U.S. pork producers face the possibility of dwindling profits as a result of corn prices that have pushed above $5 a bushel reaching their highest point in two years. The higher feed costs will likely thwart plans to expand herds, reports Reuters. Corn surpassed the $5 per bushel level last Friday for the first time since 2008 and trends in futures markets suggest it will stay above $5 well into 2011.
“Corn futures have been on an impressive climb in recent trading as market participants strive to understand the potential impact of lower yields and the effect of supply shortages in other parts of the world,” report Steve Meyer and Len Steiner in the CME Daily Livestock Report.
Livestock producers are generally better prepared financially to handle $5 corn this year, having banked profits for much of the last nine months. And producers are more optimistic than in 2008 with Chicago futures markets indicating hogs and cattle will remain profitable through much of 2011.
Two years ago, corn shot past $7 per bushel and led to extensive losses for producers. Producers responded by slashing herds to reduce feed costs.
Corn's $5 price tag will produce significant changes in the livestock sector. The percentage of corn in feed rations will be reduced with producers relying increasingly on other grains or distillers’ dried grain with solubles.
"They are going to find a lot of ways to try not to use $5 corn," said Meyer. "We have had a lot of people doing a lot of creative things on diets." Producers may also seek to market animals at lighter weights as they seek to save on feed costs. That will mean less beef and pork output per animal.
At the close of the market Friday, corn futures prices on contracts for delivery between December 2010 and July 2011 ranged in price from $5.12 to $5.32 a bushel, according to data collected by the Chicago Mercantile Exchange. That was up from $4.84 to $5.02 on Monday. Last Friday, the USDA slightly lowered its estimates of yield for the crop now in the ground.
Rising corn prices also lowered the stock price of Smithfield Foods which closed down 2.52 percent on Friday, at $16.64. Tyson Foods stock dropped 6.87 percent to $15.85.
Source: Reuters, CME Daily Livestock Report, Meatingplace.com