U.S. Ingredient Prices – Prospects for Improvements

Categories: Ag Future, Agriculture
Nov 05
U.S. Ingredient Prices – Prospects for Improvements Dr. Simon M. Shane

According to data presented by Dr. Chris Hurt of Purdue University in a presentation at the United Egg Producers Convention in San Diego during mid-October, favorable prospects for improvement in the supply of corn and soybeans in 2013 should reduce production costs for livestock.

The 25% loss in corn harvested for the 2012 crop resulted in escalation in cost to $7.80 per bushel for the season with a range of $7.10 to $8.50 per bushel.  The severe reduction in output to 10,706 million bushels together with diversion of 4,500 million bushels to ethanol representing 38% of total supply, will result in ending stocks of 619 million bushels despite a 9% reduction in the Feed and Residual use category and a 45% decline in exports.

Dr. Hurt projects a 32% increase in production for the 2013 harvest to 14,201 million bushels.  With proportional increases in feed and residual use, increased diversion to ethanol and exports, ending stocks should more than double to 1,410 million bushels.  The net result will be a decline in farm price to a range of $5.00 to $6.00 per bushel with an average for 2013 of $5.50 per bushel compared to $7.90 per bushel for the current harvest.

An increase in the cost of production attributed to higher feed costs has impacted production of livestock in the current year as measured by Grain Consuming Animal Units (GCAU). Broiler output has declined by approximately 1.6%, hogs by 1.8% and dairy by 1.1% for a total GCAU 1.6% loss in 2012 compared to the previous year.  Increased costs of production passed through to consumers has decreased the consumption of meat and poultry combined, expressed as retail weight from 205 lbs. in 2011 to 202 lbs. in 2012.

With respect to soybeans, Hurt estimates a total supply of 3,050 million bushels for the current harvest resulting in an ending stock of 113 million bushels.  This is reflected in a price range of $14.25 to $16.25 per bushel with an average of $15.25 per bushel for the 2012/13 harvest. This will correspond to a soybean meal price of $485 per ton.  For the 2013/14 harvest Hurt projects a production of 3,198 million bushels or 11.9% higher than the current harvest.  With ending stocks increasing from 130 million bushels to 280 million bushels, despite increased exports and crushing, the farm prices for soybeans will range from $10.50 to $12.50 per bushel with an average of $11.50 per bushel.  This will result in soybean meal ranging in price from $325 to $375 per ton.

The improved yields and consequently lower prices for the major commodities in 2013/14 will certainly improve profitability.  The obvious challenge is to survive through the current harvest.

This is where the opportunity for improved nutritional strategies could reduce cost of production. Emphasis must be placed on least-cost per unit of saleable product to optimize, if not necessarily maximize margins.  Strategies which can be followed for monogastric livestock include:

  • Dietary supplementation with appropriate combinations of enzymes to enhance digestibility and improve feed conversion efficiency
  • Formulating diets against realistic nutritional specifications.  Given current prices, non-specific “safety factors” should be seriously questioned.
  • The nutrient composition of ingredients should be regularly evaluated.  If critical amino acid and energy levels of corn and soybean meal are higher than the values in the matrix then appropriate adjustments will result in lower prices.  The converse is also true. If suboptimal in quality growth and feed conversion will be diminished. Accordingly matrices must be upgraded to correspond to the actual nutrient descriptions of ingredients.

- Dr. Simon M. Shane, egg-cite.com

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