Feed demand & livestock margins
The livestock sector's benefited from the recent slide in grain prices. It's allowed producers to nail down feed supplies and keep a wider profit margin intact. But, with lower estimated grain stocks and higher cattle and hog prices, will the "livestock producer's dream" last?
That could be tough; though the grains were mixed to mostly lower Wednesday in response to USDA's Crop Production and supply/demand reports, most analysts see a lot of upside potential in the grains. And even though cattle prices have been good and feed costs have been lower in recent weeks, that may not mean all producers took advantage, says AgResource Company market analyst Bill Tierney.
"Some of the larger cattle buyers I've talked to have priced their cattle on feed. But, I was disappointed to hear that if they haven't sold the cattle forward, they don't buy the feed forward," Tierney says. "A lot of them haven't purchased feed for future use and they won't unless they've priced fed-cattle forward. I get the impression it isn't that much."
But, $6 corn, though still a profitable level for the farmers raising it, still works for cattle feeders right now. And, it makes for simple advice to his clients for North American Risk Management Services market analyst Jerry Gidel.
"We definitely encourage feedlots to take advantage of prices in the $6 area," he says.
And, the same is about true for the hog market. Combining these 2 livestock sectors and the profitability levels of today may not last, as demand continue to grow, adds Linn Group market analyst Jerrod Kitt.
"You definitely put the hog producer in the black here. Cattle's a little more questionable. We have high feeder cattle prices here, but I think that number where you took feed demand up 5 million tons will be very telling," Kitt says. "You're turning demand on again and you're not doing anything to increase the supply side."