production and maintaining cattle so they do not develop any health problems.

Substituting another byproduct or ingredient may make the ration more cost effective while at the same time maintaining or improving production, she said. For example, a portion of soybean meal may be replaced by cottonseed meal to keep the grain mix cost effective.

Comparison-shopping for feed ingredients used in grain mixes can also save money, Amaral-Phillips said. Make sure you are comparing similar items. For example, make sure you are comparing concentrate mixes with similar energy content as well as the same protein content.

Contact: 

Sources: Lee Meyer, 859-257-7272, ext. 228; Donna Amaral-Phillips, 859-257-7542