Slumping Feed Costs Improve U.S. Livestock Profit Prospects

Vivid memories of struggling with pricy feed, lack of forages and need to shore up balance keep livestock producers wary about expanding rapidly

Published on: Feb 20, 2014

Market prospects for U.S. livestock and poultry producers are much improved in 2014, says Joe Glauber, USDA's chief economist, at USDA's annual outlook forum Thursday in Arlington, Va.

For several years, particularly during the 2012-13 crop market year, livestock producers struggled with a feed cost-product price squeeze.

"However, as 2013 crop yield prospects improved in the second half of 2013, feed price ratios also improved for all species," Glauber says. He expects returns over feed costs to continue to improve as product prices remain high and feed costs decline.

Livestock producers remain cautious about expanding
Despite a return to profitability for the red meat sector, expansion remains slow. Jan. 1, 2014 saw the lowest cattle and calf inventory since 1951. The persistent inventory decline, especially in the beef cow herd constrains expansion.

Vivid memories of struggling with pricy feed, lack of forages and need to shore up balance keep livestock producers wary about expanding rapidly
Vivid memories of struggling with pricy feed, lack of forages and need to shore up balance keep livestock producers wary about expanding rapidly

While cattle numbers have been trending down since the 1970s, the continued drought in the Southern Plains has resulted in large declines in the cattle herd. Since 2011, the cattle inventory has declined by almost 1.3 million head. Almost 75% of the losses occurred in Texas, Oklahoma, Kansas and Missouri.

Although returns to cow-calf operators have been at levels which should encourage cow retention for herd expansion, many producers appear to be taking a cautious view. Many are choosing to rebuild capital and shore up balance sheets after a year or more of buying expensive forage.

Drought-weary producers want to be sure they'll have sufficient supplies of forage and water before expanding in earnest.

Slumping Feed Costs Improve U.S. Livestock Profit Prospects

Likewise, in the hog sector, positive producer returns and lower feed costs have set the stage for strong expansion. However, the spread of Porcine Epidemic Diarrhea virus through the U.S. herd is expected to sharply limit the supply of hogs compared to earlier expectations. Mortality rates due to PEDv have been highest among young piglets, which have curtailed the growth in the number of pigs per litter and will likely slow expansion.