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2012 Ag Year In Review --- Part II

Written by: Kent Thiesse

This is the second of a two-part article highlighting what happened agriculturally in 2012. This article will focus on a review of 2012 livestock production, input costs, and grain prices this week, following a review of 2012 crop production and weather conditions in the previous article. Following are some highlights regarding livestock production, input costs and grain prices for 2012 :

 

Livestock Production --- The biggest financial impact of the 2012 Drought will likely hit livestock producers.  Corn costs rose nearly 50 percent, and soybean meal costs were up about 35 percent, during a six to eight week period this past Summer, bringing feed costs for hog finishing to over $130.00 per head. The estimated cost of production for pork producers for the third quarter of 2012 rose to an estimated at $73 per cwt. on a live weight basis, and have dropped only slightly in the past couple months. The higher feed costs and lower market hog prices in late Summer of 2012 lead to producer losses of about $30 to $40 per hog marketed during that period. A combination of a slight reduction in feed costs and some improvement in lean hog market prices has helped reduce the hog production losses later in the year; however, a recent market price drop has again pushed market hog losses back near $30.00 per head sold.

 

The higher feed costs resulting from the 2012 drought have also lead to large losses for beef cattle and dairy producers. It was estimated that cattle feedlots were losing over $100 per head on cattle being marketed in early December, and farm-level milk prices were below break-even levels for a majority of producers. Some estimates are that beef cow producers will lose as much as $200 per cow in 2012. U.S. poultry and sheep producers are also experiencing large financial losses in 2012, due to the very expensive feed costs. Fifty four percent of the nation’s pastures were rated in either “poor” or “very poor” condition in late Fall of 2012., meaning that challenging conditions for beef cow and sheep producers will likely continue into 2013.

 

The high feed costs, along with limited hay supplies and poor pasture conditions, has lead to large liquidations of beef and dairy cow herds, and reductions in sow numbers. This has put even more short-term impact on livestock prices, and reduced profitability for producers. U.S. beef cow numbers were at the lowest level in decades coming into 2012, and now beef cow numbers are expected to be even 3-4 percent lower at the end of the year, due to this year’s drought conditions. The reduced livestock numbers resulting from the drought will likely lead to reduced supplies of meat and dairy products later in 2013, along with higher consumer costs for those products in the future.

 

Profit prospects for the livestock sector in 2013 look to improve and be more favorable, especially in the second half of the year. Most experts expect lower feed costs later in the year, with improved market price prospects, and strong product demand for meat and dairy products. The situation for livestock producers, which was created as a result of the 2012 drought, has once again pointed out the need for a risk management program for livestock producers that provides the same type of “safety-net” that  crop producers have available through Federal Crop Insurance. The Milk Income Loss Contract (MILC) program offers some risk management protection for dairy producers, but funding for that program was discontinued on September 30, 2012, until a new Farm Bill is enacted. Similarly, there is currently no USDA funding available for most emergency livestock assistance programs that could assist livestock producers with large financial losses from the 2012 drought.

 

 

Input Costs --- Crop input costs in 2012 increased moderately, compared to 2011, with fairly significant increases in expenses for seed, fertilizer, and fuel, and lower increases in chemical costs. For the second year in a row, many producers had very limited corn drying costs, due to the early maturity of the corn and the much warmer weather pattern this past Fall, and crop insurance rates remained fairly steady. Land rental rates increased significantly in many areas in 2012, and are likely to have another increase for the 2013 growing season. Feed costs for livestock producers were significantly higher in 2012, compared to a year earlier, but should moderate later in 2013. Agriculture interest rates, both for operating loans and longer term loans, remain quite low, which is a trend that is likely to continue in 2013.

 

Grain Prices --- Grain prices rose to record high prices this past Summer, reaching harvest price levels near $8.00 per bushel for corn and over $17.00 per bushel for soybeans in Southern Minnesota. By mid-October, local cash grain prices had moderated to near $7.25 per bushel for corn and below $15.00 per bushel for soybeans, and by late December have dropped to below $7.00 per bushel for corn and below $14.00 per bushel for soybeans. While these are still quite favorable price levels, they are considerably below the high price levels of late Summer. Harvest grain prices for the Fall of 2013 are currently just above $5.50 per bushel for corn and $12.00 per bushel for soybeans in South Central Minnesota, which will create much tighter profit margins for the coming year, as compared to 2012.

 

Many farm operators did not market a lot of their corn and soybeans at the top price levels, as they started marketing their grain last Spring and early Summer, before the major drought occurred. Forward pricing some of their anticipated grain production early in a given year is a solid risk management approach that has been used by producers for several decades, and is usually a very good farm business strategy.

 

A lot of corn in the region was forward priced at $4.75-$5.50 per bushel in May and June, and the soybeans at $12.00-$13.00 per bushel, which seemed like good prices at the time. Once the drought set in, grain prices increased dramatically; however, producers needed to be cautious how much more grain they were forward contracting, in case they did not get the bushels. As a result, many farmers ended up missing the top of the 2012 grain markets. Fortunately for most corn and soybean producers in Minnesota the strong grain prices continued into harvest season and beyond, which along with better than expected production, resulted in a very profitable year for crop production in 2012.

 

As mentioned earlier, the current local cash bid prices in Southern Minnesota for corn are slightly below $7.00 per bushel at many locations, while cash soybean prices are just below $14.00 per bushel. By comparison, at this same time in recent years, local cash corn prices were near $6.00 per bushel in 2011, $5.50 per bushel in 2010, $3.50 per bushel in 2009 and 2008, and around $4.00 per bushel in 2007. Local cash soybean prices were about $11.50 per bushel in 2011, $12.70 per bushel in 2010, $9.80 per bushel in 2009, $8.25 per bushel in 2008, and $10.85 per bushel in 2007. 

 

 

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Note --- For additional information contact Kent Thiesse, Farm Management Analyst and

              Vice President, MinnStar Bank, Lake Crystal, MN. (Phone --- (507) 381-7960) ; 

              E-mail --- kent.thiesse@minnstarbank.com)  Web Site --- http://www.minnstarbank.com/