Skyrocketing Feed Costs Are Just One of Two Major Headwinds for Livestock Producers this Year
Chip Nellinger Livestock Feed Prices Impact
Corn and wheat prices started the week sharply higher, as the ongoing Ukraine-Russia crisis is now hindering trade out of the major grain production area. With uncertainty taking over the grain market, it’s a double whammy for livestock producers who are facing higher feed costs, as inflationary pressures may create more headwinds on the demand side in 2022.
“Unfortunately, a lot of those producers in the West still have not recovered from this drought,” says Chip Nellinger of Blue Reef Agri-Marketing. “They've maybe got some snow this past winter but not enough to bounce back fully.”
With depleted resources for feed already at hand, and now sharply higher feed costs, Nellinger says the feed side of the equation is very uncertain for livestock producers.
“I think from Monday’s snapshot with corn back limit up, it's obviously working on the feeder cattle market. I think the hog market has done a much better job of kind of keeping pace with the rise in the cost of corn and soy meal.”
Nellinger says historically, if the bull move in grains continues into summer, cattle prices could follow suit.
“Historically, every time that's ever happened where we see new all-time-high type numbers with grains, it does drag the livestock markets with it eventually, even the feeder cattle market,” he adds. “That happened in 2012. It happened in 2008.”
While feed costs are one risk livestock producers face today, Nellinger says it’s not the only risk for this year.
“I think another big risk, maybe not in the immediate term here, is do these high prices in the inflationary push, and/or higher interest rates, does that slow the economy down? I guess now you can add to that the sanctions that we're putting on economically to Russia. Does that cause kind of a hangover in the world economy? And so that's a big risk I see, potentially,” says Nellinger.
Consumer Demand in Question
He says it’s not clear whether that issue hits consumers a few months from now or even a year down the road.
“On the back side of this inflation, if that crushes the economy, crushes the consumer, then you have a demand issue, as well, and it could happen potentially at the same time that we have these high feed costs,” he says.
He says the higher feed costs combined with the potential wrath of inflation, could be a headwind for livestock producers. And as a result, he thinks more liquidation could occur.
“We've been in a liquidation phase now for probably going on 18 months,” says Nellinger. “There's really not much of an indication that that has slowed dramatically, yet, from both a cow and replacement heifer standpoint. So, I think the unfortunate answer to your question is, yes, this won't slow that down much. In fact, it might speed that up.”
He points out the back side of that liquidation phase will be smaller cattle on feed numbers, which could turn into a bullish scenario for producers, eventually.
