One year ago, Phil Borgic, along with many other pork producers, started making money on hogs for the first time in 29 months. With corn futures prices past the $7/bushel level, the Nokomis producer wonders how long it will last.
"The question will be, can we push the cost of meat high enough to afford these corn prices," Borgic notes.
This summer, he imagines most producers will be "treading water." That's if they forward contracted enough corn at a low enough price.
To date, a couple of factors are keeping hog producers buoyant. Borgic points to herd liquidation that resulted from years of operating in the red. Plus, the export market has picked up significantly. "That has been one of our saving graces," Borgic adds.
In the near term, everything hinges on pork prices. If meat prices follow corn upward, Borgic expects producers will not have any problems. If not, expect more herd liquidation to achieve the same effect.
"The market is starting to understand that every time corn goes up, the price of milk and pork have to go up to keep pace," he adds.
Maple Park beef producer Mike Martz says cattle are in a slightly different position than hogs, but they are also feeling the pinch of high corn prices.
"I think 2008's run up in corn was a tougher go because we didn't see the increase in live cattle prices," Martz notes.
To keep pace with production costs, Martz says beef producers need to see prices in the $1.06 to $1.09 per pound range to justify $6 corn. Thus far, beef has kept up. In 2008, the proposition was tough as beef prices hung in the $0.86 to $0.89 per pound range, Martz adds.
Today, the ethanol industry demands as much corn as the livestock sector. While this creates a big problem for pork producers, Midwest cattlemen see it as an advantage over their southern competitors. Martz is feeding a ration that is 50% to 55% DDGS.
"With the ethanol industry, it's really brought cattle feeding back to the Midwest," Martz concludes.