Corn Rationing at What Price?
This summer’s drought is the most widespread since the 1950s. Despite the most corn acres since 1937, this year’s crop is expected to be down nearly 1.6 billion bushels (12.8 percent) from 2011 and the lowest level since 2006. Less production means less use. USDA predicts corn exports to be down 16.1 percent, for ethanol usage down 10 percent, for livestock and poultry feed down 10.4 percent, and ending stocks down 36.3 percent.

Due to the tight stocks, USDA predicts a midpoint marketing-year average corn price of $8.20 per bushel, nearly $2 above this season’s record, while 2013 meat and poultry production will be down only 1.5 percent. A 10.4 percent drop in corn for feed and a 1.5 percent drop in meat production is worrisome. Will corn prices need to exceed $9 to choke off usage?

Breakevens Headed Higher
High feed prices mean high pork production costs. Iowa State University estimates the average market-hog breakeven price for 2011 at a record $65 per hundredweight of live weight. Given corn and soybean meal prices on the futures market, it looks like 2012 cost of production will average close to $68 per hundredweight live or $90 carcass weight.

For 2013, the futures market implies a live breakeven price of $77 per hundredweight for market hogs, which means a carcass price of $102 per hundredweight. The 2014 breakeven is expected to be back near the 2012 level. Of course, how much corn and soybean prices decline in 2014 will depend on next summer’s weather.

Economy Could Temper Meat Prices
Record feed costs are set to eliminate profits for livestock and poultry farms, which should lead to reduced meat production and likely higher prices. But will consumer demand be strong enough to lift hog prices near production costs? U.S. economic growth has been slow since the 2008 recession. The number of Americans with jobs is down 4.3 million from the pre-recession peak and 18 million below the long-term trend. It will be difficult for the current economy to support sharply higher meat prices.

Another key factor is whether other countries will keep buying U.S. meat as prices rise. U.S. exports of pork, beef, chicken and turkey each set records in 2011. Continuing strong meat exports are crucial to rising livestock prices.