Expanding Livestock Production Brings Good News For Grain Farmers, Too

Economist projects strengthening corn prices thanks to recovering livestock sector

Published on: Nov 25, 2013

Corn growers watching dollar signs disappear last week following the Environmental Protection Agency's Renewable Fuel Standard proposal might be happy to know that the livestock industry is expanding.

But, there's not-so-good news, too – it could take months for the effects of the expanding livestock sector pay off for corn growers.

According to Purdue University Economist Chris Hurt, the profit incentive for expansion of animal numbers is large and animal production was traditionally the way farms added value to abundant and cheap corn supplies.

For example, in the 2013-2014 corn-marketing year, live hog prices should average about $67 per hundredweight with a cost of production around $56, he said. That translates to an approximate $32-per-head profit and increases the value of corn marketed through hogs.

Economist projects strengthening corn prices thanks to recovering livestock sector
Economist projects strengthening corn prices thanks to recovering livestock sector

"For the current corn marketing year, hogs are offering an estimated $6.85 per bushel if the profits from hog production are assigned to the value of corn," Hurt said. "This compares to a U.S. Department of Agriculture-estimated price of $4.50 for corn producers.

"Unfortunately, it takes time to get into hog production, and gilts retained now will not have market-ready pigs until late 2014 when much of the profit incentive will be eroded."

Feed prices are expected to move into a period of moderation over the next several years, which means lower livestock production costs, and increases the likelihood that livestock producers will continue expansion, Hurt added.

For hogs, specifically, an expected 1%-3% breeding herd increase is already underway. Pork production increases should start to appear late in the summer of 2014, which likely will take hog prices down to $58 per hundredweight by late in 2014, Hurt said.

"The big profits for hog producers will come during the 2013-2014 corn marketing year, reaching $37 per head of profits, on average, during the second and third quarters of 2014," he said. "While hog prices are strong, it is really lower feed costs that are providing the strong profitability forecasts."

Hogs won't be enough

A growing hog industry, while helpful in providing additional demand for corn, won't be enough on its own to boost corn prices to previously high levels, Hurt said.

"The hog industry expansion will not be large enough to return corn prices to the previous lofty levels; however, when all animal industries are included it will be a period of growing feed-use base for corn growers," he said. "It's anticipated that in coming years there will be a better balance between the crop production sector and the animal sector.

"Assuming ethanol use is relatively level in the future, this means that corn farmers have achieved the goal of providing sufficient production for both food and fuel."

For more, check out Hurt's full report, "Hogs Provide Near $7 per Bushel Corn Value," available via the University of Illinois' Farmdoc Daily site.

Source: Purdue