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Mitigating risk in uncertain livestock markets

An ag economist says the wide swings in corn and soybean meal prices is adding uncertainty to profitability in the pork sector.

Michael Langemeier with Purdue University’s Center for Commercial Agriculture says swine feed costs make up a significant portion of the cost of finishing pigs.

He says feed costs are expected to be slightly below 2015 levels for 2016 AND 2017.  “Corn prices, if you look at the futures were all the way up to close to $4.50,” he says.  “Now they’re down below $3.50 – a swing of a dollar in a matter of about 4 to 6 weeks.  Obviously with those swings it’s important to look at the impact.”

He says the same can be said for soybean meal which has also seen a significant decline in the last 6 to 8 weeks.

Pork production is anticipated to be near slaughter capacity in the Fourth Quarter of 2016 and economists anticipate that could significantly drop pork prices.

Langemeier says by locking in feed prices now producers can proactively manage risk.  “Take advantage of the fact that corn and soybean meal prices are relatively low right now,” he says.  “So if they do see some price (pork) declines – at least farmers have locked in some lower feed costs.”

He says each 10-cent per bushel change in commodity prices impacts feed cost by 47-cents-per-hundred-weight.

AUDIO: Michael Langemeier, Purdue University