As a result of USDA’s predicted cut in U.S. corn production and corn stock prospects, some analysts are predicting cutbacks in pork, beef and poultry production, tighter margins for processors and higher meat prices for consumers, reports Meatingplace.com
Soaring corn futures prices will likely squeeze pork producers' margins. "The break-even corn price for most pork producers at current hog prices is about $4 per bushel, says University of Missouri agricultural economist Ron Plain. "To cover the cost of $5 corn, producers would need about $60 per hundredweight for their hogs on a live weight basis."
“The hog guys thought they had bottomed and were preparing for (production) growth. It won’t be that hard for them to change their minds,” Plain said.
Higher meat prices will be needed (via demand improvement or supply cuts) to keep these producers in business, according to CME Daily Livestock Report authors Steve Meyer and Len Steiner. “While cattle, hog and broiler prices are sharply higher than a year ago, livestock and poultry producer margins may be in worse shape than they were in 2009, and those margins are getting worse by the day as corn prices advance,” Meyer and Steiner warned.
Smithfield Foods, the nation's largest pork producer, has apparently hedged its feed grain costs out to March, 2011. The company confirmed in an SEC filing late Friday its hog raising costs will remain in the mid-$50s for the remainder of its fiscal 2011, which ends in April, according to Stephens Inc. analyst Farha Aslam.
“We believe that the company has successfully hedged grain out to March 2011 and is opportunistically locking in strong hog production profits,” she wrote in a note to investors.
The export market is expected to remain robust on a weakening U.S. dollar.