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Livestock Industry Under Stress

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The corn and soybean meal market prices have responded to the current U.S. drought with dramatic market increases. Chicago Board of Trade (CBOT) December corn futures prices rose to over $8/bu. by mid-August, an increase of nearly $3/bu. since mid-June, or about a 60% increase in about two months. Similarly, CBOT soybean meal prices have increased by nearly $200/ton in recent months, and are now over $500/ton. Corn and soybean meal are important feed ingredients for all segments of the livestock industry.

The biggest financial impact of the 2012 drought will likely affect U.S. livestock producers, including those in Minnesota, with varying degrees of loss from the disaster. The estimated cost of production for pork producers has risen sharply in recent weeks. Based on current hog futures prices, many experts are now projecting a loss of about $20-30/hog marketed in the next six to nine months. Similarly, the expected sharply higher feed costs are expected to result in large financial losses for the fed cattle and dairy industries in the coming months as well. In addition to very high feed costs, livestock producers in many areas of the U.S. are also dealing with serious feed shortages, which will likely cause liquidation of breeding livestock. The liquidation of breeding sows, as well as beef and dairy cows, will put added short-term pressure on the hog and cattle markets.

The Minnesota livestock industry generates over $6.1 billion/year in direct sales, and contributes approximately $20 billion to the state’s economy, according to the most recent estimates of the impact that Minnesota’s livestock industry has on the state’s economy. In an era when much of the agricultural focus has been on corn and soybean production, along with the growth of the renewable fuels industry, the continued importance of the livestock industry to the state’s economy is sometimes overlooked. In 2011 and the first half of 2012 higher market prices for hogs, cattle and milk helped improve profit levels for livestock producers, prior to the negative financial impacts resulting from the sharply higher feed costs associated with the 2012 drought.

Most corn and soybean producers in the Midwest carry some level of Federal Crop Insurance to help offset some of the potential financial losses from the drought; however, there is no similar risk protection product for livestock producers. USDA has introduced some measures in recent weeks to try to address the impact of the current drought on livestock producers. The latest was to announce an additional USDA meat purchase of $100 million of pork, $50 million of chicken and $10 million each of lamb and catfish, which is intended to help enhance meat demand and strengthen short-term market prices. Earlier USDA authorized emergency haying and grazing on CRP and Wetlands Reserve land for States most impacted by the drought. Producers should contact their county Farm Service Agency (FSA) office for more details on current livestock assistance programs that are available.

The Livestock Indemnity Program (LIP) was initiated in the 2008 Farm Bill, as a piece of the permanent disaster portion of the legislation, to help protect livestock producers from severe financial losses due to natural disasters, similar to the SURE program for crop producers. The LIP program has been used in recent years for that purpose. Funding for both the LIP program and the SURE program ended in 2011, so currently neither program is available to cover crop or livestock losses from the 2012 drought. The U.S. Senate and House Agriculture committees have included some emergency assistance similar to the LIP program in new farm bill proposals. Thus far, legislation for a new farm bill has stalled out in the U.S. House. There have also been proposals in Congress for emergency disaster legislation to assist livestock producers; however, no action has been taken at this time.

 

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.

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