Over the past year, there has been a marked rise in feed costs. Various strategies to address managing feed costs are currently being explored. This article is the fourth in a series that began earlier this month. Check your inbox for the emails sent on Friday, September 3, Tuesday, September 7 and Monday, September 20 for more information.
With feed costs surging by more than 60 per cent since August 2020 and drought conditions in summer 2021 precipitating summer feed cost increases of almost 20 per cent, producers are concerned about how long current market conditions will prevail.
In the previous articles, Alberta Pork highlighted some of the strategies that may be employed to curb feed costs. In particular, we focused on the delivering hogs a week earlier, shipping at lighter weights and feed cost modelling. This week we focus on a recently released Feed Outlook report by the United States Department of Agriculture (USDA) that considered current conditions in North America and around the world and made projections for the upcoming crop season.
U.S. corn production better than previously expected
The USDA raised its projected corn supplies for next crop year (2021/2022) mainly due to an anticipated 246-million-bushel increase in corn production. The projected increase is due to higher yields especially in Minnesota, Iowa and Nebraska, as well as increased harvest acreages. With greater supplies, it is anticipated that corn use will also increase, but this increase will be spread across exports and domestic feed and residual use. The uptick in supply is expected to slightly dampen prices to around $5.45 per bushel. Already, prices have eased from the more than $7 per bushel highs in late spring but remains well above the $3 to $4 per bushel range indicative of prices over the past three years (Figure 1).
Global grain production is up, despite drought in Canada
Canada grain production has seen a setback this year as the bread-basket provinces were plagued with hot and dry conditions. The summer heat wave, which lifted temperatures to five degrees-Celsius above normal summer temperatures, worsened already dry conditions from the spring. Production numbers for top prairie grains such as wheat, barley, canola and oats are expected to decline by more than one-third (Table 1).
While the drought has stymied Canadian grain production this year, world coarse grain production is up. Specifically, relative to August 2021 projections for the upcoming crop year, world production is expected to increase by almost 70 per cent or 12.5 million tons, year-over-year (Table 2). This is largely driven by the anticipated increased production out of the U.S. Also of note, there was a considerable improvement in China’s vegetation health index, which indicates the potential of higher yields and increased production. This increased production is expected to give way to increased feed use and higher ending stocks in China. Ultimately, this may lead to an easing of feed prices in China.
In South America, projected growth in Argentina largely reflects the replacement of Brazilian production which has had issues tied to adverse weather conditions. Russia and Serbia are projected to have marginally lower production numbers due to lower yields. Overall, increased world supplies are anticipated to ease the tightness seen in the markets over the past year.
While one can only speculate on the direction on prices, if the projections of production and ending stocks are anything to go on, the anticipated increase in global production and carryout stocks tells us that global feed prices should ease. This would be good news for western Canadian producers. While domestic supplies may be tight, the cost to purchase feed from international markets may not be as high as when supplies are tight globally. This could go a long way to stabilizing domestic feed prices.
For more information on the data shown here, please contact Bijon Brown, Production Economist, Alberta Pork by email at email@example.com or by phone at 780-440-8460, toll-free at 1-877-247-PORK (7675).
If you have any further questions about this article, please contact Darcy Fitzgerald, Executive Director, Alberta Pork by email at firstname.lastname@example.org or by phone at 780-491-3529, toll-free at 1-877-247-PORK (7675).