January 21, 2011
When hog producers gather at the 2011 Iowa Pork Congress Jan. 26 and 27 in Des Moines, they will be talking about how today's high corn and soybean prices are adversely impacting feed costs and hurting the profitability of pork production. Some producers are suggesting the government set aside a certain amount of grain in reserve for use by the U.S. livestock industry in case a crop failure occurs and sends feed prices skyrocketing. On Jan. 21, corn reached $6.54 per bushel and soybeans $14.14 at central Iowa elevators.
The Iowa Pork Producers Association will hold its annual policy discussion and resolutions meeting on Jan. 25, the day before the Pork Congress, a large trade show sponsored by IPPA. "The corn supply and whether the USDA should be taking a different approach to help manage the grain supply will be one of the hot issues at our policy session at our annual meeting," says John Weber, a hog producer from Dysart and president of the IPPA.
Producers will debate policy ideas in resolutions session
Weber and other IPPA leaders have heard from members who want the pork producer organization to discuss various proposals for prioritizing the livestock industry when it comes to using the nation's corn supply.
Does that mean having USDA set aside a certain amount of corn and soybeans at a certain price and putting it into a grain reserve? It's all open for discussion. "Do we want to have some sort of strategic corn reserve? Some people are asking that question," notes Weber. "That idea and others similar to it will be brought up for discussion in our resolutions meeting."
Some livestock producers point out that the U.S. already has a strategic reserve for fuel, so perhaps it makes sense to have one for feed grains, too. Of course, USDA has had various types of grain reserve programs in the past that have tried to manage grain supplies.
Today's high corn prices are impacting Iowa hog industry
Cost of production is on the minds of all pork producers, says Weber. Feed cost is a big part of the cost to produce a pound of pork. "Production cost is No. 1 on their minds, and I think we'll spend a fair amount of time discussing where we may be going from here," he says.
How has the hog market been treating producers recently? The last few months have probably been the most difficult, as the rise in grain prices and the increasing feed cost has created a lot of uncertainty. In 2010, hog profits started out in good shape. "We had confidence profits were returning and hog prices were good," says Weber. "Grain prices and feed costs were reasonable. Hog producers did a good job of making the adjustment from $4 corn to $5 corn. Even the hog market made a significant adjustment to help keep us going."
But now, as Weber explains, "The difficulty comes when you start moving from $5 corn to $6 corn and higher. Things can get difficult in a hurry for livestock producers when corn is approaching $6 and $7 per bushel."
Corn stocks will continue to be in very tight supply for 2011
The USDA's supply-demand estimates and grain price projections show corn is going to be in very tight supply for 2011 and one thing IPPA delegates are talking about is some kind of a plan or proposal to make sure the livestock sector has a good supply of corn going forward.
What would Weber like to see happen? "I think we'll have a good discussion at the IPPA annual meeting Tuesday, Jan. 25. We'll take a look at some type of contingency plan for feed grains for livestock. It's prudent to look at that. With this tight stocks-to-use ratio on corn, we need to consider what would happen if we have a weather scare in the upcoming growing season. What if we have a short crop in 2011? We don't want to see the livestock industry fall by the wayside because we all just stood by and didn't have a contingency plan."
Many hog producers feel there should be a plan in place, if corn supplies do get that tight and feed grain prices are driven higher. Would Weber envision something along the line of some sort of subsidy for feed pricing or some way of guaranteeing that a certain number of millions of bushels are going to go into the livestock sector? Is that the kind of contingency plan IPPA is looking at?
Looking for ideas, as to how to keep hog industry viable
"That's what some of our delegates are suggesting, setting some type of limits for the different sectors that use corn," says Weber. "It will be interesting to hear the different ideas that come forth at the IPPA annual meeting on Tuesday. Some hog producers want to tie such a plan to the stocks-to-use ratio and to also keep an eye on U.S. corn exports—using that kind of an approach to try to manage the supply of corn a little better."
There will be some type of a formula suggested with the idea that we would have enough grain in this country to keep the poultry, pork, beef and dairy industry going, says Weber. "We certainly want to keep the livestock industry viable and able to stay in business when corn and soybean supplies get that tight."
Consumer demand and pork exports are both still strong
The good news for hog producers today is consumer demand for pork is strong. Export demand for pork is strong, too. "2010 was an excellent year for pork exports," says Weber. "It's been a salvation for our hog market. Demand for pork also remains strong in the U.S. There is optimism in the hog business today. If you look at lean hog futures contracts today, there are good prices being offered. However, looking at feed costs, it's very difficult for hog producers to feel confident in their long-term planning."
He says it'll be interesting to see what ideas and resolutions come out of the discussion at the IPPA resolutions session on Jan. 25. The livestock sector has been through so much, losing money much of the time in recent years as grain prices have risen. Increased demand for corn for ethanol and increased export demand for corn and soybeans have certainly played a role in higher feed costs for livestock production.
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