Commodity prices, especially corn, have been spiking upward over the past few months. Many producers (us included) have not been sure whether to go ahead and forward contract feed or whether to wait it out with the hope prices will fall. To give you some of an idea of the effect of feed prices I’ll use as an example the feed type we buy the most each year – 20% grower.
During the fall of 2009, we forward contracted our 20% grower usage for 2010 at an average contracted price of $250/ton. During the fall of 2010 – the forward contract prices we were offered for 20% grower to be delivered in 2011 was $270+/ton. So we chose to “wait it out”. Finally in early March 2011 we decided to book 30% of our projected 2011 total feed usage by booking 20% grower @ $294/ton. Using just a rough average (that a pheasant eats 20 lbs. feed to reach maturity) – that $44 per ton increase in feed price translated into a $.44 per bird increase in feed cost. Remember we only booked 30% of our total feed needs for the year.
So skip ahead to the end of last week and commodity prices were still on the rise. We booked another 10% of our usage – but now the price was $314/ton – which translates into a $.64 increase in feed cost over what we paid in 2010.
So there are two ways to look at it:
- That we’ve locked in feed prices on 40% of our projected 2011 usage – and those prices we’ve locked in will add about $.50 to our cost (per bird) to raise pheasants in 2011.
- That we’ve only booked 40% of our usage and we are “at risk” for the 60% we haven’t booked.
Who knows where commodity prices go from here. If we have excellent spring planting and excellent growing conditions (heat and rainfall) this summer – commodity prices will most likely fall and we may even regret booking the feed we booked. On the other hand, if we have a difficult planting season, or if there is a drought this summer – there will be a shortfall in corn and the corn in the bins will be rationed out to the highest bidder. In that case we’ll wish we had booked more of our feed.
So we sit with 40% of our feed booked, and we are actively quoting prices to our customers for adult pheasants – not knowing where this all will end up.
