High commodity prices are good for some, but challenging for livestock producers

by Jake Shipley, posted Sept. 30, 2011

While some people enjoyed the hot weather throughout July and August, those dry days weren’t doing farmers any favors.

The 2011 growing season started out with above average rainfall for most of the state, and continued through the month of June. In July and August, farmers were plagued with below average levels of precipitation. These below average conditions put a great deal of stress on many farmers’ crops. 

Farmers along the Mississippi River, as well as other areas are also faced with production issues said Jan Dauve, professor of agricultural and applied economics at the University of Missouri. This is due to the inability to use much of their cropland after last springs’ extreme flooding wiped out much of their tillable land.

“Many farmers estimate that crops planted in April or May will meet or possibly exceed their farm’s average production,” said Max Glover, plant science specialist for the University of Missouri Extension.

Glover also said crops planted in late June or July were exposed to more drought stress and are estimated to yield well below farm averages. With a decreased yield predicted for this year’s harvest and the grain market already on a rapid increase, one can only expect grain prices to soar.  Dauve also said that the low amount of carryover grain available is going to make the price of grains increase as well.

As the price of corn climbs as high as $7 per bushel in some areas and soybean prices are rocketing above $13. This will affect farmers’ compensation for average yields this fall. Dauve said he expects some farmers could actually produce favorable incomes on subpar yields due to such a dramatic spike in grain prices. The farmers that have managed to produce a strong crop may flourish. 

“Many row crop farmers use crop insurance programs to reduce the risk of economic loss to their farming business during times of drought or flooding,” Glover said.

For row crop farmers, these high prices place them “high on the hog,” but the same cannot be said for the buyer. Livestock producers that have to purchase these unusually high priced commodities are sitting on a different side of the spectrum. Livestock have to produce, whether it is wholesome milk, fresh eggs, or a lean carcass, but in order to produce they have to eat a nutritional diet. This comes from the corn or soybeans that are beginning to appear almost unaffordable for some producers.

“I look for more livestock producers to start forward contracting their grain,”  Dauve said.

By locking in the grain at a lower price, it can give them an advantage over other buyers if the prices continue to rise. This poses the potential threat of being stuck with paying a higher price for feed should the markets drop below the contracted price. These issues are leaving many producers up in the air on management strategies.

“Some producers may start looking for alternatives for feedstuffs, such as substituting wheat for corn,” Dauve said.

Many producers have already started the substitution practice to cut costs by using grain byproducts rather than the whole grain product. This includes dried distillers grains (DDGs), which are a byproduct ethanol production. 

Some livestock producers are still finding their traditional practices no longer feasible and switching to new ways to make their living. For example, some producers have resorted to selling their animals and turning over the soil of once green pastures and converting them to rich farmland. These producers are in hopes of finding a more profitable alternative. 

Dauve thinks importing from other countries can be somewhat beneficial in driving down prices for grain consumers, but decreasing our exports will yield the greatest benefit. He doesn’t expect to see corn prices below $3 again.

As harvest begins to swing into gear, livestock and grain producers alike can only sit back and watch the markets. 

“As the old saying goes, ‘High prices cure high prices,’” Dauve said.

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