May 11, 2020

Impact of COVID-19 on Swine Feed Costs

by: Michael Langemeier

Corn prices have fallen sharply during the last of couple of months.  Since late January, nearby corn futures prices have declined 18 percent or $0.71 per bushel, and December corn futures prices have declined 15 percent or $0.61 per bushel.  The decline in soybean meal prices has not been as large, but cash soybean meal prices have declined approximately $15 per ton since March. This article examines trends in feed costs as well as the impact of corn and soybean meal prices on feed costs for farrow-to-finish and swine finishing operations.  It is important to note that the swine finishing enterprise represented in this article assumes the finishing of an early-weaned pig.  The rations for the farrow-to-finish and swine finishing enterprises consist 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.  Early May futures prices for corn and soybean meal were used to project feed indices through 2020.  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 March 2020.  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 $4.52 per bushel from 2007 to the current month.  Soybean meal price averaged $187 per ton from 2000 to 2006, and $351 per ton from 2007 to the current month.  Both corn and soybean meal prices are expected to remain considerably below their averages since 2007 for the foreseeable future.

Figure 1. Monthly Indiana Corn Prices, 2000 to 2020

Figure 1. Monthly Indiana Corn Prices, 2000 to 2020

Figure 2. Monthly Central Illinois SBM Prices, 2000 to 2020

Figure 2. Monthly Central Illinois SBM Prices, 2000 to 2020

Farrow-to-Finish Enterprise

Figure 3 presents monthly farrow-to-finish feed cost indices from January 2000 to April 2020.  The latest full year of indices, 2019, 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 for feed cost indices before and after 2007.  The average index from 2000 to 2006 was approximately 57 while the average index since the beginning of 2007 was approximately 113.  The index for the first quarter of this year was 102.9.  Projected monthly indices for the second, third, and fourth quarter are 100.9, 92.2, and 84.2, respectively.  The projected index for the fourth quarter would represent the lowest index for farrow-to-finish feed costs since the last quarter of 2007.

Figure 3. Monthly Farrow-to-Finish Feed Cost Indices, 2000 to 2020

Figure 3. Monthly Farrow-to-Finish Feed Cost Indices, 2000 to 2020

Annual farrow-to-finish feed cost indices are presented in figure 4.  The projection for 2020 (red bar) used corn and soybean meal futures prices in early May.  The projected feed cost index for 2020 is 95.

Figure 4. Annual Farrow-to-Finish Feed Cost Indices, 2000 to 2020

Figure 4. Annual Farrow-to-Finish Feed Cost Indices, 2000 to 2020

Swine Finishing Enterprise

Figure 5 illustrates monthly swine finishing feed cost indices for the January 2000 to April 2020 period.  The latest full year of indices, 2019, has an index of 100 so all indices outside of this year are expressed in relative terms.  The average index for the 2000 to 2006 period was 56 while the average index for the period beginning in 2007 was 110.  The index for the first quarter of this year was 101.5.  The index is projected to steadily drop as the year progresses.  The projected index for the second quarter is 100.1, and projected indices for the third and fourth quarters are 90.8 and 85.1.  As with the farrow-to-finish enterprise, the projected feed cost index for swine finishing in the fourth quarter has not been this low since the fourth quarter of 2007.

Figure 5. Monthly Hog Finishing Feed Cost Indices, 2000 to 2020

Figure 5. Monthly Hog Finishing Feed Cost Indices, 2000 to 2020

Annual swine finishing feed cost indices are presented in figure 6.  The projection for 2020 (red bar) used corn and soybean meal futures prices in early May.  The projected feed cost index is 94.  Thus, swine finishing feed costs for 2020 are expected to be approximately 6 percent lower than those experienced in 2019.

Figure 6. Annual Hog Finishing Feed Cost Indices, 2000 to 2020

Figure 6. Annual Hog Finishing Feed Cost Indices, 2000 to 2020

Using the iFarm price distribution tool (here), the probability of the corn futures price for December 2020 being below (above) $2.90 ($3.70) was 25 percent on May 6.  This represents a spread of $0.80 per bushel.   Feed costs are very sensitive to changes in corn and soybean meal prices.  Regression analysis was used to examine the relationship between swine finishing feed cost, and corn and soybean meal prices during the January 2007 to December 2019 time period.  Results are as follows: each 0.10 increase in corn prices increases feed cost per cwt. by $0.44, and each $10 increase in soybean meal prices increases feed cost per cwt. by $0.32.  Obviously, a $0.40 increase or decrease in corn price would have a large impact on feed cost per cwt.

Current feed cost is approximately $32 per cwt.  With the recent in drop in corn prices, feed cost per cwt. is expected to $3 to $5 per cwt. lower than current feed costs in the second half of this year.  Table 1 presents feed cost per cwt. for corn prices ranging from $2.75 to $3.75 per bushel, and soybean meal prices ranging from $250 to $350 per ton.  At the lower range of prices, feed cost per cwt. would be approximately $24.25.  At the higher range of prices, feed cost per cwt. would be approximately $31.75.

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 farrow-to-finish and swine finishing enterprises, and provided projections for the rest of 2020.  The drop in corn prices during the COVID crisis is projected to have a significant impact on feed costs for the rest of this year.  Feed cost per cwt. for the last half of 2020 are expected to be $3 to $5 per cwt. lower than what they were in the first quarter.  It is important to note, however, that current projections have a wide band around them.  This article examined the impact of changes in corn and soybean meal prices on swine finishing feed cost.  Each $0.10 per bushel change in corn price, changes feed cost by $0.44 per cwt.  Similarly, each $10 per ton change in soybean meal price, changes feed cost by $0.32 per cwt.

 


References

2019 iFarm Price Distribution Tool, University of Illinois, accessed on May 6, 2020.

USDA-NASS.  Quick Stats, accessed on May 6, 2020.

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