Floods, Feed and Finances

As I write this week’s comments, I’m sitting in a feedmill just outside of Iowa City, Iowa. Dr Steve Pohl, extension ag engineer at South Dakota State University and I have been conducting a series of ventilation workshops in eastern Iowa and western Illinois this past week. As you might expect, we’ve seen a lot of water. Surprisingly, we’ve also seen some very good corn and soybean fields, and talked with producers who say they have very good crops.


In general, it appears from our conversations and travels that northern and central Illinois has a very good looking crop. Living in Mankato, MN, I can also say the crop in southern Minnesota is pretty good. Yes, the crop is delayed from the last few years, but it appears that the recent warm days and nights have pushed heat units along rather well.


Where are conditions poor to terrible – central to east-central Iowa. There are large numbers of acres still under water, or just planted/replanted this past week, especially in those areas where the glaciers left the topography relatively flat. Thus, there is a wide swath of crop production problems running from the Des Moines/Ames area to Waterloo back to Algona.


Surprisingly, in southeast Iowa where there was major flooding along the Iowa, Cedar and Des Moines Rivers, crops don’t look too bad, other than along bottom lands. Water continues to obey the laws of physics and run off hills.


This weeks grain markets have responded to comments from the Iowa Farm Bureau and others that Iowa will have a $3 billion dollar negative impact to feed grain production as a result of the floods. On Monday, the USDA crop estimates will be everyone’s first look survey results, and it appears the government is making a special effort to resurvey flooded areas to be sure this crop estimate captures the impact of the flooding.


Steve and I stayed in Keokuk, IA for 3 nights on this trip. We were only 3 blocks from the lock and dam on the Mississippi River and can attest to the vast amounts of water that are flowing down this stream, and the power of this flowing water. On our way home this evening we are planning on taking Interstate 380 north from Iowa City and it runs thu the heart of the flooding and devastation at Cedar Rapids.


With corn and soy bean meal prices rising beyond all time highs and beyond anyone’s wildest thoughts, is rationing occurring? I think yes as VeraSun, one of the largest ethanol producers, announced this week the suspension of startup of 3 or more new plants that were scheduled to begin consuming corn this fall. Based on cost of production estimates from Iowa State University economists, I suspect many other ethanol plants are starting to feel economic pressure to reduce or even halt production. Many of the estimates that I’ve seen suggest many ethanol plants can recover variable costs when they pay $7 for corn, but when they have to pay $8 they are loosing money.


I think everyone agrees that when pork producers pay more than $7 per bushel for corn and over $400 per ton for soybean meal, the opportunities for any profit in today’s market don’t exist. As an industry, we still continue to play chicken – who will quit first?


In the past few weeks I had a long conversation with a cull sow buyer and he said inquiries were picking up, but he wasn’t ready to pay much for the sows. The price he pays for sows is driven in part by how many are offered for sale, but also by the consumer market for his products. Many of the sows slaughtered in the US are converted in bratwurst and other sausage products. The demand for these products by consumers is tied very closely to grilling, and with record heat in California and the east coast, and rain in the Midwest, the consumer demand for sausage products for grilling hasn’t picked up yet. Thus, our attempts to reduce the breeding herd are running head long into cull sow prices that are very low because of the consumer market for the products of the cull sow sales.


While I’m aware of a few sow units that have been emptied in the past month, I’m also aware of units where the lender is doing the math on cull sow income and saying don’t sell sows yet – you can afford even high priced feed for a few weeks or longer in anticipation of a higher market price for the cull animals. This means a few more weeks of pig production since no one feeds non-pregnant females.


All of this suggests that we have a long way to go before the US and Canadian breeding herd is reduced to a level that results in prices paid for slaughter animals rises enough to cover feed costs. I ran some diet projections this morning with corn at $7.50/bu and hipro soybean meal at $400/ton and came up with $0.45 feed cost per pound of gain for grow-finish pigs having a feed conversion of 2.8. Those of you using DDGS may have slightly lower cost estimates, but these are still high compared to the $0.17 costs of 3 years ago.


Being caught between a rock and a hard place isn’t much fun for many producers at the moment.

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