Source:  Rita Jane Gabbett,MEATINGPLACE.COM, 8/2/10

Feedgrain costs have been rising since late June and are starting to factor into meat and poultry production costs, causing one Wall Street analyst to ponder how well vertically integrated meat and poultry processors are hedged.

BB&T Capital Markets analyst Heather Jones estimated that feed prices have risen roughly 2.5 cents per pound for hog producers and 1.5 to 2 cents per pound for chicken producers.

In a note to investors, Jones said margins have so far not been squeezed as hog and chicken pricing has improved. She predicted hog margins will hold for the next few quarters given the tight global supply/demand balance, but was less confident about poultry margins, given lackluster demand and higher supplies.

In fact, higher corn prices factored into Jones’ decision to reduce her quarterly earnings per share projections for Sanderson Farms for year’s fourth quarter and in 2011. “We believe that (Sanderson Farms) is covered for the majority of its old-crop corn needs for the remainder of the year, but likely has little, if any, new crop coverage at present,” Jones wrote.

The Russian factor
It seems Russia just can’t stay out of the equation when it comes to the U.S. meat and poultry industries. The latest concern is poor wheat crop prospects in the former Soviet Union region.

The region last year grew about 17 percent of the global wheat supply and accounted for about 27 percent of world wheat trade, according to USDA. Some analysts are predicting this year’s crop will be down 26 percent from last year.

Commodities consultant David Maloni makes the connection between Russia’s wheat crop and global corn supplies in his blog for the American Restaurant Association’s Market Center. Since much of the wheat grown there is used for feed, its short supply could translate into global corn supplies shrinking to the second tightest level in the last 24 years.

There could be an upside, however, for U.S. pork and poultry producers.

“We are hearing that Russian flock/herd sizes may be less than initial expectations, which could bring a rise to U.S. protein trade with the country,” Maloni wrote.

Livestock analysts Steve Meyer and Len Steiner agreed. “Russia already is one of the largest beef, pork and poultry importers in the world and the drought will only further exacerbate Russian protein demand,” they wrote in the CME Group’s Daily Livestock Report.   

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