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Producers cautious about profit as feed costs rise

Producers cautious about profit as feed costs rise

Cattle at feeder

HENDERSON, Iowa — Like many other livestock producers, Dick Godfrey has dealt with low prices, drought and COVID-19 over the past two years.

It’s tough to be optimistic with that trifecta, but the veteran cattleman believes he is seeing signs of recovery.

“We definitely are seeing that with the grain markets, and that has dampened livestock prices some,” says Godfrey, who farms near here in Mills County, Iowa, and serves as president of the Iowa Cattlemen’s Association.

“However, we seem to be holding cow numbers, and bred cow prices are good. We are seeing better exports, and if we can capture more of the domestic market, I think we’ll be in good shape.”

Godfrey says higher corn prices is going to cut into profitability for all livestock producers. He adds it is difficult to find cash prices for cattle since many just buy on something like a grid-based contract.

Higher prices should help offset the increased production costs, says Lee Schulz, Extension livestock marketing economist for Iowa State University.

He says fed cattle prices are the highest they have been in about nine months, although feeder cattle prices are slightly lower than in 2020.

“We are seeing more seasonality with prices now, which to me is a sign that markets are recovering,” Schulz says.

The USDA’s most recent Cattle Inventory report indicated beef cow numbers were down 0.6% from a year ago. He says feeder cattle prices have recovered some in recent weeks, and he expects the market to hold those gains.

“We are in the downturn portion of the cattle cycle, but it won’t be dramatic,” Schulz says. “I don’t see those high peaks and low valleys we used to see.”

Feed costs remain a huge variable for the industry, which could pressure the feeder cattle market, although Schulz says the strength on the fed cattle side should soften that some.

He says the hog industry has been in recovery mode for some time. Schulz says anecdotal talk of tight supplies could further boost prices in 2021.

“Farrowing intentions are on par with a year ago, and the sentiment is we have put the brakes on expansion,” he says, adding production costs are likely to be up $25 per pig.

Pork exports continue to break records, representing another sign of recovery.

“Numbers were very strong in 2020, and export values rose considerably,” Schulz says. “Beef sales to China have been very strong, too.”

He says while there are many variables involved with market prices, things are looking good.

“Compared to 2020, I am certainly optimistic for 2021,” Schulz says. “The big issue is feed costs. We will have to see where that goes this year.”

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

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