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The connection between grain markets and feed prices

Estimated reading time: 5 minutes

  • Grain is definitely the biggest source of energy in feed and that the cost of grain influences the cost of feed.
  • Grain may not be the most expensive raw material per unit price, but given the amount of grain included in livestock rations, its impact on the price of feed is undeniable.
  • While livestock feed contains relatively little oil, the animal feed industry does utilise large quantities of oilcake.
  • There are two equations producers need to balance when considering different feed rations: nutritional value and finance.
  • Producers need to note, though, that roughage only plays a key role in ruminant production, says Dr Brink van Zyl of Stellenbosch University. Hence, it applies to beef cattle, dairy cows and small stock only. Grain-based roughage, such as silage, contains approximately 60% grain and is therefore subject to price fluctuations.

While high grain prices make for happy grain producers, those with livestock enterprises are all but smiling. Although most producers consider markets and prices part of what they have to deal with every day, not everyone is familiar with the intricacies of these aspects and how they fit together. 

Centuries ago the versatile genius, Leonardo da Vinci, said that everything is interwoven. The connection between certain things, such as grain markets and feed prices, is simply more noticeable than others.

Levels of inclusion

“Grain is definitely the biggest source of energy in feed,” says Dr Brink van Zyl, head of the Department of Animal Sciences at Stellenbosch University, adding that the cost of grain has by far the biggest economic influence on the cost of feed. (Grain may not be the most expensive raw material per unit price, but given the amount of grain included in livestock rations, its impact on the price of feed is undeniable.)

“Inclusion levels in livestock feed vary from as little as 15% in drought rations, to as much as 90% in some dairy concentrates; however, inclusion levels are generally somewhere between 40 to 60%,” he says. “In addition, various by-products from the grain sector, such as wheat bran and hominy chop, are widely utilised in animal feed. The prices of these by-products are also directly linked to the grain price, which therefore has a direct impact on feed prices.”

That being the case, the equation is straightforward, says Dr Van Zyl. “Grain and grain by-products have a significant influence on feed prices.”

The price of oilseeds

While livestock feed contains relatively little oil, the animal feed industry does utilise large quantities of oilcake. “Oilcake is the product that remains after the oil has been extracted and is an excellent source of protein. In South Africa we mostly utilise cotton, soya, canola, sunflower and groundnut oilcake.”

Livestock feed rations contain less oilcake – usually between 10 and 20%. “However, it costs considerably more per unit than grain does. Since oilseed commodity price movements directly affect the cost of oilcake, unit prices will also be affected. The net effect is therefore similar to that of grain.”

Read more about the demand for oilseeds in the animal feed industry.

Nutritional value and finance

There are two equations producers need to balance when considering different feed rations: nutritional value and finance.

The protein and energy in a ration will ultimately determine what you will pay. “A producer or nutritionist should constantly strive to formulate the best but most economical alternative, but without compromising the product’s quality.”

These formulas are usually adjusted monthly and depend on the stock on hand, he says. “However, product specifications must always meet the minimum nutritional requirements of the animal since animal production and reproduction depend on it. After all, production has a direct influence on the farming enterprise’s income.”

Commodities do not always have a direct substitute that can replace them in feed on a one-on-one basis. In fact, very few of them do. There is no point in reducing feed costs at the expense of production and income.

The cost of roughage

Not all producers make use of bought-in feed for their livestock, which raises the question: What does the interaction between roughage and grain markets entail? Within the context of this article, ‘roughage’ refers to feed such as pasture, preserved forage (hay and silage), crop residues and cultivated pastures.

Producers need to note, though, that roughage only plays a key role in ruminant production, says Dr Van Zyl. Hence, it applies to beef cattle, dairy cows and small stock only. Grain-based roughage, such as silage, contains approximately 60% grain and is therefore subject to price fluctuations.

Learn more about the role of feed-grade amino acids in animal feed.

Price fluctuations have less of an impact on roughage prices, as shown by the Chicago Board of Trade (CBOT), as this commodity (roughage) is not normally marketed. “Furthermore, the impact of higher grain commodity prices is noticeable relatively quickly compared to roughage commodities. Seeing as roughage is produced seasonally, prices are only exposed to change during the next production season.”

Other types of roughage that are not linked to the grain industry (such as grass hay or straw) are not as affected by grain commodity prices. “However, the main drivers of roughage commodity prices are still weather conditions and cultivation practices, which have a sizable influence on supply and demand.”

With regard to greenfeed and cultivated grazing, Dr van Zyl says high commodity prices do affect seed prices. “The impact, however, is not as great on grazing than on feed, which is directly linked to grain commodities; a large portion of grazing does not involve seed.”

As a result, the influence of grain markets on grazing will never be as big as it is on ration-fed animals. – Susan Marais, Stockfarm

For more information, email Dr Brink van Zyl at brinkvz@sun.ac.za.

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