July 12, 2016

Impact of Corn and Soybean Prices on Swine Finishing Feed Cost

The recent volatility in the corn and soybean markets has increased the uncertainty related to expected swine finishing feed cost.  Since planting there have been wide swings in corn and soybean meal prices.  For example, the December corn futures contract price ranged from $3.50 to $4.50 from early May to early July, and was approximately $3.70 in mid-July.  Similarly, the December soybean meal futures contract ranged from $330 to $420 during the same time period, and was approximately $380 in mid-July.  This article documents the impact of corn and soybean meal prices on feed cost indices for a swine finishing enterprise.  It is important to note that the swine finishing enterprise assumes the finishing of an early-weaned pig.  The ration for this enterprise consists of corn, soybean meal, dry distillers’ grain, and supplements.  Corn prices represent averages for Indiana as reported by USDA-NASS.  Soybean meal and distillers’ grain prices are obtained from Feed Outlook, published monthly by USDA-ERS.  Information from Agricultural Prices, a monthly USDA-NASS publication, was used to compute supplement prices.  Future prices for corn and soybean meal are used to project feed indices through 2017.  Feed cost indices are reported on a closeout month rather than a placement month basis.

Corn and Soybean Meal Prices

Figures 1 and 2 report monthly corn and soybean meal prices from January 2000 to May 2016.  A distinction is made for prices before and after 2007.  The period starting in 2007 is often thought to be a new price regime.  Corn price averaged $2.18 per bushel from 2000 to 2006, and $4.83 per bushel from 2007 to the current month.  Soybean meal price averaged $187 per ton from 2000 to 2006, and $362 per ton from 2007 to the current month.  Corn price was above $4.83 from March 2008 to August 2008, from December 2010 to September 2013, and in April and May of 2014.  Since June 2014, corn price has been below $4.83 per bushel.  Soybean meal price was above $362 per ton in June and July of 2008, from May 2009 to September 2009, in January 2011, from March 2012 to February 2015, in July 2015, and in May 2016.  This illustrates how common it has been since 2007 for corn and soybean meal prices to spike.  The recent drop in soybean prices is likely to drive soybean meal prices below the average since 2007 for the rest of 2016.

Figure 1. Monthly Indiana Corn Prices, 2000 to 2016

Figure 1. Monthly Indiana Corn Prices, 2000 to 2016

Figure 2. Monthly Central Illinois SBM Prices, 2000 to 2016

Figure 2. Monthly Central Illinois SBM Prices, 2000 to 2016

Swine Finishing Enterprise

Figure 3 illustrates monthly swine finishing feed cost indices for the January 2000 to May 2016 period.  The latest full year of indices, 2015, has an index of 100 so all indices outside of this year are expressed in relative terms.  As with corn and soybean meal prices, a distinction is made between the before and after 2007 periods.  The average index for the 2000 to 2006 period was 54 while the average index for the period beginning in 2007 was 110.  The index for May 2016 was 95, so current feed costs are 5 percent below the average for 2015.

Figure 3. Monthly Hog Finishing Feed Cost Indices, 2000 to 2016

Figure 3. Monthly Hog Finishing Feed Cost Indices, 2000 to 2016

Annual swine finishing feed cost indices are presented in figure 4.  The projections for 2016 and 2017 (red bars) used corn and soybean meal futures prices in mid-July.  The projected feed cost indices for 2016 and 2017 are 97 and 97, respectively.

Figure 4. Annual Hog Finishing Feed Cost Indices, 2000 to 2017

Figure 4. Annual Hog Finishing Feed Cost Indices, 2000 to 2017

Sensitivity Analysis for Swine Feed Cost

Feed costs are very sensitive to changes in corn and soybean meal prices.  Regression analysis was used to examine the relationship between hog finishing costs, and corn and soybean meal prices.  Results are as follows: each 0.10 increase in corn prices increases feed cost per cwt by $0.47, and each $10 increase in soybean meal prices increases feed cost per cwt. by $0.33.  Feed cost per cwt. in May was $31.57.  Using expected corn and soybean meal prices, feed cost per cwt. is expected to range from $31.50 to $33.50 for the rest of 2016.

Table 1 presents feed cost per cwt. for corn prices ranging from $3.50 to $4.50 per bushel, and soybean meal prices ranging from $300 to $400 per ton.  At the upper range of the prices experienced during the early May to early July, feed cost per cwt. would be approximately $36.25.  In contrast, at the lower range of prices during this period, feed cost per cwt. would be approximately $29.00.

Table 1. Sensitivity of Swine Finishing Feed Cost to Changes in Corn and Soybean Prices

Table 1. Sensitivity of Swine Finishing Feed Cost to Changes in Corn and Soybean Prices

Conclusions

This article discussed recent trends in feed costs for a swine finishing enterprise.  Feed costs have dropped dramatically since the first quarter of 2014.  Feed cost is expected to be slightly below 2015 levels in 2016 and 2017.  However, given the recent volatility of corn and soybean meal prices, it is important to gauge the impact of changes in these prices on feed cost.  Each $0.10 per bushel change in corn price, changes feed cost by $0.47 per cwt.  Similarly, each $10 per ton change in soybean meal price, changes feed cost by $0.33 per cwt.

TAGS:

TEAM LINKS:

RELATED RESOURCES

Prospects for Swine Feed Costs in 2025

December 10, 2024

Interested in recent trends in feed costs for farrow-to-finish and swine finishing enterprises, and projections for 2025? Average feed costs in 2024 were substantially lower than feed costs in 2022 and 2023. Moreover, a further reduction in feed costs is expected for the upcoming year.

READ MORE

Long-Term Trends in Pigs per Litter

November 12, 2024

Pigs per litter has increased at a rate of 0.107 pigs per year since 1994. Another way of stating the same thing, the annual growth rate of pigs per litter in the U.S. was 1.1 percent from 1994 to 2023. Continued improvements in production performance will help ensure the U.S. swine industry remains competitive.

READ MORE

Prospects for Swine Feed Costs in 2024

November 30, 2023

Indiana corn prices have dropped sharply since September. The most recent WASDE report indicates that corn prices could remain low for the foreseeable future. Obviously, lower expected corn prices will translate into lower expected feed costs during the first part of 2024. What trends in feed costs will we see for 2024? And what’s the impact of corn and soybean meal prices on feed costs for farrow-to-finish and swine finishing operations?

READ MORE

UPCOMING EVENTS

We are taking a short break, but please plan to join us at one of our future programs that is a little farther in the future.

(Part 1) 2024 Indiana Farmland Values & Market Trends

September 11, 2024

Interested in the latest trends and insights on U.S. & Indiana farmland values? This AgCast episode shares insights from the Farm Sector Balance Sheet, USDA data collection methods, regional variations in land values, and the influences of factors such as interest rates and development pressures on farmland prices. Gain an in-depth understanding of trends, market dynamics, and future expectations for farmland values.

READ MORE

August 2024 PAER issue: Farmland Prices Increase Despite Downward Pressure

August 9, 2024

Indiana farmland prices have continued the trend of record highs in 2024, according to the latest Purdue Farmland Value and Cash Rent Survey. The average price of top-quality farmland reached $14,392 per acre, a 4.8% increase from June 2023. Average and poor-quality farmland also saw gains, with prices increasing 3.7% and 4.4% to $11,630 and $9,071 per acre, respectively.

READ MORE

Comparing Net Returns for Alternative Leasing Arrangements

August 7, 2024

Obtaining control of land through leasing has a long history in the United States. Leases on agricultural land are strongly influenced by local custom and tradition. However, in most areas, landowners and operators can choose from several types of lease arrangements. Flexible cash lease arrangements provide a base cash rent plus a bonus which typically represents a share of gross revenue in excess of a certain base value or threshold.

READ MORE