Iowa Farmer Today
03-03-07
07 looks good despite feed costs
By Jeff DeYoung, Iowa Farmer Today
Higher feed costs will cut into hog industry profitability, but 2007 is looking more
promising than it may have a couple of months ago.
Shane Ellis, Iowa State Univsersity Extension livestock marketing
economist, says the next few months look very good.
“We traditionally look at base hog prices, but we have been looking more at
average hog prices,” he says.
“Last year, we had a huge spike in prices in June, and we saw huge returns at
that time. If demand stays the way it is, we could see something similar this year,
although prices are more likely to go up gradually rather than in a week.
“We’re seeing strong prices all the way through the summer.
“They won’t be less than last summer, and last year wasn’t too bad. While there
are certainly some variables, it looks promising.”
Ellis says he has fielded many questions looking at producer break-evens. He
says those figures will vary based on the individual operation.
“Some guys are less efficient than others or have higher labor costs. But, last
week, we had cash prices around $49 per hundredweight, and that’s profitable
even with $3 corn because costs of production aren’t that high yet.”
He says profitable producers are less likely to downsize their operations even
with higher feed costs.
“We’re not anticipating that sort of reduction. Now if corn goes well above $4 and
up, we could see some cut-backs, but right now we’re not anticipating that.”
Fed cattle prices remain strong as well, he says. Prices in Iowa have been
around $91/cwt. over the past two weeks, and Ellis says while feedlots aren’t
making a lot of money, they could be making a small profit.
“It depends on what they paid for their feeder cattle, but from here to Memorial
Day, we will traditionally see prices move upward.”
USDA’s Feb. 23 Cattle on Feed Report indicates the total U.S. inventory is down
3 percent from a year ago.
Placements in January were 23 percent below a year ago, the second lowest
placement number on record.
Marketings were up 2 percent from a year ago. Ellis says the large number of
cattle placed in feedlots last year due to drought and other conditions are slowly
working their way to the packing plants.
He says slaughter weights have been down as feedlots are reluctant to feed
more corn than necessary.
Feeder cattle prices should remain strong, although not at 2006 levels, Ellis
notes.
“I don’t think we are going to have a shortage of feeder cattle this year, but prices
still look good even with higher feed costs. Feed costs will have to go quite a bit
higher to make that market unprofitable.”