Source: Tom Johnston, MEATINGPLACE, 12/7/11

The prices of cattle and corn that have spurred continued talks of historically high food inflation are coming down amid respective lulls in demand, according to analysts.

Live cattle prices fell another 70 cents Tuesday on the Chicago Board of Trade, to $119.55 per hundredweight after a $3 drop on Monday that turned some analysts heads. The drop came a few days after prices hit a record-high $128 per hundredweight, with packers paying up even while cutout values dropped by almost $4.50.

Livestock analysts Len Steiner and Steve Meyer theorized in the Chicago Mercantile Exchange’s Daily Livestock Report that the sharp drop was due to soft demand here and abroad, rather than concern of the European debt crisis.

“Markets remain concerned that beef prices have pulled back regardless of the upcoming year-end holidays and expectations of some demand improvement for holiday parties and year end office parties,” they wrote.

Other analysts suggested the downturn resulted from packers already having secured their holiday supplies.

Meanwhile, corn costs that have helped drive a new level of cattle prices this year are predicted to be on the decline as well going into 2012, also as a function of weak demand, primarily in export markets.
Darrell Good, an agricultural economist at the University of Illinois, noted Monday that prices have fallen sharply since late August, when they peaked near $7.80 per bushel, to about $5.80, only 30 cents higher than prices that began the year.

Export sales are lagging USDA projection (1.6 billion bushels) for the marketing year. In the four weeks ended Nov. 24, sales averaged 10.4 million bushels per week, compared with the average of 18 million needed, according to Good.

“Abundant supplies of wheat and feed grains in the rest of the world are providing stiff competition for U.S. corn,” Good wrote in a report. “The current year is ending with very strong demand for corn for ethanol production, but demand after the first of the year is much more uncertain due to the expiration of the blenders tax credit.”

Rabobank Group, meanwhile, predicted corn could drop to $5 per bushel if global economies are weaker than expected, demand for ethanol decreases on cheaper oil prices and plantings exceed 95 million acres.
The more likely scenario, Rabobank says, is corn holds above the $6-per-bushel mark for most of 2012 because ethanol production will hit record highs and China will buy more of U.S. supply. The bank predicts the average corn price in the second half of 2012 will be $6.20 per bushel.

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