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Impact of Higher Corn Prices on Feed Costs

by 5m Editor
20 November 2006, at 12:00am

By John Lawrence, ISU Extension Swine Field Specialist, Iowa State University - Corn and soybean meal prices have increased rapidly and may move higher over the next year.

In the six weeks from mid-August to late-October Omaha corn prices increased $1.08/bushel and Central Illinois SBM increased $25.10/ton. What impact will the higher prices have on breakeven selling prices for hog and cattle producers? The answer is relatively simple to calculate if you know how much corn and SBM is being used to finish the animal.

Adjusting the Iowa State University Livestock Budgets to a 265 pound finished hog results in the feed usage estimates in Table 1. This simple analysis looks at the change in breakeven cost per cwt due to a change in corn and SBM prices. It ignores other feed cost like vitamins, minerals and processing that have not changed with the recent run up in feed prices.

The estimated impact on feed cost of production for hogs is in the range of $4.50-$5.00 per hundred pounds of live weight or $6.08-$6.75 per hundred pounds of carcass weight on the finished hog. The weaned pig cost has increased less than $1 per head. Finishers buying weaned pigs or feeder pigs will try to bid down the price of pigs due to the rising cost of gain.

Cattle feeders also have rising feed cost. Most of the change is due to the change is corn prices, as protein supplement for cattle is less impacted by changes in SBM prices (Table 2). For cornhay rations the breakeven selling cost increases $5.00-$6.50 per cwt depending on the weight of the cattle and the ration.

The price that feedlots can afford to pay for feeder cattle decreases, all else equal, due to the higher feed cost. Because the higher feed cost is spread over fewer pounds, the impact is larger on the feeder cattle price. For both feeder cattle and feeder pigs the actual market price will depend on several factors, but given the higher cost of gain buyers will want to pay less for the feeder animal.

Distillers Grains and Solubles

While much of this fall’s corn price rally is due to short world wheat supplies, current and anticipated demand for corn from ethanol plants is also supporting prices. Ethanol production also results in a corn and SBM substitute, distillers grains and condensed distillers solubles. These products may contain only the distillers grain (DG), only the condensed distillers solubles (CDS), or more typically both distillers grains and solubles (DGS).

The DG or DGS typically come in three forms: wet (approximately 35% dry matter), modified (approximately 50% dry matter), and dry (90% dry matter). While the actual nutrient analysis will differ by plant, these products are generally high in crude protein and fat. They can replace both corn and protein supplement in a ration.

In a grow-finish hog diet a common recommendation is to use DDGS for 10% of the ration. In a ton of feed 200 pounds of DDGS and 3 pounds of limestone will replace 160 pounds of corn, 38 pounds of SBM, and 5 pounds of DiCal Phosphate. With the current prices of $3/bu corn, $185/ton SBM and $95/ton DDGS this substitution will lower the cost of feed approximately $2.62 per ton. This amount of savings is approximately $.90-$1.00 per head compared to not using DDGS. A calculator to help evaluate the economics of substituting DDGS in hog rations is available at: http://www.ipic.iastate.edu/ethanol/ISUCalculator.xls

Feedlot cattle perform very well on ethanol coproducts, either wet or dry. In fact, cattle perform better on wet DGS than on DDGS and the products can be fed at much higher levels than in hog diets. The cost savings from feeding DGS to cattle depend on starting and ending weights and on the price of the product. The DGS will replace corn and approximately two-thirds of the commercial supplement. A vitamin and mineral supplement is still needed. At current prices of $3/bu corn and $35/ton modified DGS (approximately 50% dry matter), the cost savings per head is $40 and $65 per head when fed at the 20% and 40% of dry matter levels for 650 pounds of gain. Table 3 compares the impact on the breakeven purchase price for three levels of selling prices and three levels of modified DGS in the diet.

Feed cost and breakeven cost of production has increased for cattle and hog producers due to the higher corn prices. Using corn coproducts in the ration may offset some of the increased costs. Because DGS is a substitute for corn, its price will likely be bid higher along with corn prices, particularly for the dry product DDGS.

November 2006

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