Moderating feed prices, strong exports slow livestock liquidation

by Ron Sterk
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Despite predictions a few months ago of heavy liquidation of beef and dairy cattle as well as hog herds because of soaring feed prices, the latest statistics indicate slower-than-expected liquidation, or even maintaining of herds, as feed prices have moderated and demand holds strong.

Granted, profit margins have been squeezed and dipped into the red for many livestock producers, but strong sales prices, along with several months of profits leading to the recent red ink, especially in hogs, have tended to offset the rise in feed costs.

"Possibly the most surprising number in the Cattle inventory report (released July 25) was that the number of beef heifers kept for replacements was down only 2%, compared with average industry analysts’ expectations of being down almost twice as much," the U.S. Department of Agriculture in its latest Livestock, Dairy and Poultry Outlook, suggesting "that liquidation may not be as severe as originally thought."

For hog producers, the U.S.D.A. said, "Next year, the combination of slower increases in feed costs and higher hog prices are expected to slow the liquidation rate of the breeding herd."

The midyear Cattle inventory report showed the number of milk cows up 1% from a year ago and the number of milk replacement heifers unchanged (compared with declines of 1% for beef cows and 2% for beef heifers). In its latest Outlook report, the department noted that higher dairy cow prices in the second quarter of 2008 "suggests demand for dairy replacements."

Ideas of slower or no liquidation of livestock are the result of both easing (or smaller-than-expected increases) of feed prices and strong export demand for meat and dairy products.

"The real driver behind retail beef prices is demand," the U.S.D.A. said. However, the agency said U.S. per capita disappearance of beef was down 2% from a year ago in the first half of 2008. Beef exports, meanwhile, rose 31% during the same period.

Gains in pork exports were even more dramatic. Through the first six months of 2008 exports soared 113% above year-ago levels. "Plentiful U.S. pork supplies and a low-valued U.S. dollar which made U.S. pork prices attractive are the likely factors driving foreign demand for U.S. pork this year," the U.S.D.A. said.

The data also would somewhat diminish outcries from the livestock industry calling for less grains and oilseeds to be used for the production of ethanol and biodiesel. While feed prices are higher for a number of reasons, including ethanol and biodiesel, they evidently are not so outrageous as to prompt significant liquidation of herds.

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