As Grain Prices Rise, Should Pork Producers Worry About Feed Costs?

April 26, 2016 01:00 PM
 
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Soy and corn markets surged upward last week after reports of heavy rainfall in the Argentine soybean belt, coupled with political unrest in Brazil. The consequences of excessive rainfall in the region mean South American farmers could either experience total production losses, or, in fields that sustain heavy rainfall, quality of the beans they are able to harvest could be compromised, according to Farm Journal’s Doane Advisory Services. Extensive flooding is evident in geographies where the terrain is most level.

Still, Argentinian farmers and businesses have a lot of soybeans in storage. Late last week, the soybean and meal markets were trading sharply lower while soyoil was off modestly. Doane analysts believe this trend could be the beginning of a correction, “but how the market proceeds is much dependent on the evolution of the weather situation in Argentina, the catalyst for the rally,” they write.

What It Means for Pork Producers

“The rally hasn’t hurt much yet, as I think producers had most of their feed needs covered,” says Steve Meyer, vice-president, pork analysis for EMI Analytics. “And there is no reason to really think it will hurt as this is primarily a weather scare rally such as frequently happens at this time of year.”

Meyer believes the bean rally has also been driven by a big shift in the positions held by speculators – from 80,000 short to 80,000 long – and that positive price pressure has spilled into corn. 

“Rain in Louisiana, Arkansas, Mississippi and South Texas is not much of a real problem for corn,” Meyer says. “Planting is well ahead of schedule and moisture conditions are good.” 

He points out the rally is based on weather risk and outside money. 

“We’ll see how long both of them last. Our forecasts are still for $3 to $4 corn and $270 - $320 SBM for the foreseeable future,” Meyer says.

Ron Plain, professor emeritus at the University of Missouri agrees.

He says, “We are into the growing season for corn and soybeans, and that means what is happening with the weather in the Midwest is going to impact the price of corn and soybean meal. This time of year there will be weather scares and there will be rallies in the corn and soybean markets. The greatest price volatility in grains and oilseeds comes during the growing season.” 

He notes that weather markets happen every year. 

“Only time will tell whether or not weather problems early in the growing season will result in a poor harvest this fall and high feed prices for the coming year,” he says. “Hog producers need to decide in advance how they are going to deal with it.”

Plain says producers have three basic approaches: “Buy ahead on your major feed ingredients, hedge corn and soybean meal in the futures market, or use your cash reserves to ride out the daily ups and downs in feed costs.”

The bottom line? Take a long-term view on inputs and don’t make rash decisions based on sporadic blips in the market.

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