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Feed costs fall, but margins remain tight

Feed costs fall, but margins remain tight

Feed costs cattle at feeder

Feed costs have taken a big bite out of livestock margins, but a more optimistic outlook for corn production could put profitability back on the plate.

Lee Schulz, Extension livestock marketing economist at Iowa State University, says recent rainfall in drought-plagued portions of the Corn Belt have sent corn prices tumbling.

“It’s a tale of old crop corn versus new crop corn, which right now is about a dollar per bushel cheaper,” he says. “A lot of people are saying this rain we just had came at just the right time, and the futures market is starting to reflect that.”

The much-needed moisture should also boost hay production, although Schulz says April hay prices were lower than a year ago.

He says profit margin also depends on when calves were placed.

“Those cattle we are feeding now have been fed some cheaper corn, so the big impact will be when feeders started feeding higher-price corn,” he says.

Feeder cattle prices were higher when many cattle were placed in the feedlot, Schulz adds. Those prices will also impact margins.

Once feedlots start emptying pens this summer, price margins should increase because of the cheaper grain, says Elliott Dennis, Extension livestock marketing economist with the University of Nebraska.

He says feeder cattle prices will also be impacted by the tighter feedlot margins.

“We will be seeing more downward pressure on feeders,” Dennis says. “With lower corn and feeder cattle prices, we should be able to make more money on this next turn through the feedyard.”

He says drought conditions in top forage-producing areas could partially offset lower corn prices. Dennis expects the price of ethanol co-products to come down as well.

Several other factors could also impact feed costs. Dennis says if corn exports continue to be high, that could put upward pressure on prices.

“I think we are pretty much right on schedule for crop production, and that will be reflected on both the futures and cash sides,” he says.

Dennis says drought conditions have likely forced cow-calf producers into difficult culling decisions. He says cow slaughter is running higher than a year ago.

There should be plenty of good pricing opportunities for fed cattle, Dennis says, particularly in the third quarter.

Even with those opportunities, Schulz expects fed cattle margins to be tight the remainder of 2021.

“I’m really not seeing a lot of red ink. I’m just seeing stable prices similar to what we have been seeing,” he says. “I think we will see a seasonal rally as we get more into 2022, and that should help prices increase.”

Hog producers are also being impacted by higher grain prices.

“We have seen the highest feed costs since 2013-14, but in 2014, hog prices were over a dollar a pound,” Schulz says. “We are forecasting prices around $90 per hundredweight, and while we won’t see margins like we saw in 2014, they are still going to be excellent.”

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Jeff DeYoung is livestock editor for Iowa Farmer Today, Missouri Farmer Today and Illinois Farmer Today.

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