This is the second in a series of articles looking at the top 10 most important drivers behind some of the main commodity futures prices. Episode 2 looks at livestock.
1) Feed prices
snake.eyes / Foter / CC BY-NC-ND
If feed grain prices increase (so that total input costs rise) the cost of raising livestock also goes up, reducing margins for farmers. Rather than feed cows, pigs and chickens at flat to negative operating margins, livestock owners may opt to slaughter more of their herd instead.
This then supplies the market with excess meat and drives prices lower in the short-term. In the long-term, equilibrium in operating margins is restored by either greater supply of feed grains driving input prices lower or decreased livestock production increasing market prices.