The Law of Supply and Demand in Action

June 4, 2009

The price of soybean meal has gone through the roof.  The last load we purchased was over $.20 per lb. which is 30% greater than  the price we paid in March.  We buy a 3 ton load every ten days to two weeks.  Our cost per load has increased $300.

Farmers gossip more than a murder of crows.  The latest “news” is that we’re going to run out of soybean meal this summer.  I panicked a little.  Our direct-market hogs are on an alfalfa pasture and would be ok if only fed corn.  The logistics of getting all of the rest of our hogs onto pasture scared and excited me.  I love a challenge.  Then I realized that I was reacting to gossip and didn’t need to get crazy just yet.

I did, however, call my feed salesman and determined that it would be cost effective to substitute lysine and threonine, the two most limiting amino acids in a corn/soy diet for hogs, for soybean meal.  So I did.

For hogs weighing 200 lbs. to market, I am substituting 3 lbs. of lysine and 1 lb. of threonine for 50 lbs. of soybean meal in every ton of feed.  3 lbs. of lysine costs $2.85.  1 lb. of threonine costs $1.38.  So the total extra cost is $3.93.  50 lbs. of soybean meal costs roughly $10.  So the savings is roughly $6 per ton of feed.  We use about 6 ton of this feed per week, so the savings is $36 per week.  If soybean meal stays high all summer until harvest, and the relative prices stay similar, we will save $432 over 12 weeks.

I realize this isn’t a huge savings.  But it felt good to take some action.  And the collective action by many soybean meal users will keep us from running out of soybean meal until harvest.  This is the Law of Supply and Demand in action.