Brumm: Feed Grains basis Impact on Production Costs

By Mike Brumm

With spot packer bids continuing to decline in the face of very large supplies, one of the few opportunities to lower the cost of production is to purchase ingredients at lower prices. Fortunately for the swine industry, the very large corn and soybean harvest in the US that is getting underway has resulted in lower prices versus last year. Many expect the price of corn and soybean meal to remain relatively low for 2-3 years pending a major weather impact on yields.

While this means all US pork producers have lower ingredient input costs for their diets, it doesn’t mean that all producers pay relatively the same price for the same ingredients. I’ve always been interested in the impact of basis on corn and soybean meal prices.

As an example of the basis (local price relative to Chicago Board of Trade price), corn bids today at the Cargill rail terminal near Pipestone, Minnesota in the southwest corner of the state were $2.915 per bushel. At the same time, bids at the Cargill terminal at Linden, Indiana (just south of Lafayette in western Indiana) were $3.265 per bushel, a difference of $0.35 per bushel. This is close to the historic difference in prices between these locations and doesn’t reflect local harvest supply, etc.

Another widely used feed ingredient is DDGS. USDA Market News quoted the average Minnesota bid today at $97.50 while the average Indiana bid was $117.00 per ton.

At the same time, the Cargill soybean processing plant at Lafayette, IN was selling Hipro soybean meal (generally guaranteed 47.5% crude protein at this location) for $328.10 per short ton. The CHS soybean processing plant in Mankato, MN located 2 miles from my home was selling Hipro soybean meal (generally guaranteed 46.5% crude protein) at $288.10 per short ton. The slight difference in crude protein guarantee reflects the difference in soybean crude protein due to local growing conditions.

Even accounting for a slight difference in soybean meal crude protein between locations, the $40/ton difference in soybean meal price between Mankato and Lafayette, the $0.35/bu difference in corn price and the $19.50/ton difference in DDGS pricing between western Minnesota and western Indiana make feed costs about $5/pig cheaper today in western Minnesota than in western Indiana. No wonder pig inventories keep growing in the western corn belt – it’s all about cost of gain and access to land to utilize the resulting manure as a fertilizer resource.

Source: MnPork