Analyst expects record-high corn and soybean prices predicted for the 2012-2013 crop year will cause bigger cutbacks in feed usage than in use for ethanol, exports or food, seed and industrial.
In a report for the National Turkey Federation in early September, Dr. Thomas Elam, economist and principal at FarmEcon LLC, forecasted an average farm price for corn of $8.00 per bushel and a Decatur, Ill., high-protein soybean meal price of $500 per ton for the 2012-2013 crop year. These forecasted prices are both 28 percent higher than the projected average prices for the 2011-2012 crop year.
Dr. Chris Hurt, agricultural economics professor at Purdue University, said during the WATTAgNet United States Department of Agriculture August Crop Report webinar that the record-high corn and soybean meal prices expected this coming crop year will ration the supply of these commodities. He posed the question: “Who will reduce corn and soybean meal usage in the next 12-14 months?”
17 percent less corn in animal feeds
Hurt expects corn usage in animal feeds will be reduced at nearly three times a greater rate than the rate ethanol users will reduce their corn usage, 17 percent and 6 percent, respectively. In August, the USDA predicted that corn usage for ethanol production and animal feeds would both decrease by 10 percent.
Hurt said that unless corn prices go over $9.00 per bushel or oil prices drop below $80 per barrel, blenders will continue to use ethanol in place of gasoline because it will be cheaper than gasoline, and ethanol addition allows for the use of lower octane gasoline. Because of this, Hurt believes that a greater percentage of the total price rationing of corn will take place in livestock and poultry operations than it will in the ethanol fuel sector.
The USDA tracks grain usage in livestock and poultry production in terms of Grain Consuming Animal Feeding Units. A dairy cow is the standard for one Grain Consuming Animal Feeding Unit, and a conversion factor has been established for each livestock and poultry species to adjust for the number of animals of that species it takes to equal one dairy cow’s grain consumption. Hurt said that based on market history, he thinks that Grain Consuming Animal Feeding Units in the U.S. will need to decrease by 4-6 percent to ration the grain.
Hurt said that beef and swine producers tend to cut back their grain usage the most. Hog grain usage is reduced through reduced number of animals raised and a reduction in the average weight at marketing. Beef producers reduce grain usage both by lower number of head raised and substitution of forage, if available, for time in feedlots.
Meat consumption off 15 percent?
Total per capita meat and poultry consumption in the U.S. peaked at 223 pounds in 2007 and will fall to around 202 pounds in 2012, according to Hurt. He said that in the next two or three years per capita consumption could fall to as low as 190 pounds, 15 percent less than in 2007. He said that he definitely expects per capita consumption of meat and poultry to fall at least as low as 195 pounds in 2013 and 2014.
Hurt said that he expects bottom line losses across all livestock and poultry species until at least the next fall’s harvest. He expects profitability to return for all species as grain prices ease going into the next harvest and after supplies of meat, poultry and eggs on the market have been reduced.
Renewable Fuel Standard waiver
Elam said that a Renewable Fuel Standard waiver from the Environmental Protection Agency would put downward pressure on ethanol production and corn prices. A reduction in the Renewable Fuel Standard would help livestock and poultry producers, according to Elam. He expects corn and soybean meal prices to be volatile and high for this crop year.
The USDA has forecasted use of all primary feed ingredients (grains, oilseed meals and distillers grains) to be 175 million tons for this crop year, a reduction of 8 percent (15 million tons) from the last 12 months.
“The next 12 months will be the most challenging economic environment the industry has faced in many years,” Elam said.