The outlook for most feedstuffs in the United States is improving, especially since last year, due to better weather conditions and the resulting increase in hay production.
“Hay production has improved from last year, primarily on the eastern side of the Southern region where we were experiencing severe drought,” says John Michael Riley, Mississippi State University Extension agricultural economist.
“We’ve seen some rainfall and improvement in our hay production,” says Riley. “In addition, fertilizer prices have come down quite a bit. Most all input prices have dropped from 2008 levels. Corn prices, on the other hand, remain very volatile, and corn ending stocks are tightening. The soybean situation is improving from where we were last year, and we’ll have to wait until after harvest to see the cotton outcome.”
Following extensive drought conditions in the Eastern and Southern regions in 2007, improvements were seen to some extent in 2008 and certainly this year, says Riley. “Pasture and range conditions have seen some improvement, from a very poor to a fair rating. And hay prices, like a lot of other prices, are coming down. Prices got pretty high in the summer of 2008, but since then, they’ve started to drift downward. Hay production in the Southern region has improved since 2006, which was the bottom year,” he says.
Fertilizer prices have definitely come down and that has been a big relief for cattle producers and farmers who are growing hay, says Riley. However, the volatility of the corn market remains a concern, he adds. This was best illustrated this past summer when a bullish corn production estimate was followed by reports of a possible late harvest, causing a 30-cent swing in prices in one day.
“From a feedstuffs standpoint, especially if you’re purchasing corn, this kind of volatility can be very frustrating. It’s something we need to keep in mind from a feedstuffs standpoint,” he says.
The by-product of the corn market is the dry distiller’s grain, and everyone wants to talk about its value as a substitute for corn, says Riley.
“There certainly are some similarities there, but we have to ask ourselves if it’s a cost-effective substitute. If we look at the correlation between the price of corn and of dry distiller’s grain from 2001 to 2006, there’s a 50-percent correlation. From 2007 to the present, that correlation has increased to a little over 85 percent. Yes, it’s a good substitute for corn, but as corn prices go up, dry distiller’s grain will go up. It’s hard to say if it’s a cost-effective substitute. Even if we don’t continue to see the same degree of volatility in the corn market, these prices will still be tied to one another,” he says.
Corn ending stocks are estimated at about 1.62 billion bushels, while soybean ending stocks are pegged at about 270 million bushels and cotton is estimated at 4.9 million bales. “We’re still alternative fuels having an impact on corn and soybeans, and that definitely is trickling on down to the feedstuffs. From a feedstuffs standpoint, the soybean situation is improving and that has and will continue to be beneficial,” says Riley.
Commodity prices in general are getting back to 2007 levels, before the upward swings began, he says, and Riley believes that trend will continue in the coming months.
As for the immediate outlook for feedstuffs, he says pasture conditions have improved, and that definitely will be beneficial from a hay and grass standpoint. “Placement rates continue to be higher, and with the pasture conditions improving, we can keep cattle on grass a little bit longer. Also, hay prices should continue to fall because of lower input prices. We have more hay production this year than in previous years.”
Riley reminds feedstuff purchasers that corn prices will remain volatile. “With ending stocks tightening, corn and its by-products will remain relatively high.”
Soybean by-products, however, will be more favorable than corn. “We’re seeing an improvement there. We’re exporting quite a few soybeans, primarily to China. We have an increased planted acreage and production is looking pretty good. Relative to corn, soybean look like a more favorable option as it relates to feedstuffs.”
Rice by-products, says Riley, appear somewhat more favorable, and cotton by-products will depend on how harvest progresses. Wet weather late in the season could take its toll, he says.