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Livestock profits could tilt higher vs. crops in '13

John Walter 01/17/2013 @ 2:26pm

In 2013, livestock producers could see a boost in their fortunes, tilting the pendulum of profitability upward relative to the crop sector, according to a new report from the Federal Reserve Bank of Kansas City.

Soaring crop income has created an "income disparity" between the two sectors, said Nathan Kauffman, KC bank economist.

"Futures markets point to lower crop prices by the end of 2013," Kauffman said. Corn and soybean prices could decline 10% to 15% by autumn, he wrote.

While crop profits might shrink, lower crop prices could cut feed costs and boost the outlook for livestock finances.

Futures prices are pointing to higher livestock prices, with fed cattle trading at about a 7% premium to cash prices, Kauffman said.  Lean hogs are trading at about a 20% premium. Price-to-feed rations also show a swing in favor of potential livestock profits this year.


Any crop-livestock profits "pendulum swing" will depend on the weather. "Given tight global supplies, though, volatile prices could persist," Kauffman wrote.

Analysts recently predicted fed cattle prices to rise in 2013, with spring prices possibly climbing into the mid-$130 price range. Record-high prices could average in the low-$130s for the year.

Hog producers may be set to wade out of red ink that has persisted for several quarters, according to a recent Purdue University report. 

Hog production is expected to see profitability, about $10 per head, in the second and third quarters of 2013, says Chris Hurt, Purdue ag economist. The industry sustained losses of $18 a head from spring of 2012 through the winter of 2013, mainly because of high feed costs. 

Dairy producers also may see better chances for profitability, in part because of lower feed prices, says Peter Vitaliano, vice president of economic policy and market research for the National Milk Producers Federation.  Vitaliano told the Capital Press: "I think next year is sizing up to be not a bad year for U.S. dairy producers."

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