Iowa livestock farmers aren’t living high on the hog these days.
Recent flooding in this key section of America’s farm belt dealt yet another blow to farmers who are already in a bind due to sky-high feed costs and low livestock prices.
“Livestock farmers and meat producers across the country have been dealing with soaring feed costs for nearly two years,” explains a recent Wall Street Journal article.
“Now, heavy flooding in Iowa is sending corn prices even higher. Thursday, the corn futures contract for July delivery closed at $7.27 a bushel on the Chicago Board of Trade, up about 13% from two weeks ago.”
Livestock prices just haven’t kept pace with other soaring commodities, including the grain that's used to fatten them. Both farmers and meatpackers are seeing their profits squeezed as a result. In response, some big processors are liquidating their breeding herds, and family farmers are calling it quits.
“Shaun Greiner, a 39-year-old hog farmer in southeast Iowa, says he has been losing money selling his pigs since November.” It costs him over $170 in feed and overhead expenses to fatten a 15-pound piglet into a 280 pound whole-hog that’s ready for market.
The trouble is he can only fetch about $150 apiece when it's time to sell the animal at current market prices. That math just doesn’t compute.
Still, Mr. Greiner remains cautiously optimistic: “The wheel's going to turn and things are going to get better, and when they do it's going to be like shooting fish in a barrel, but I don't know when that's going to happen.”
We’re in the midst of a long-term bull market in commodities. In this kind of cycle, all commodity prices eventually soar to record highs, but performance is uneven from commodity to commodity.
While everyone is focused on soaring crude oil prices, some of the best values in commodity markets are in the agricultural sub-sector – especially livestock prices (lean hogs and live cattle).
According to my colleague Eric Roseman: “Over the last six years, live cattle and lean hogs have gained just under 30% in nominal terms, or up barely 4% adjusted for inflation.”
Livestock has essentially been standing-still compared to soaring grain and energy prices. In fact, over roughly the same time frame, crude oil is up over 600% in value! Corn prices (a key feedstock for livestock) are up 120% in the past year alone!
You might say Eric is hog-wild for livestock, and I believe he’s right on the money.
Something’s got to give. Livestock farmers are already thinning the size of their herds, or calling it quits altogether, in response to soaring grain prices. Inevitably this results in reduced supply amid growing demand... sound familiar?
The next big round of commodity market gains are likely to come on the hoof.
good blog please keep updating
Posted by: family stocks | November 11, 2009 at 02:08 PM