USDA expert discusses the high feed prices that producers are seeing right now and how they can keep their costs down
PODCAST: How are high feed prices affecting producers? (17:28)
Ann Reus, Feed Strategy staff reporter: Hello, and welcome to the Feed Strategy podcast. This is Ann Reus, staff reporter for Feed Strategy. I’m here today with Mark Jekanowski, World Agricultural Outlook Board Chairman at the U.S. Department of Agriculture. Hi, Mark. Thanks for being here.
Jekanowski: Hi Ann. Nice to talk to you today.
Reus: You recently said broiler feed prices are expected to be 7% to 20% higher this year than last year. Why are feed prices high for poultry and livestock producers right now?
Jekanowski: Feed prices are high right now because corn and soybean prices, feed grain prices in particular, are high right now. If we think back a little bit about where things – how things have transpired over the over the course of the past seven or eight months, really, or year, if we go back even further. It’s interesting to recall that about a year ago, back in March of 2020, and then really in through the spring and into the summer, prices were actually at multi-year lows. We were at the beginning of the pandemic and there was a big dropoff in in demand for ethanol and a lot of uncertainty on the trade front, we had only recently signed the Phase One agreement with China, so those exports haven’t really ramped up yet. And at the same time, we were also expecting very large crops – corn and soybean crops – spring weather was good.
But then as the year wore on, as the crop year progressed into the summer, things started to change a bit. You know, the weather, we started to see some pockets of dryness, drought in parts of the country. We had some other weather events like the derecho that came across Iowa. And suddenly the crops started to look a little bit smaller than we had expected it to be earlier in the growing season. So, the supply started to tighten up. And then at the same time, or roughly the same time, late summer into fall, we started to really see a big increase in demand, shipments to China. China came back into the market, started buying up a lot of U.S. corn, soybeans initially as they always do, but then also a lot of corn.
And, so by the time we got to the end of the year, we had both the combination of tighter supplies than we initially expected and much stronger global demand, much stronger exports. So, now we’re in this situation where prices are at – cash and futures prices – are up around six and a half for a year or so highs. So, it’s really just a matter of that market, adjusting to current events and pulling up the prices for corn and soybeans, which obviously gets transferred directly into the price of livestock feed.
Reus: So, do you expect high prices to stick around for a while?
Jekanowski: Well, that’s a good question. I mean, as I noted, the prices turned around relatively quick this year from really kind of multi-year lows to multi-year highs. But the current situation that really seems to be that supplies are tight. And we expect supplies to remain relatively tight for the foreseeable future. But as people also frequently point out, one of the best cures for high prices is high prices. So, with prices where they are now, that is going to encourage a lot more production both in the U.S. and in globally.
So even here in the U.S., we just last week put out our first very preliminary estimates for what we expect corn and soybean acreage to be for the new year and, not surprisingly, I mean we’re expecting to see increases in both of those – both corn acreage and, if you combine corn, soybeans and wheat acreage, we’re expecting that to be a new record this year. So higher production, that should potentially cap some of the gains on prices.
And then also, overseas, we expect Brazil and in South America generally to likely increase. There’s incentive for those farmers too to expand and we expect to see increased second crop corn acreage going into Brazil. That crop is currently being planted a little bit behind schedule. But, again, the incentives for the farmers there are to plant. So, with the increased supply, with expectations of increased supplies, that should kind of hold future price gains in check to some degree.
But all of it ultimately is going to depend on the weather. You know, if there’s any production problems in the U.S., if it’s too wet in the spring or too dry in the summer, and yields are cut back or production is harmed, then supplies are going to remain tight, and prices are going to remain high. Same thing globally, if the South American crops don’t come in as big as we currently expect them to, that could also suggest prices will remain tight.
And then on the other side of the balance sheet too, if demand doesn’t remain strong, if China doesn’t –maybe if they find their needs are met, and they start to, for whatever reason, not be as aggressive in the import market, then a reduction in demand could also kind of tamp down future price gains.
So, there’s a lot of uncertainty, but certainly right now, we expect supplies to remain relatively tight, but hopefully getting less tight going forward. And, ultimately, it’ll depend heavily on how the crop turns out based on the weather.
Reus: So, which species are being affected the most by all of this and why?
Jekanowski: You know, right now, probably not surprisingly, I think the species that are most affected by high feed prices would be the non-ruminants. With cattle, obviously, all of the species are affected to some degree. I mean, you need to feed them corn and soybeans and regular feed rations, but with cattle, obviously, you have a little bit more flexibility to keep them on pasture and to maybe reduce some of the exposure to the high corn costs, etc. You don’t really have that with the non-ruminants, obviously, so the hogs and the poultry producers, they – obviously, higher corn prices, and higher soybean meal prices are going to be reflected much more directly in their feed expenses. So, those two species in particular, are probably feeling the brunt of these price pressures right now.
Reus: What are the long-term effects of high feed prices on livestock and poultry production?
Jekanowski: Well, that’s a good question. The long-term effects are a little bit uncertain, but certainly in the near term, higher feed prices are going to squeeze margin, squeeze producers’ margins, they’re going to be paying more for feed. And typically that is going to be met with an incentive to reduce production. So, it’s cut back in production, tighter margins, so we’re likely to see that reflected in, potentially, production decisions that lead to lower meat production. So maybe a little bit smaller poultry slaughter, maybe a little bit less hogs and pork being produced. But then, if you look at the longer term, then clearly the result of that reduction in production is higher meat prices, tighter supplies of meat, higher meat prices. Which, in turn, support margins. So, longer term, markets tend to adjust and the actual effect on producers bottom line is a little bit ambivalent, or a little bit ambiguous, I should say. And, and it depends a lot on the strength of meat demand and the extent to which consumers are willing to pay higher prices for meat as those higher feed costs are passed along.
Reus: What can producers, or even nutritionists, do to counter high feed costs?
Jekanowski: I think, basically, what they need to do, or what they would do is really much of what they’re always doing. I think producers and nutritionists are always trying to find ways to optimize their feed rations, minimize cost to maximize returns, and that is just always going to continue. And then, at the same time, in addition to potentially making changes to feed rations over time to maybe to increase the – substitute more wheat into the feed ration for corn or other feed grains, for example.
And then we see those kind of moves in terms of the content of the feed rations, you know, their producers and feed manufacturers are also always looking for ways to forward contract when prices are low to try to capture those low prices and lock in prices when they drop. So those kinds of strategies are, I think, always par for the course for people who operate in this industry and, and just become all the more important in periods like now, where prices are unusually high.
Reus: OK, let’s shift gears a little and talk about China. What do you think China’s pig herd will look like by the end of 2021? How quickly will it be able to return to the levels they had before African swine fever?
Jekanowski: Well, so that’s a really good question. And obviously, China is and has long been a real puzzle. China claims that they will be kind of back up to pre-ASF levels by midyear. We think that’s a little bit aggressive. I think it’s probably more likely to assume, maybe by the middle to end of next year, it could be back up to pre-ASF levels. But there’s just a lot of uncertainty there. And there’s been uncertainty throughout, I mean, it’s hard to even know how bad ASF was. I mean, there’s been conflicting reports over the past few years that they’ve been dealing with this disease in terms of how much of their pig crop was lost.
And then, it’s also clear that as of, at least as of right now, they haven’t solved the crisis, they still have, they haven’t eradicated ASF by any means. We still see reports of finding new cases of ASF in different parts of the country. So it’s hard to get a good handle, really, on just how much they have the disease under control right now. And, how their production right now compares to what it was pre-ASF. But, clearly, they have made a lot of strides. All evidence and data suggests that they’ve done a pretty remarkable job of rebuilding their production over the past few years. So, they’re definitely on an upward trajectory but just, clearly, still a lot of uncertainty with regard to when they will return to those pre-ASF levels and whether new cases or additional cases found recently or over, potentially, into the next several months could set that back.
Reus: Well, one thing that is certain is that China will have a rising demand for feed. How do you think it will fill that demand? And what countries do you expect will contribute the most to its feed ingredient imports?
Jekanowski: Yeah, that’s absolutely true. There’s no question about it and we’ve already seen this rising demand for feed. And that is that will only continue as they continue to ramp up their, not only pork production, but other livestock production as well. And so, where are they going to get – I mean, clearly, they’re going to rely heavily on imports as a as they always have, especially for soybeans, and now increasingly for corn. And, China has shown over time that they’re an equal opportunity importer, and they’re going to import from wherever they can to fulfill their needs.
Clearly, on the corn side, U.S. is still the largest supplier globally for corn and, and feed grain, so they’re likely, if they’re going to remain in the corn market, they’re likely going to continue to buy corn from us. Soybeans, obviously there too, U.S. is a big supplier to China and to the world, and we kind of share that export market with South America, Brazil in particular. So, China, for soybeans, as kind of this time a year, they tend to start shifting their soybean demand to South America as that crop starts to come off the field and be harvested. And then there’s other suppliers as well: Globally, for feed grains, Ukraine has been a large, growing exporter of corn on the world market, so that country could fill some of those needs. But, essentially, China’s going to purchase from wherever those supplies are available, and it’s going to have a heavy focus on the U.S. and South America, I think, for both corn and soybeans.
Reus: Alright, well, that’s all for today. Mark, thanks for taking the time to chat with me, and thanks to our audience for tuning in. This is Ann Reus for Feed Strategy.