Feed Grains and Livestock: Impacts on Meat Supplies and Prices

Agriculture in the United States is undergoing a significant change. Grain, oilseed, and land prices have increased significantly, creating a subsequent increase in the income and wealth of many rural Americans—unless you are in animal agriculture. Feed is the largest single cost item for livestock and poultry production, accounting for 60%– 70% of the total cost in most years. Although energy, labor, and other inputs have increased, feed costs have increased anywhere from 40%–60% (depending on the species) in the last two years. As price takers in competitive markets, animal producers cannot simply pass their higher costs on to consumers. To date, rising costs have largely been absorbed by livestock and poultry producers, often with significant financial loss. However, higher costs of production will ultimately have to be reflected in higher prices for meat, milk, and eggs at retail counters in the United States and elsewhere. This adjustment process is complex, lengthy, painful, and not without unintended consequences. In this article we attempt to explain what is happening to feed costs, including the likely consequences of the recent ethanol boom on these costs and how the different sectors—beef, dairy, pork, and poultry—are adjusting to higher costs. Importantly, speed of adjustment will vary significantly as industries with shorter production cycles, such as poultry, are able to respond in a matter of months whereas adjustments in industries with longer production cycles, such as beef, can take a period of several years.