PRODUCERS BRACE FOR HIGHER FEED PRICES IN 2012

by: Stephen B. Blezinger
PhD, PAS

Only a few weeks ago we were looking at a potential for record grain crops in the U. S. and with it, falling grain prices that could ease the economic crunch for many in agriculture. In fact, this could have also resulted in lower prices at the grocery store.

Reality, however, can be a little frustrating. By now most of us involved in the Ag industry and the American consumer as well, are aware of the fact that the severe drought conditions in the American mid-west is changing all that. The drought conditions farmers in the largest grain producing states are some of the worst in 50 years. This comes after a year of extreme drought in Texas and many areas of the mid-south resulting in poor crop production in those areas and significant cattle herd reductions.

The result is already being seen in higher grain prices and higher feed costs. Chris Hurt, an Ag economist with Purdue University commented in his monthly pork outlook report that by mid July 2012, corn and soybean meal, both primary feed ingredients had risen an average of 55 and 24 percent on the futures market. As the standards by which all other ingredients are priced, this has and will continue to drive prices for the near future and for months coming.

And now, in early August, while we do see some areas receiving a modest amount of rainfall, the central, western and southwestern Plains states continue to be exceptionally dry. So even if these areas were to begin receiving substantial rain now, the grain industry will experience significant production losses in this crop season greatly reducing our supply. This situation is further intensified by the fact that grain is now traded on a global stage. Lowered crop production in countries such as Russia, the Ukraine and Kazakhstan due to adverse weather conditions has reduced the overall world grain supply even further.

Another production issue resulting from drought affected grain is that mycotoxins (Aflatoxin, etc.) will be higher than normal, much higher in some cases. Grains with high mycotoxin tests can be used only on a very limited basis in dairy cattle, hogs and poultry, if at all and only under certain circumstances. Beef cattle (mature) are a little more tolerant of these affected grains but care has to be taken here as well. The net result is that the incidence of mycotoxins in feed grains will reduce their use in the diets of most species.

To complicate the issue further, several production groups have approached the U.S. Government requesting a reduction in the federal ethanol production mandate. This would reduce the amount of ethanol produced and the subsequent amount of grain needed for production. So far this request has not received a response. Many in the industry doubt that it will.

All this paints a fairly unhappy picture for grain supplies and prices for commodities, feeds and supplements as we move through the summer and into the fall and winter.

So what's the answer?

Fortunately, due to already reduced numbers, cattle prices have been supported and continue to be fairly strong although high feed costs will push some cattle feeders out of the market, thus reducing demand and resulting in a cattle price decrease sometime in the near future. So cattle prices could come down and with feed prices increasing, profit margins will be tighter than they have been and may disappear altogether. While this has not been uncommon for cattle feeders over the years it may be more widespread than previously. And fortunately or unfortunately, depending on your perspective, the producer is not able to pass increased production costs on to the consumer. So from a marketing standpoint, except for contracting everything possible in an effort to reduce risk and minimize detrimental price fluctuations, there aren't going to be a lot of options.

Because of recent economic conditions, the cattle producer has been forced over recent years to focus much harder on efficiency. This has meant balancing feeding programs more carefully, being more judicious about buying decisions and making the most out of every dollar spent. Feed and supplementation make up the single largest cost component in producing beef. In drought affected areas where forage production is depressed this number is increased where producers either have to purchase forages which are trucked in. They also have to feed more actual feed or supplements to counter the reduced forage availability. Given the affected areas (grain producing regions), feed and grain prices are also higher than they have been so this further complicates the production economics. With conditions as they are the producer is in a position that he has to step into what is often unfamiliar territory. He has to look harder than ever at actual nutritional needs of the animal (lbs of protein per day, megacalories of energy, grams or milligrams of minerals and trace mineral) and look for the best possible buys for each of these.

During these economic and weather conditions when forage is short and grain prices are high many producers run to standard operating procedures which entail attempting to find the cheapest sources of feed that they can. In many cases this is much to their detriment because these “cheap” feeds can be more expensive than something with a higher price tag. In most cases in markets such as these, when a feed is “cheap” or lower in cost, there is a reason. Something has been compromised. This is generally a reduction in the protein or energy content, use of less expensive ingredients that are not as well digested, a switch to mineral sources that are lower in bioavailability (i.e. sulfates to oxides), etc. While this results in a lower feed cost it also results in lower performance and a higher cost of gain, a loss in body condition resulting in lower breeding performance, decreased health performance resulting in greater vet and medicine costs. In the long run, trying to cut corners on feed and supplementation with catch up with you at some point.

One of the most important concepts to grasp in these circumstances is accuracy. Knowing what the animals needs are and feeding or supplementing to meet these needs as accurately as possible. When forages are plentiful and feed is inexpensive the latitude is there to not worry if cattle are over-fed. But in conditions such as we have this year, producers need to be very meticulous in accounting for each unit of nutrient provided and to be sure than no more is fed than necessary.

The following is a list of components of a strategy that the cattle producer can use to insure his nutrition program is fine-tuned as well as possible. Remember the goal here is to maintain performance as the best cost possible. It may be higher than in the past but need not be any more expensive than necessary to meet the goal.

Management Strategies for Dealing with Low Forage Availability, High feed and Grain Prices or Both.

1) Determine what your goals are. If you have a cow/calf operation you should identify what your breeding rates, calving percentages and weaning weights. Do you want to maintain these or are you OK with some decrease? Most producers are not. This is where record keeping comes in. The producer needs to take some time and evaluate his operation on paper to determine where he or she “is.” There may be other opportunities to improve on production costs.

2) Once you have accomplished Item 1 take a hard look at your cow herd. Are there animals in the herd that have historically not been pulling their weight? Females that do not breed back in a timely manner, that maintain too much body condition while weaning off a calf that is under the herd average, that produce calves that have more than their share of health issues, etc. Look at these cattle hard to determine any areas of weakness and eliminate these.

3) While looking at your herd determine how or if they are grouped. Your nutritional program is more effectively managed by grouping animals buy age and production group. This might include developing heifers, first calf heifers, mature, spring-calving cows, fall calving cows, etc. Once you have included these individuals they should be grouped accordingly and their nutritional needs identified. Grouping increases your production and economic efficiency. By not grouping you are feeding a variety of individuals that have wide nutritional needs thus overfeeding some and underfeeding others. In the long run the producer ends up spending more than necessary and performance is often compromised.

4) Once grouped, determine what the nutritional needs are. This may require getting with a cattle nutritionist who can assist you with this task since they are familiar with these calculations and projections and can often provide you with different options. Your local feed company may have one on staff. These professionals are generally very good at what they do but as an employee of the company their recommendations will be oriented to the use of their company's products. And independent nutritionist (nutritional consultant) can generally give you a more unbiased opinion or set of recommendations or can established at set of feed or supplement specs that can then be provided to local feed producers for a bid price. The consultant will charge you a fee for this service but it will typically be a good investment. And you are getting program recommendations that are specific to your operation.

Evaluate the nutritional requirements of the group based on specific units per day, i.e. pounds of protein, megacalories of energy, grams of calcium and phosphorus, milligrams of trace minerals, etc. You can also look at various additives that can help improve efficiency or animal health and production. For instance the use of different products have been shown to improve feed efficiency – reduction in the amount of feed needed to accomplish the same result or getting more production from the same amount of feed and forage. Products such as ionophores like Rumensin and Bovatec are well known to help with feed efficiency as well as other benefits such as reducing digestive upsets and coccidiosis. Other products, considered to be more “natural” have also proven to be helpful in improving feed efficiency. A few weeks ago we discussed additives such as yeast and enzymes. Both of these product types have been shown to be beneficial in improving the digestive process and overall efficiency of nutrient utilization. Current data reported in through enzyme research has shown a net reduction in overall feed consumption while maintaining or even improving performance. An enzyme delivered through a supplement will have added cost but evaluate this cost in terms of the reduction in other costs. Your enzyme pack may add $.03 to $.04/head per day but at the same time reduce your feed demand thus reducing your feeding cost by $.20 to $.30 per head per day. This is a good return on investment. There is a long list of additive tools that can be used. Again, your nutritionist can provide guidance in assembling the right combination of products.

5) Assuming you have at least some forages to use as your base (hay, silage, other roughages) you need to determine the nutrient levels in these sources. This means taking samples and having these tested for their nutrient content. Once you have these data, work with your nutritionist to compare these values to what the animal's needs were as determined above. Depending on the type of forage base you have you may not have to supplement some nutrients (protein and potassium for instance) but you will need to provide appropriate amounts of other nutrients to compensate for the shortages.

6) Begin researching the supplement options. While you may have used a certain type of supplement religiously over the years, in these situations you need to look at all your options. This may include those that can be hand fed (calculate in a labor cost), self-fed, tubs or blocks, liquid feeds, mineral supplements. You need to find the combination that first, meets the nutritional need; second, is cost effective and third, actually works well in your program. This will take some time and diligence. It will also require asking for nutrient information on commercial supplements (those not custom formulated for your program) that is not included on the tag. Some companies are resistant to providing this type of information but since this is something that is necessary for your program, if they won't provide this, then you need to move on to the next prospective supplier.

Conclusions

While it will not be inexpensive to continue operating this year, with the right research and program building components, it can be done as cost effectively as possible. Be sure to ask a lot of questions both of yourself and of those in a position to help you.

Dr. Steve Blezinger is a management and nutritional consultant with an office in Sulphur Springs, TX. He can be reached at sblez@verizon.net or at (903) 352-3475. For more information please visit us on at www.facebook/reveille livestock concepts.







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