Source: Rita Jane Gabbett, MEATINGPLACE, 8/29/11

The newest private projections about the U.S. corn crop, along with nervous Chicago options traders willing to bet corn prices could top $10, may point to even further liquidation in the U.S. cattle, pork and poultry industries in the coming months.

Last week, Pro Farmer’s annual crop tour forecast the U.S. corn crop at 12.483 billion bushels, about 430 million bushels below USDA’s Aug. 11 crop report, according to the CME’s Daily Livestock Report.

“The corn crop is not progressing well,” wrote livestock analysts Steve Meyer and Len Steiner in the DLR, “and given the disconnect between current feed and meat protein prices, the livestock and poultry industry is looking at even more painful cutbacks in 2012.”

Weekly broiler egg sets are already coming in well below a year ago, according to USDA data. Cattle liquidation is already in full swing due to severe drought conditions in the western and southwestern United States. Although hog producers have enjoyed strong prices this summer, University of Missouri agricultural economist Ron Plain predicted that would change this fall.

“This fall and winter will become uneasy as feed prices will still be high and hog prices will drop seasonally,” he told Meatingplace, noting there is some evidence that sow slaughter is starting to increase.   

   
According to Plain’s calculations, hog producers would need $91.00 per hundredweight to break even if corn prices held at $6.70 per bushel. Hog futures prices, however, indicate producer prices this fall at about $86.00 per hundredweight. If corn prices hit $10.00, hog producers would need $109.00 per hundredweight just to break even.

If history is a guide, demand rationing will cap corn prices before options traders’ high-priced bets are realized.

There are a number of ways a potentially weaker demand scenario for U.S. corn and soybean crops could play out, according to University of Illinois agricultural economist Darrel Good.

In his weekly outlook report, Good said the generally weak economy and continued high unemployment could weaken demand for meat and livestock products. He also said the current abundance of competitively priced wheat could be substituted for corn and soybean meal in livestock feed rations. Lower energy prices could weaken the demand for biofuels and larger South American crops could be planted in response to the current high prices.

With livestock feeding, ethanol use and grain exports the three main demand factors, some analysts are betting on livestock cutbacks as the most likely scenario.

“There are plenty of livestock and poultry producers that are hoping that the corn harvest somehow turns out better than recent dismal predictions,” wrote Meyer and Steiner, “but it is a good idea to start preparing for the worst and hope for the best.”

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