Pablo Guiroy and Ryan Eichler discuss how to overcome high corn prices
October 25, 2010
As the prices of corn continue to climb, livestock producers are reminded of the lean year of 2008, where corn prices reached historic highs, creating one expensive year for feeding cattle. Current trends indicate corn prices will continue to move up, causing concern for beef producers as they prepare for the fall and winter feeding months.
Pablo Guiroy and Ryan Eichler, both with Cargill Animal Nutrition, discussed how to tackle these high prices again, this time keeping in mind the lessons learned from 2008 and with the confidence of seasoned producers who have handled it once before.
“In 2008, we had a very similar reality,” said Guiroy. “We saw what happened when corn prices got so high, and then they came down with a crash. It seems our long-term understanding of corn prices is telling us that we were going to be back to a similar situation now. Maybe we won’t see $7 corn, but maybe $4-$5. Hopefully corn can come down, but it is what it is. Producers can prepare for it better today than ever before.”
In 2008, the folks at Cargill Animal Nutrition put together an approach on how to deal with high corn prices, and it was broken down into three options for producers. First, producers can more efficiently use corn grain. Second, a greater substitution of feeds and byproducts can be used in place of corn. Finally, the third option is to reduce the number of days on feed.
“How will these three options impact the economics of feeding cattle?” asked Guiroy. “The first two options will help, but will have a small- to medium-impact on your bottom line. However, the third option can have a major impact. Feeding cattle 90 days verses 150 days is huge. There is a tremendous opportunity to reduce feeding days and use byproducts.”
Of course, if byproducts and corn aren’t available next door, feed costs will remain expensive for producers. As a result, an important step for producers is risk management.
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“A big point that we want to focus on is having a correct benchmark for making our decisions,” noted Eichler. “That benchmark is our profitability, or dollars per head. You can remain with your old feeding program, but you want get the best use of your dollars. Your old program might give you the best gain or best feed conversion, but in these times, we need to focus on a new benchmark – profitability.”
Eichler and Guiroy agreed that although they can’t predict just how high corn prices are going to go, they can work to help their customers understand profitability and risk management.
“It’s not only key to defray the cost of on-farm ingredients, it’s also important to figure out our approach for profitability,” added Eichler. “When working with my customers, we try to figure out our benchmark looking at the cost of distillers grains, corn gluten feeds and various prices to project a model for how the producers can make money.”
The bottom line, they said, is there is a need for producers to take action. This means having a more efficient use of all ingredients and technologies available. Producers should also look at the substitution of feeds in diets based on price, availability, nutritional value and consistency. Finally, reducing the number of days cattle are kept on feed can have a huge impact on producers’ pocketbooks.
“Today, with high feed prices, planning and risk management are going to make all the difference between profitability and giving it all away,” said Guiroy. “Mitigating risk is very important. The big thing to understand is the cost and inputs, so you can maximize what you get back out of that investment. Going through those tough times in 2008 has taught us the importance of talking with our customers about risk management. I think that’s what is so great and unique about our industry – our resilience and ability to cope in tough times.”
Proper planning, educated decisions, risk management and the ability to change a feeding program to reduce costs will all be factors in producer success in light of high corn prices.