What’s good news for grain producers is bad news for the cattle industry: grain prices are expected to surge in 2021.
A new CoBank report analyzed that feed prices in 2021 are likely to be 12 percent higher than 2020, the highest year-over-year inflation since 2011. All sectors of the livestock industry are expected to face higher feed prices than they have in over a decade. The higher prices come at a time when the livestock sectors are already struggling from weak prices in 2020 due to COVID-19.
China demand
Much of the increase in feed prices is being driven by China’s demand for grain as it rebuilds its hog herd from African swine fever (ASF), according to the report. The country’s corn imports are expected to more than triple in the 2020-21 crop year, with much of the grain coming from the U.S. La Niсa conditions are also expected to impact Brazilian and Argentine growing conditions, other major exporters of feed to China.
China began importing record amounts of beef and pork due to ASF’s decimation of its hog herds, but animal protein imports are expected to decline in 2021 after more than tripling since 2017.
USDA now expects U.S. corn exports to account for 24 percent of the corn crop, compared to 15 percent just one year ago.
“As China’s imports of animal protein fall and their imports of feed rise, we see U.S. animal protein sectors facing higher feed costs and lower livestock prices resulting in a more difficult profit margin environment,” the report read.
Profitability
U.S. hog producers are likely to feel the highest level of feed cost inflation at 14 percent, followed by cattle feeders at 13 percent and chicken producers at 11 percent. Impacts of feed costs vary by sector based on life cycle, feed ration, and components of other feed costs.
“While animal protein and poultry producers face a higher cost structure in 2021, margin opportunity will increasingly come from revenue rather than cost,” said Will Sawyer, lead animal protein economist with CoBank. “And fortunately, there are positive signs that producers and processors may benefit from higher beef, pork, and poultry prices to cushion higher feed costs.”
Overall growth for U.S. beef, pork and chicken production is expected to be 0.8 percent in 2021, the slowest rate of supply growth since 2014. The beef supply is expected to grow the slowest at 0.5 percent. On average, the animal protein industry has grown by 2.5 percent each year, with beef production annually growing 2 percent.
With multiple COVID-19 vaccines on the rise, food and animal protein consumption patterns will likely be driven up. In addition, U.S. animal protein companies have invested around $2.5 billion this year in direct COVID-19 expenses to ensure safe working conditions and reduce plant shutdowns. This greatly reduces the probability of a repeat experience seen in spring 2020.
“Most producers lost money during the year, but that’s been in the midst of some of the most extreme volatility in global food demand anyone has ever seen,” said Sawyer. “Industry margins are far better today than they were in the spring, but there will be tighter windows of opportunity for the livestock and poultry sectors to profit in 2021.” — Anna Miller, WLJ editor
