Livestock experts suggest strategies to manage high feed costs

(Illinois Farm Bureau file photo)

It appears the runup in feed costs, which jumped to the highest point since fall 2013, could linger for months.

Livestock experts recommend farmers formulate a management plan, if they haven’t already, to minimize the impact of the higher costs as a wait-and-see approach could backfire in the current environment.

“It’s shaping up to be a challenging year,” Steve Meyer, livestock economist with Partners for Production Agriculture, told the RFD Radio Network. “If you haven’t locked in your feed costs already, I think you’re destined to have a pretty high-cost year.”

Corn prices above $5 in January were up 36% in Omaha and 39% in the Texas triangle from a year ago, soybean meal prices in central Illinois ($426 per ton as of Jan. 29) were 45% higher than last year and the cost of distillers’ grains jumped 50% due in part to tight supplies, authors of the CME Group’s Daily Livestock Report noted.

“Futures are pointing to plus-$5 corn and plus-$400 soybean meal at least into the next crop year,” according to the report.

Breakeven levels subsequently increased to $80 per hundredweight or more in the hog industry, while the cost of gain in cattle feedlots jumped from 70 to 80 cents to nearly $1, according to Travis Meteer, University of Illinois Extension beef specialist.

Each 10-cent increase in the price of corn raises the cost of gain in cattle feedlots by an average of 87 cents per hundredweight, according to Purdue University.

“Those high corn prices are really affecting the feedlot folks,” Meteer told RFD. “There’s a thought that we’ll see the market adjust. We need to see live cattle prices bump up.”

In the meantime, livestock farmers should look for breaks in the market to lock in feed costs and consider options strategies.

“Look at strategies to buy call options to put a lid on the price and leave the bottom side open,” Meyer said. “I’ve said many times, sometimes you have to accept small disasters to prevent a big disaster.”

Cow/calf producers should hone in on their feed rations and get a forage test, Meteer noted.

“That’s what cattle are good at, digesting forages,” he said. “You really need to focus on how to best manage the forage component. It’s important to balance those rations.

“The good thing is we went into the winter season with a decent amount of hay, so there’s still good quality hay available (in Illinois).”

Higher feed costs may further pressure farmers to scale back any expansion plans and more likely encourage further liquidation this year, according to the Daily Livestock Report.