Corn and soybean meal prices declined sharply from late January to early August, and then increased in response to deteriorating crop conditions and the potential for strong corn and soybean exports during the 2020-21 marketing year. Given uncertainty related to supply and demand, feed prices will likely be volatile through the first part of 2021. Here’s a look at how different corn and soybean meal price projections would affect a swine-finishing enterprise.

Let’s assume the enterprise finishes early weaned pigs. The ration consists of corn, soybean meal, dried distillers grain and supplements. Corn prices represent averages for Indiana as reported by USDA’s National Agricultural Statistics Service. Soybean meal and distillers grain prices were obtained from Feed Outlook, published monthly by USDA’s Economic Research Service. Information from Agricultural Prices, a monthly USDA-NASS publication, was used to compute supplement prices. Future prices for corn and soybean meal in mid-September were used to project feed cost indexes through the first quarter of 2021. Feed cost indexes are reported on a closeout month basis.

The average corn price since January 2007 is $4.49 per bushel, and the average soybean meal price is $349 per ton. Both corn and soybean prices are expected to remain considerably below these levels for the foreseeable future.

Indexes examine variability in feed costs. We’ve computed monthly finishing feed cost indexes from January 2007 to August 2020, with projections through the first quarter of 2021. The latest full year of indexes, 2019, has an index of 100. All other indexes are expressed in relative terms.

Indexes ranged from 64.8 in January 2007 to 169 in December 2012. Indexes for the first and second quarters of 2020 averaged 101.6 and 100.7, respectively. Indexes for the third quarter of 2020 are expected to average about 95, reflecting low corn prices through early August. For the fourth quarter of 2020 and the first quarter of 2021, feed cost indexes are expected to average 93 and 95, respectively. If feed price projections materialize, feed costs in 2020 will be about 2.5% below 2019.

Price swings

Feed costs are very sensitive to changes in corn and soybean meal prices. Regression analysis examined the relationship between hog-finishing costs and corn and soybean meal prices. Each 10-cent increase in corn price increases feed cost by 44 cents per cwt, and each $10 increase in soybean meal price increases feed cost by 32 cents per cwt.

Feed cost in August was about $30.25 per cwt, so feed cost is expected to range from $29 to $31 per cwt from October 2020 through March 2021.

It’s often useful to examine feed cost per hundredweight for a range of corn and soybean meal prices. Suppose corn is $3 and soybean meal is $275. Feed cost is $26.05 per cwt. In contrast, a corn price of $4 and a soybean meal price of $375 results in a feed cost of $33.65 per cwt.

With current projections, feed costs are expected to be about 2.5% below those experienced in 2019. Given uncertainty in corn and soybean meal prices, it would be prudent to incorporate a relatively wide set of prices in swine-finishing feed cost budgets.

Langemeier is a Purdue University Extension agricultural economist and associate director of the Purdue Center for Commercial Agriculture. He writes from West Lafayette, Ind.