It's Never Easy Deciding When to Book Feed, This Year is Extra Challenging

Feed costs are seeing volatile swings, even as hog prices trend higher. While the markets produce major whiplash for producers, margins on the farm show costs are increasing faster than returns.

“We have folks who probably are looking at bottom lines going, ‘wait a minute, why am I not in the black given where hog prices are today?’” says Scott Brown, a livestock economist with the University of Missouri. “It's just that input side is really tough for them.”

While fuel costs are expected to remain high, and possibly keep climbing, feed costs are still a major unknown.

“I will say, feed costs could look different by the time we get to fall,” says Brown. “It's both sides. It's not just that we have a really good crop, the prices could go lower, there's a lot of demand pull on the bean side, as well, that could make for higher prices, let alone if we put a drought on top of all of this. We’ve never really seen this amount of volatility and the length of the volatility that we're seeing today.”

Read More: Economists Urge Pig Farmers to Watch Out for These Threats to Pork Outlook

The Feed Price Outlook

There are several factors that could put feed prices on either path. The slow start to planting took a turn for the better in the majority of the Corn Belt, but in North Dakota, South Dakota and Minnesota, at least 1 million acres of prevent plant is a possibility. At the same time, May planted corn in Illinois produced strong corn stands, and in turn, Farm Journal agronomist Ken Ferrie thinks record ear counts are on the table in Illinois this year.

As livestock producers weigh what to do about feed costs, Brian Splitt of AgMarket.net says he’s encouraged grain farmers to look at some strong cash sales in the $7.30 to $7.50 range, but with an options strategy.

“One of the problems for the end user that we're seeing is that even though the board has come down substantially, if you look at those feeding cattle out West, basis gets stronger by 40 cents, and the cash price stays the same. So if a producer or if an end user has been hedged in an account in futures, they've experienced a loss in their account, they're still paying the same for their cash product. So that's where implementing options strategies to at least kind of keep a cap on things without having the price risk in the account has worked out very well for the end user,” says Splitt.

Hog Prices Tied to Demand 

Hog prices have been able to hold strong, despite the loss of exports to China. U.S. Meat Export Federation’s data from March shows the biggest turbulence for pork exports is the dramatic drop in demand from China. Exports during the first quarter of 2022 fell 56% compared to the same time last year.

“On the pork side, we've really lost China for the most part and haven't been able to make up that difference. And so we're relying more heavily on the consumer now in order to get that demand and sustain that demand,” says Arlan Suderman of StoneX Group. “That's  a real concern that consumers who have the money to spend, but they're choosing to spend it in different ways and that it's not necessarily been helping the protein sector.”

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