Drought threatens financial well-being of livestock industry

Drought that is spreading across the country is increasing feed prices and quickly spelling financial disaster for livestock producers. RFD Radio's Rita Frazer spoke with Missouri's Ron Plain about the livestock situation.

Compiled by staff

Published: Jul 20, 2012

While crop producers face serious economic losses from reduced or non-existent yields, the lack of corn, soybean and hay crops could make the fallout even worse for milk, beef, pork, mutton, chicken, egg, turkey and duck producers.

"The first thought is crop producers will bear the brunt of the financial losses, but losses in animal industries will be enormous over the next year - perhaps considerably greater than for the crop sector," Purdue's Chris Hurt said.

Unlike many crop farmers, livestock producers don't typically have any form of income protection comparable to crop insurance.

December 2012 corn futures already have risen by nearly 55 percent, and soybean meal futures are up 24 percent.

"These higher feed prices have to be absorbed by the animal industry, causing a collapse in financial margins," Hurt said. "Higher feed costs cannot be passed on to the consumer in the short run, so animal industries have to take these losses or begin to liquidate animals."

The lack of profitability is likely to cause some livestock producers to begin liquidation immediately, with Hurt predicting even more liquidation in the fall.

"Animal producers ultimately do get compensation for the higher feed costs, but that comes after a prolonged period of losses that some producers can't survive," Hurt said.

"Unfortunately, the profit prospects for many in the animal industries will not improve markedly until feed and forage prices can move lower with more normal crops in 2013. That means their outlook appears bleak for another 12-15 months. That is a situation where more rapid and deeper liquidation can occur."

One immediate response from livestock producers has been to seek out and cull low-productivity breeding animals, or to sell animals at lower weights.

According to Hurt, the average live-hog weight has dropped from 278 pounds to 273 pounds because the drought has already caused increases in feed prices. He expects further reductions in coming weeks.

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