Drought squeezes livestock producers

Turkey barn
High grain prices translate into high turkey feed costs and that's causing losses for poultry producers. Hog and cattle farmers are feeling the same pinch. The drought has pushed corn and soybean prices into record territory.
MPR photo/Mark Steil

More than half the United States is in drought, including parts of southern and western Minnesota. But even in areas where there's been enough rain, the dry weather is causing severe financial pain in Minnesota's $6 billion dollar livestock industry.

Meat and poultry producers say their operations are losing money because the drought has pushed grain prices - and the cost of their animal feed - much higher.

The run up in the price of corn over the last two months, from about $5.50 a bushel to more than $8 a bushel caught turkey growers like Gene Brownfield by surprise.

"When corn goes up that fast it's hard to react to the market," said turkey grower Gene Brownfield.

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Brownfield said corn prices have jumped more than 40 percent in the past month or so, and the cost of his feed has similarly increased. He has to feed 20,000 birds for months, and doesn't expect to make any money on them.

"At these prices you won't," he said. "You're looking at a loss on them." Those losses could be large. Brownfield anticipates sending about 50,000 turkeys to market in September for Thanksgiving. At current feed costs and turkey prices, he expects to lose as much as $40,000 on the birds. He said it's impossible to predict how long these unprofitable conditions will last, but if current conditions continue, he could hemorrhage $500,000 over the coming year.

Brownfield expects the industry to take steps to improve the economics, such as cutting back on production to reduce supply. That could raise turkey prices. But he's still worried about finding enough corn.

Turkey farm
The price of corn has increased nearly 50 percent in the last two months because of drought. The dry weather is expected to sharply reduce the size of the U.S. corn crop. That means higher feed costs and losses for poultry, hog and cattle producers.
MPR photo/Mark Steil

"Where's all the corn going to come from to get us through this year?" he asked. "Next year really looks tough too."

Hog farmers have similar problems. They're also losing money.

"We have 8,000 head of pigs right here in all different stages so I mean it's going to start real immediately as far as the loss," said Curt Johnson, whose operation near Pipestone sells about 20,000 hogs a year. "It's going to be hard."

Johnson expects to lose between $20 and $30 on every hog he sells. That could add up to a lot of red ink.

There are also reports of dairy farmers taking cattle to market to generate income and reduce their feed costs.

Johnson and many other livestock producers would like to see a reduction in corn based ethanol production. He said that would lower corn demand and the price of the grain.

"We don't want to lose pork producers and good people that are trying to make a living because we're burning it as ethanol," Johnson said. "I think we have to make a choice here."

So far, the federal government hasn't announced any steps to cut back ethanol production. Ethanol producers use about 40 percent of the nation's corn production or about five billion bushels last year.

Ethanol industry leaders say the drought, not ethanol production, caused the corn price spike.

No one knows how much the drought will cut into the supply of corn, University of Minnesota Applied Economics professor Brian Buhr said. That uncertainty has pushed grain prices into record territory and turned the economics of livestock and poultry production upside down.

"It's changed pretty dramatically, pretty quickly," he said.

Buhr said one thing farmers can do is to cut expenses as much as possible.

Farmers can typically lock in affordable feed prices on the futures market if they anticipate higher grain prices. But Buhr said the drought caused such a quick price jump that there wasn't time to react.

"This kind of spike we've seen now is pretty difficult to really manage very well," he said.

Buhr said hog producers also lost a lot of money four years ago when corn prices rose. He said some have not yet fully recovered from that downturn.

They were expecting 2012 to be profitable, but that hope has largely dried up along with the nation's crop fields as the drought conditions spread.