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Lower corn prices expected, but could still be bad news for proteins
Story Date: 4/2/2012
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Source: Rita Jane Gabbett, MEATINGPLACE, 3/30/12
USDA reported U.S. corn growers intend to plant 95.9 million acres of corn for all purposes in 2012, up 4 percent from last year and 9 percent higher than in 2010.
If realized, this would represent the highest planted acreage in the United States since 1937 when an estimated 97.2 million acres were planted.
In its annual Prospective Plantings report, USDA estimated soybean planted area for 2012 at 73.9 million acres, down 1 percent from last year and down 5 percent from 2010.
Protein impact
While more corn acres should lead to lower corn prices (depending on weather conditions through the growing season), protein analysts expressed concern that cheaper feed may lead to expanded livestock and poultry production, which could ultimately be a negative for protein prices.
“We view report as net negative for protein. Lower feed costs will likely prompt expansion in hog sector and potential expansion in chicken (post-balance sheet reparation),” wrote Deutsche Bank analysts Christina McGlone and Andrew Kieley in a note to investors. They also noted, however, that lower corn prices could be partially offset by higher soybean meal prices in terms of overall feed costs.
BMO Capital Markets analyst Kenneth Zaslow said Smithfield’s hog production margins should benefit from lower new-crop corn prices, while the potential for a near-term ramp-up of hog supplies is limited by the hog lifecycle of 19 months.
In a note to investors, he said while the anticipation of low new-crop corn prices could benefit stock prices of chicken producers such as Pilgrim’s Pride, Sanderson Farms and Tyson Foods, “we view the USDA reports as only modestly positive as we remain concerned that chicken production may begin to increase with low corn prices."
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