From China to America, monumental forces are driving global demand for food, feed and renewable fuel. Faced with a worldwide credit crunch, demand will probably take a breather, but the long-term trends are still strong.

Feed Costs Squeeze Producers
Your best customer for corn and soybeans isn’t going away, but livestock and poultry producers are taking a few hard knocks as they adapt to volatile feed costs.
By Barb Baylor Anderson

Red ink is nothing new for producers who make a living feeding livestock. But few have witnessed the wild swings in grain prices, and consequently feed costs, that are becoming commonplace today. Just as livestock and poultry producers began to adjust to the sticker shock of $7-plus corn and $13-plus soybeans this summer, the commodity market began to tumble. Analysts are still trying to decipher the full impact these prices will have on meat and poultry production.

One factor not likely to change, however, is that beef, pork and poultry producers will continue to drive demand for the nation's crops. These animals are the No. 1 consumer of grain and soybeans grown in America. Half of the yearly U.S. corn crop and one-third of the soybean crop are used to feed some 11.7 million head of cattle, 61.6 million market hogs and 5.5 billion head of chickens and turkeys.

"A lot of uncertainty exists in the markets right now. Feed costs changed very quickly this summer when prices fell," confirms Scott Brown, analyst with the

Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. "Livestock and poultry producers at the beginning of summer were in a tougher spot. Everyone was getting pinched. Then we moved into more break-even areas for all sectors."

Break-even swings. Determining actual feed, sales and break-even costs is difficult since all vary widely by location and marketing strategy. Iowa State

University data shows that feed costs for finishing medium No. 1 yearling steers to Choice slaughter grade in Iowa/southern Minnesota were $249.65 per head for steers sold in January with a loss of $154.75 per head. While feed costs rose to $354.69 for those animals sold in August, cattle producers saw a profit of $1.81 per head, reflecting a lower feeder calf purchase cost and higher slaughter steer price.

Similarly, Iowa State University data for the average 270-pound market hog shows finishing feed costs rose from $79.78 per head for January sales to $104.89 in August. Fortunately, sale prices rose during the same period. Losses in January were $33.35 per head, but profits of $8.55 returned by August.

A willingness to protect both sides of the cost-revenue equation is critical to a producer's survival, says Brown. What happens to prices next week, next month or next year is hard to predict, although he expects some sectors to adjust more quickly. Poultry producers can make modifications faster than pork producers, who have more flexibility than cattle producers.

"When you run at these kinds of levels, some production cutback is necessary," Brown says. "Producers look at futures prices and want to continue to operate.

Producers are not in a 'produce or not produce' mentality because there is so much more capital investment."

Biofuel barometer. The wild card is ethanol. While nearly half of the U.S. corn crop is used for feed, FAPRI estimates that by 2015 almost as much corn could be used to produce ethanol. Today, about one-quarter of the corn crop funnels into biofuel production.

• For additional livestock coverage and more go to about.dtnpf.com/livestockdemand.