The heat and drought across the Midwest is beginning to scorch livestock producers just as much as, if not more than, grain farmers.
Take David Struthers, a hog farmer in Iowa. Besides pigs he also plants 1,000 acres of corn. That usually gives him enough to feed his herd and get a healthy pop in the corn market.
But not this year. Drought is taking a toll on his corn harvest. This year the 50,000 bushels he needs for his animals might amount to as much as two-thirds of his total crop.
In a normal year, Struthers Farms’ corn fields yield 180 to 185 bushels per acre, and the family farm operators feed just 35 to 45 percent of it to their hogs. But last year, the yield was 156 bushels per acre, and this year it could be even less.
“You have a bushel of grain, and you can choose to sell it on the market and it can go to ethanol or whatever, or you can choose to feed it to your animals,” Struthers said. In the drought, “you give up that opportunity.”
That has made Struthers, and many other hog producers, more aggressive about lightening up their herds, eliminating older animals and less prolific breeders. Struthers Farms brings 3,500 to 4,000 hogs to market a year.
“You can’t just not feed your animals. And you can’t just up and sell them because we only have markets for market-sized animals,” Struthers said. The heat not only suppresses crops but it makes it harder for hogs to gain weight.
“Based on the futures prices, we’re going to be selling livestock below the cost of production. Any time it costs you more to produce something, you’re losing money,” he said.
Struthers said he and other hog farmers added to their herds this year on the promise of cheap feed. The USDA had predicted a bumper crop of 14.7 billion bushels, planted on a record amount of acreage, but that was before the worst of the drought took hold, and it now expects 12.97 billion bushels, still higher than private forecasts.
The USDA forecast this week that just 31 percent of the corn crop is good to excellent, down from 63 percent just a month ago. (Read More: Heat Wave Takes Toll On Small Businesses)
Cattle producers face similar challenges as hog producers, and some farmers are tearing down wilting corn and feeding the stalks to cattle as fill.
“The only people who can go in and out of this and recover more quickly are in poultry. If they can’t manage these prices right now, they can scale back, until corn prices come in,” said Ashley Gulke, an analyst with Gulke Group and a farmer.
“We recommended our clients put on hedges so they might be feeding cheaper corn. We’re hearing people are killing hogs off early because it’s not worth the money for the added weight gain. It costs too much and there’s not a payoff,” said Gulke.
After an initial glut of slaughtered hogs and cattle, meat prices are expected to rise in 2013.
CME August hogs futureswere trading up nearly 3 percent at 92.60 cents Wednesday afternoon. Hogs made a year high of $96.15 on July 2. Live cattle futures also rose Wednesday, up more than 2.3 percent. (Track commodities here)
“As for the prices for hogs right now, we peaked about two weeks ago , and they’re dropping off. We normally see the price decline in the fall,” Struthers said. “In the last quarter of the year and in the first quarter of the new year, they start to step back up because of seasonal supply and demand issues traditionally.”
"The prices are still pretty good through those months but we traditionally don’t have a drought and $7.50 dollar corn. The prices don’t look that bad but you have to look at your input costs,” he said.
Gulke added the drought’s impact seems like it could be worse than 1988, the last year that so much of the Midwest was hit by severe drought and heat.
Struthers said that 1988 was his third year in the business. But that year was different. Corn prices were low going into 1988. “And hog prices were strong in 1986 and 1987 so we had some cushion,” he said. (Get livestock futures here.)
“The drought we hope is a short-lived thing. The cattle people had it bad in Texas last year, and we came out pretty good in the Midwest, and this year is a different story. We’re hoping the rains will come,” he said. “…If we’re going to have drought next year, that would be a really big story.”
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