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Feed Ingredient Prices

  

Jul 28, 2017

    

Stable and relatively low feed ingredient prices over the past two years in the U.S. have in large measure softened the blow of prolonged depressed prices for eggs. This may change. The Wall Street Journal of July 14 reviewed a profound alteration in agricultural policy in China, home to twenty percent of the world’s population but with only ten percent of arable area. With large trade surpluses, China recognizes that it will be able to purchase ingredients at world market prices.

  

 For many decades, the Government of the PRC effectively encouraged relatively inefficient production of corn, wheat, sugar, soybeans and some other commodities by establishing support prices with central planning.  The Nation stockpiled ingredients in bountiful years and imported ingredients to supplement requirements.  Past history involving famine and mass starvation motivated extensive storage to compensate for possible crop failure. In 2014, the Government decided to phase out subsidies which resulted in declines in production of the affected crops.

 Following the end of subsidies for soybeans in 2014, production in China dropped 1.5 percent over two years as farmers moved to corn which was still subject to a floor price. The floor price for corn will be removed for the current season with an anticipated 2.3 percent reduction in output in 2018.

Over the past three years, imports of soybeans have increased by thirty percent with an indirect inflationary effect on world price, benefitting the major producers including the U.S., Brazil, Argentina and the Ukraine.

The implication for increased imports into China will benefit row-crop producers in the U.S. and will enhance the earnings of the major international grain traders and shippers.  Livestock producers will have to endure increases in domestic price which could otherwise be absorbed through high prices for eggs. Given the prevailing market, escalation in feed cost would adversely impact margins. 

The situation could be exacerbated if a drought reduced U.S. yields as in 2014. The prospect of reduced output will inevitably occur in the future but will be unlikely in the 2017-2018 season. The USDA projects a 14.3 billion bushel corn crop and a 4.2 billion bushel soybean harvest.