Since August 2006, I have watched
corn prices increase steadily to
nearly $4 and have discussed this
issue with many people. Another $2
increase would increase our cost per
hundred weight by nearly $10. The
better news: the price of pigs appears
stable for 2007 and may allow for
breakeven or possible modest profits this year.
We continue to buy corn whenever the market dips,
achieving an average cost of $3.40 at many sow locations.
In addition, we have procured soybean meal for
well into 2008 at $200 per ton or less. A few farms
own corn for less than $3, but that is certainly the
exception. I have no idea whether these are the best
strategies, but I get the feeling no one else knows
either—not even the experts.
Dermot Hayes from Iowa State University (ISU)
offers data relating corn prices to oil and government
subsidies. Hayes, an economist at ISU, suggests
future corn prices will be determined by the following
formula:
Price of corn = (Price of gasoline x 0.667) x 3 + tax
credit + price of DDG – cost of capital for ethanol
plant – ethanol plant operating costs
(Notice there is nothing in the formula about crop size
or other supply factors.)
So of course you and I wonder, “Where will we get
roughly one billion corn bushels needed to feed pigs
each year?” And we ought to decide, “If there’s going
to be a corn bidding war, we’ll need to be in it!”
If you raise your own corn, then smile and realize
you’re in a better position than many of the largest
swine integrators. If, on the other hand, you raise no
corn or not enough corn, get to work protecting your
operation from prices over $4. You might be smart to
lock in your profit while you can because there could
be huge market swings.
Pipestone Systems is reviewing
alternative corn procurement methods.
We’re being careful not to expect
a silver bullet, but we are doing
everything possible to manage this risk for 2007 and 2008. |
