Rising Feed Costs Challenge Cattle And Hog Producers
The U.S. animal protein sector will see 12% higher feed costs in 2021 due to higher corn and soybean meal prices, according to a new report from CoBank. If realized, it would be the highest year-over-year inflation in feed costs since 2011.
The analysis from CoBank’s Knowledge Exchange Division, says U.S. livestock and poultry producers will fact more feed cost inflation next year than at any time in the last decade, “challenging their ability to recover after a difficult and volatile 2020.”
CoBank, part of the US Farm Credit System, provides loans and financial services to cooperatives, agribusinesses, rural public utilities and other farm credit associations, who collectively own CoBank. The analysis was authored by Will Sawyer, lead animal protein economist with CoBank.
The report notes feed costs have been relatively flat since 2012, helping the beef, pork and poultry sectors to expand more from 2014 to 2019 than in any five-year period in the industry’s history.
“China is rebuilding its pork supply after ASF decimated its hog herd, leading to a surge in U.S. grain exports and prices,” Sawyer wrote. “La Nina also threatens grain and oilseed crop prospects in South America and Eastern Europe.”
Average producer margins for cattle, hogs and broilers fell into negative territory in 2020 after the COVID-19 pandemic disrupted foodservice demand and drove widespread meat plant slowdowns and shutdowns, the report notes.
“Hopes for a substantial rebound in profitability for meat and poultry producers and processors in 2021 will be difficult to come by with corn and soybean meal prices at multi-year highs,” Sawyer wrote.
The report says that with corn futures above $4 per bushel and soybean meal futures around $350 per ton, cattle feeders, hog producers and chicken producers will pay higher prices for feed than they have in many years.
“The higher feed costs come at a challenging time, as meat and poultry industry margins have been pressured by weak prices in 2020 due to COVID-19. Average producer margins for cattle, hogs and broilers fell into negative territory this year after the pandemic disrupted foodservice demand and drove widespread meat plant slowdowns and shutdowns,” Sawyer said. “Most producers lost money during the year, but that’s been in the midst of some of the most extreme volatility in global food demand anyone has ever seen. Industry margins are far better today than they were in the spring, but there will be tighter windows of opportunity for the livestock and poultry sectors to profit in 2021.”
CoBank says feed price increases are drive by Chinese demand for grain as is seeks to rebuild its hog herd following the African Swine Fever (ASF) outbreak decimated its herd by 50% of the past two years. USDA forecasts China’s corn imports to more than triple in the 2020-21 crop year, with much of that increase coming from the U.S.
China’s shortage of animal protein has drawn massive trade flows towards the world’s most populous country. Since the ASF outbreak in late 2018, China has been the largest importer globally of beef and pork, and nearly surpassed Japan in poultry imports. While China’s protein imports are expected to decline a modest 3% in 2021, CoBank economists anticipate those imports will fall more sharply in the years to follow.
According to CoBank, in 2021, U.S. hog producers are expected to face the highest level of feed cost inflation at 14%, closely followed by cattle feeders at 13%, and chicken producers at 11%. The impact of feed costs varies by species for several reasons, such as life cycle, feed ration, and components of other feed costs.
With rising feed costs, meat and poultry supply growth is expected to slow in 2021. USDA forecasts 0.8% overall growth for U.S. beef, pork, and chicken production in the coming year, the slowest rate of supply growth since 2014.
“While animal protein and poultry producers face a higher cost structure in 2021, margin opportunity will increasingly come from revenue rather than cost,” said Sawyer. “And fortunately, there are positive signs that producers and processors may benefit from higher beef, pork, and poultry prices to cushion higher feed costs.”
Sawyer points to the emergence of COVID-19 vaccines as a positive first step towards the eventual normalization of food and animal protein consumption patterns, including the return of foodservice industry demand. Additionally, changes by major meat and poultry processors greatly reduce the probability of a repeat experience seen in April and May 2020.
CoBank estimates U.S. meat and poultry companies have invested more than $2.5 billion this year in direct COVID-19 expenses to ensure safe working conditions and reduced risk of plant shutdowns. With plants operating at a more normal level, absenteeism levels improving, and far fewer workers falling ill, the financial impact of COVID-19 looks to be far less in the coming year than what the industry has endured in 2020.
