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Livestock Sector to Slow, Higher Feed Costs a Factor
By
Laura Skillman
LOUISVILLE, Ky., (Dec. 6, 2006) –The livestock industry has been
the driving force behind a strong agricultural economy in the
state, but prices in the coming year will level and input costs
will rise, making the enterprises less profitable.
 While the equine sector will remain strong, cattle and poultry
will see less profitably. These three sectors comprised 61
percent of total cash farm receipts in 2006. Grain prices are
expected to pick up the slack in 2007 ensuring a continued
strong farm economy.
“We’ve seen very good feeder cattle prices in Kentucky for
several years now and we’ve been enthused about those and
wondering how long they were going to last and thinking about
long-term expansion,” said Lee Meyer, an agricultural economist
with the University of Kentucky College of Agriculture. “But
what we’ve seen was not the cattle cycle and the expansion of
beef production that has caused things to change; it was corn.”
In the past few months, higher corn prices have had a
detrimental effect on cattle prices. The impact of increased
corn prices on cattle prices follows what Meyer calls the
eight-to-one rule; for every $1 increase in corn prices, feeder
cattle prices will drop by $8.
There is also some expectation of a little more beef production
in the United States but not much more than last year. That
should help slaughter cattle prices to remain steady while
feeder cattle prices are expected to be 5 to 10 percent lower.
“But by historical standards, prices are still going to be
pretty good,” Meyer said. “Efficient producers should be able to
cover their costs, and the longer run, I think, is still looking
pretty good.”
The poultry industry, an $850 million industry in Kentucky, will
also be impacted by higher feed costs due to increased corn
prices. Exports have been strong, and the industry has continued
to build on export levels of 15 percent of broiler meat. In the
next year, integrators are expected to reduce production and, as
a result, prices are expected to increase slightly. Higher
feed costs will increase production costs, tempering income
potential. Energy costs, especially for natural gas used to heat
broiler houses, have also had an impact on farmer expenses.
Hog production in Kentucky leveled out in 2004 after about a
decade of declining production. In 2005 and likely 2006 as well,
production has increased slightly. Prices in 2006 were good and
exports are strong, a key factor in the strong prices. Prices in
the coming year will be down about 3 percent overall, but Meyer
said the important thing to consider is the breakeven cost of
production. Corn is an important component of hog diets and with
the higher prices for the commodity, the production costs will
be higher, pulling the breakeven price up and impacting the
producers’ profit potential.
Much of the increased price of corn is being driven by a high
demand for the grain in ethanol production. Distillers’ dried
grains (DDGs), a byproduct of ethanol production, will be
utilized as a feed source by some sectors of the livestock
industry.
Distiller’s grain can be used for a feed source for
backgrounding calves to complement other feed stuffs and forages
in Kentucky, Meyer said. The feedlots are trying to move more
toward distiller’s grains in their rations to offset the higher
corn prices. This will help offset some of the higher feed costs
for cattle.
Distiller’s dried grains can be fed to poultry in limited
amounts, replacing some of the corn and soybean meal typically
found in poultry diets. However, corn will continue to be the
predominant ingredient for energy in diets, said Austin Cantor,
UK poultry nutrition specialist. The fermentation process
primarily uses the starch in corn, leaving the protein and fiber
behind in DDGs. Fiber at too high of a level in poultry diets
can depress weight gain, he said. Also, poultry diets are
computer formulated based on the cost of nutrients added, so
DDGs may not be the most cost-effective nutrient source.
Distiller’s dried grains can be effectively used in swine diets.
However, it is not a straight DDGS-for-corn substitution, said
Richard Coffey, UK swine specialist. It primarily replaces corn,
but it will also affect the amount of soybean meal and dicalcium
phosphate and does not completely replace corn in the diet. To
effectively utilize DDGS, the diets need to be reformulated. The
traditional inclusion rates have been up to 5 percent in nursery
diets, 10 percent in grower/finisher and lactation diets, and 20
percent in gestation diets. However, if the diet is formulated
on a digestible amino acid basis, it is possible to go to higher
inclusion rates. |
Contact: Lee Meyer, 859-257-7272, ext. 228
Richard Coffey, 270-365-7541, ext. 244
Austin Cantor, 859-257-7531 |
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The UK College
of Agriculture, through its land-grant mission, reaches across
the commonwealth with teaching, research and extension
to enhance the lives of Kentuckians. |
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