Wednesday, July 11, 2012

The corn crunch is coming: Meat prices

I watch commodity prices because they do effect my farm operations.  Feed prices, and meat prices, and they're part of what I look at when I'm making farming decisions. 

I watch the price of inputs (which is farmer-jargon for "stuff you have to buy") and I watch market prices of finished animals, and there are two things that are being very odd this year:  Meat prices and feed prices. 

The first thing that struck me is that finished meats are at the highest prices I've ever seen.  If you own a beef cow right you you are, in a market-price sense, a very happy camper.  Beef prices are VERY high right now, and it's caused the prices of most cows to jump quite a bit. 

The prices I'm talking about here are wholesale prices -- the prices that farmers would get if they buy or sell.  Retail prices are based on these.  The summary of the next couple of paragraphs is that I expect beef and pork prices to go up a minimum of 20% over the next 12-18 months. 

Calves are selling for $1.50 to $2 a pound, live weight.  a good looking 300lb calf that I used to be able to purchase for $150 is now going for $300 or $450, or $600! dollars.

To give you some perspective, in January 2012, $1.26 a pound live weight was the most it had EVER been.  At this point we are up another 30% from that record price. 

The 300lb calf that I see at the sale today is your steak in 12-14 months.  You can expect beef prices to remain high for the foreseeable future.   Finished cattle are selling for $.85/pound -- up from $0.60/lb two years ago.   Take a look at a Washington state auction report

That auction report is a little hard to read, here's a breakdown: 

8-516-175.00     8 head of cattle in this group, average weight 516lbs each, $1.75 a pound sold price
16-515-183.00  16 head, 515 average, $1.83 a pound.   So this lot cost the winning bidder $15,079.2

Pork is likewise high; the pig market in Washington state isn't as developed, but I've started to see auction prices that I consider pretty reasonable (as someone who sells pork).  a 280lb finished pig is getting $200-225 at auction, which is lower than my cost of production, but is a vast improvement over $90 for that same size pig 2 years ago.   I'm seeing more no-sales at the auction from pig producers, which I appreciate. 

This is based on higher feed costs, a substantial and sustained drought in beef production areas (Midwest and south) and trends that have reduced the supply of both pigs and cattle.

The drought is making feeding cattle and hogs more expensive, and it forced cattle producers to reduce their herds over the last few years.  Both of those mean that the US cattle herd is at the lowest number it has been since the 1950s! 

The effect on hog prices has been what amounts to a market crash in weaned pigs.  Right now, in Iowa, weaned pigs are selling for $12 each.  That same size pig just 6 months ago sold for $70.  These low pig prices are a financial disaster for pork producers.    Why on earth would it be so low?  Here's what the USDA report says: 

TRENDS COMPARED TO LAST WEEK:  Early weaned pigs 1.00 to 2.00 per head
lower.  All feeder pigs 6.00 per head lower.  Demand light for moderate
to heavy offerings. 

"Demand light for moderate to heavy offerings" means that people are trying to sell pigs and there isn't much interest in buying them.

Here's why:  You know that heat wave that's hitting the Midwest?  It's baking the corn to death, and at this time of year, there's no time to replant.  So we're starting with higher corn prices to being with, and the corn crop this year is going to be less than optimal, and this is scaring the pork producers.  The bottom of the weaner pig market has dropped out.   The pork producers are terrified of buying pigs to finish and then having to buy corn that is even higher priced later this year, due to crop problems.    Our US pork industry is dependent on our corn (maize) production to produce most of the pork that the US eats and exports.   Corn prices are spiking right now

The market cycle for pork is shorter than for beef -- we're talking 6 months instead of 12 to 18 months.  $12 a pig is far below the cost of production.  The sow barns know this, and you can expect that most of the US pig herd will see a size reduction this year as a result.  Which will mean less supply in 6-8 months, and higher prices due to low supply after that.  So about the time you see that expensive steak hit the supermarket you'll also see expensive hams -- 12-14 months from now. 

So what am I doing on my farm? 

I'm buying cattle right now.  I've got land to graze, and I'm putting cows on it.  I'm betting that between the drought and herd reduction there will be a good return on beef, and since it takes a year for the market to come up with another cow.  I expect beef prices to get lower in the near term (2-6 months) as the US herd is further reduced due to high feed prices, and then I'm expecting the prices to rise in 2013.   I'm buying now so that I can sell into those higher prices I'm expecting in 12-18 months. 

I'm retaining more piglets from my own operation.   I'm feeding mostly fruits and vegetables, and so have no connection to the general feed cost issue that most farmers face, but I expect pigs to rise in price as farmers are forced to raise prices to cover their costs.   Since corn prices will probably reach record levels this fall, pork prices will be pushed up, and I'll be selling into that market, too. 

What would I do if I were a consumer? 

I'd seriously consider buying a whole or half a beef RIGHT NOW or this fall.  Buy before the prices rise.  A whole or half will last you for up to 18 months, and your freezer allows you to reduce your beef prices.  Buy a good cow now and save yourself some money. 

Buy a whole or half pig soon.   You're already seeing pork prices at $3/lb for the lower value cuts in the supermarket -- a whole or half pig purchase will usually cost you around that, and you get the higher value cuts, too.   The local producers are slower to figure out the feed cost issue, so you've got an opportunity to buy prior to price increase. 


Cathy said...

So for those of use who have just a couple of cow pairs grazing in the back pastures. Would you plan on selling this years black Angus x Galloway heifer after weaning as a replacement heifer or finish on grass with this years steer? I had been thinking with the low numbers of cattle there would be demand for heifers but if feed is high maybe not.

Joanne said...

Makes me glad I don't keep layers anymore and I've got a 3 year old cow and two veal calves to slaughter this year.

What do you think the price of weaner pigs will be next spring? That's when I was going to stock my first group of pigs.

Joanne said...

Makes me glad I don't keep layers anymore and I've got a 3 year old cow and two veal calves to slaughter this year.

What do you think the price of weaner pigs will be next spring? That's when I was going to stock my first group of pigs.