VIDEO: Why are feed prices rising so fast?

Sharp declines in corn and soybean production are driving higher feed prices.

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Thomas Elam provides insight on the U.S. poultry industry. (Courtesy of Thomas Elam)
Thomas Elam provides insight on the U.S. poultry industry. (Courtesy of Thomas Elam)

Sharp declines in corn and soybean production are driving higher feed prices. 

In a WATT Poultry Chat interview, Dr. Thomas Elam, president of FarmEcon LLC, said the prices of corn and soybeans rose due to steep declines in production since the 2018/19 harvest. If demand remains strong and there isn't an excellent corn crop, there will be more price volatility and even higher feed costs for poultry producers in the future. 

Austin Alonzo: How did feed prices get so high so fast? 

Thomas Elam: You have to go back a couple of years and look at some key numbers. I've put together a short slideshow that has the the major drivers in the data that we're going to share today. 

So, the first thing I want to look at is what's the situation with corn. And if we pull up the balance sheets for total feed grains and corn, I've highlighted the ending stocks numbers. And what's happened here is that last summer, we had that storm out in Iowa and we've had very strong export demand on top of that. So we had a little lower than normal yields last year, and strong demand and the result has been that total feed grain stocks have gone from 60.5 million metric tons in the 2018-19 year to 37.3 million tons forecasts for the end of this crop year in just a couple of months on September 1. 

Reflecting that, corn has gone from 2.2 billion bushels in the 2018/19 year down to 1.35 billion. And the current marketing year again ending September 1, the thing that has really poured the gasoline on this fire was the March intentions report which showed that in spite of increasing corn prices, acreage was forecast to be about the same as last year. People were expecting an increase in corn acreage because of these prices, but it didn't happen. What did happen was soybean acreage went up a little bit, which is really surprising. Now that survey was taken six weeks ago and prices had been strong since. So that might be telling farmers to switch some of those soybean acres into corn. We won't know until the June actual plantings report. 

Soybeans drive soybean meal prices and soybean meal prices drive poultry feed costs. The soybean numbers are driven by acreage and we went from 89.2 million acres in 2018/19 to 76.1 million acres, the next year, and that has taken soybean ending stocks down from almost record high 900 million bushels down to a current forecast of only 120 million, which is almost a record low. And that happened in two years. So the result of that is the corn and soybean meal prices we see on the next slide. 

Those have since last year in the summer gone up significantly for both corn and soybean meal. Corn has gone from $4 to $6 a bushel soybean meal from $300 to $400 a ton. So turkey feed costs: fairly stable. That's on the ready-to-cook basis have gone up from about $.30 a pound to over $.45. This is based on cash prices. Now some companies will hedge and they won't be paying quite this. But still that's a significant increase in feed costs for turkeys and they're continuing go up. We've got a very stable low situation with prices to a very volatile situation. 

So, let's talk about this coming year. The next slide crop moisture index is pretty favorable. For the start of the season, we've had good planting weather, so we should be off to a good start. But on the last slide, we can see these planted acreage numbers if those don't shift for more corn, and maybe a little less soybeans or maybe we can borrow some acres from some other crops. We're setting the stage, if demand continues strong and we don't have an excellent record large corn crop, for more volatility and even higher feed ingredients costs and higher feed costs for all of our poultry producers.

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