Chinese demand feeds feed price increases

CoBank report predicts 12% increase in feed costs for livestock producers in 2021.

December 11, 2020

4 Min Read
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With corn futures above $4 per bushel and soybean meal futures around $350 per ton, cattle feeders, hog producers and chicken producers will pay higher prices for feed than they have in many years, according to a new report from CoBank’s Knowledge Exchange division. The U.S. animal protein sector is expected to face a 12% increase in feed costs in 2021, which will mark the highest year-over-year inflation since 2011. It's an additional challenge for livestock producers whose margins have been pressured by weak prices in 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 Will Sawyer, lead animal protein economist with CoBank. “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.”

Key points from the report, Surging Feed Prices to Test U.S. Animal Protein's Recovery include:

  • Feed costs have been relatively benign since 2012, helping the beef, pork and poultry sectors to expand more from 2014 to 2019 than in any five-year period in the industry’s history.

  • In the coming year, U.S. livestock and poultry producers will face more feed cost inflation than they have in over a decade, challenging their ability to recover after a volatile 2020.

  • China is rebuilding its pork supply after ASF decimated its hog herd, leading to a surge in U.S. grain exports and prices. La Nina also threatens grain and oilseed crop prospects in South America and Eastern Europe.

  • Average producer margins for cattle, hogs and broilers fell into negative territory in 2020 after the COVID-19 pandemic disrupted foodservice demand and drove widespread meat plant slowdowns and shutdowns.

  • Hopes for a substantial rebound in profitability for meat and poultry producers and processors in 2021 will be difficult to come by with corn and soybean meal prices at multi-year highs.

What's driving feed price higher?

Much of the increase in feed prices is being driven by Chinese demand for grain as it rebuilds its hog herd and overall animal protein supply after African Swine Fever (ASF) ravaged its herd the last couple of years. The USDA forecasts China’s corn imports to more than triple in the 2020-21 crop year, with much of that increase coming from the U.S.

The shortage of animal protein in China has drawn massive trade flows towards the world’s most populous country. Since China lost more than half of its hog herd beginning in late 2018, it has been the largest importer globally of beef and pork, and nearly surpassed Japan in poultry imports. While China’s protein imports are expected to decline a modest 3% in 2021, CoBank economists anticipate those imports will fall more sharply in the years to follow.

For most of the last decade, feed costs have generally been a tailwind for U.S. meat and poultry producers and have been lower than the year before for six of the last eight years. In 2021, U.S. hog producers are expected to face the highest level of feed cost inflation at 14%, closely followed by cattle feeders at 13%, and chicken producers at 11%. The impact of feed costs varies by species for several reasons, such as life cycle, feed ration, and components of other feed costs.

While feed costs will be more of a burden for the animal protein industry than in previous years, meat and poultry supply growth is expected to slow in 2021. USDA forecasts 0.8% overall growth for U.S. beef, pork, and chicken production in the coming year, the slowest rate of supply growth since 2014. That leaves reason for some level of optimism that higher feed costs can be offset by higher prices.

“While animal protein and poultry producers face a higher cost structure in 2021, margin opportunity will increasingly come from revenue rather than cost,” said Sawyer. “And fortunately, there are positive signs that producers and processors may benefit from higher beef, pork, and poultry prices to cushion higher feed costs.”

Positives on the horizon

Sawyer points to the emergence of COVID-19 vaccines as a positive first step towards the eventual normalization of food and animal protein consumption patterns, including the return of foodservice industry demand. Additionally, changes by major meat and poultry processors greatly reduce the probability of a repeat experience seen in April and May 2020.

CoBank estimates U.S. meat and poultry companies have invested more than $2.5 billion this year in direct COVID-19 expenses to ensure safe working conditions and reduced risk of plant shutdowns. With plants operating at a more normal level, absenteeism levels improving, and far fewer workers falling ill, the financial impact of COVID-19 looks to be far less in the coming year than what the industry has endured in 2020.

Source: CoBank, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. 

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