Surging Feed Prices Will Challenge the U.S. Animal Protein Sector's Recovery

The U.S. animal protein sector is expected to face a 12% increase in feed costs in 2021, which will mark the highest year-over-year inflation since 2011. With corn futures above $4 per bushel and soybean meal futures around $350 per ton, cattle feeders, hog producers and chicken producers will pay higher prices for feed than they have in many years, according to a ’new report from CoBanks Knowledge Exchange division

 

The higher feed costs come at a challenging time, as meat and poultry industry margins have been pressured by weak prices in 2020 due to COVID-19. Average producer margins for cattle, hogs and broilers fell into negative territory this year after the pandemic disrupted foodservice demand and drove widespread meat plant slowdowns and shutdowns.

 

“Most producers lost money during the year, but that’s been in the midst of some of the most extreme volatility in global food demand anyone has ever seen,” said Will Sawyer lead animal protein economist with CoBank. “Industry margins are far better today than they were in the spring, but there will be tighter windows of opportunity for the livestock and poultry sectors to profit in 2021.”

 

Much of the increase in feed prices is being driven by Chinese demand for grain as it rebuilds its hog herd and overall animal protein supply after African Swine Fever (ASF) ravaged its herd the last couple of years. The USDA forecasts China’s corn imports to more than triple in the 2020-21 crop year, with much of that increase coming from the U.S.

 

The shortage of animal protein in China has drawn massive trade flows towards the world’s most populous country. Since China lost more than half of its hog herd beginning in late 2018, it has been the largest importer globally of beef and pork, and nearly surpassed Japan in poultry imports. While China’s protein imports are expected to decline a modest 3% in 2021, CoBank economists anticipate those imports will fall more sharply in the years to follow.

 

For most of the last decade, feed costs have generally been a tailwind for U.S. meat and poultry producers and have been lower than the year before for six of the last eight years. In 2021, U.S. hog producers are expected to face the highest level of feed cost inflation at 14%, closely followed by cattle feeders at 13%, and chicken producers at 11%. The impact of feed costs varies by species for several reasons, such as life cycle, feed ration, and components of other feed costs.

 

While feed costs will be more of a burden for the animal protein industry than in previous years, meat and poultry supply growth is expected to slow in 2021. USDA forecasts 0.8% overall growth for U.S. beef, pork, and chicken production in the coming year, the slowest rate of supply growth since 2014. That leaves reason for some level of optimism that higher feed costs can be offset by higher prices.