January 5, 2006

US corn price hike to increase hog feed cost

Increasing ethanol demand in the US would cause corn prices and hog feed costs to rise.

Ethanol might have provided the country an alternative fuel but on the flip side it is likely to increase the price of some animal feed.

With increasing amounts of corn being diverted into producing ethanol, there has been a surge in demand for corn. This has driven up the price of corn so much so that it has become a threat to pork producers.

Corn is a major ingredient in hog feeds and corn and soybean meal combined make up nearly 60 percent of the total cost of feeding a pig, according to National Pork Board report.

Every US$ 1 per bushel increase in the price of corn increases the cost of raising a pig by US$ 0.05 per pound of liveweight, pointed out Steve Meyer, Paragon Economics. Roughly US$ 1.50 per bushel increase in corn prices seen in recent months has increased hog production costs by roughly US$ 20 for each 260-pound market hog, he added.

While hog production numbers for 2007 are already set, with pigs to be harvested from January to June already born, and sows already bred for pigs that would be harvested from in July to October, the longer-term outlook looks uncertain.

Higher oil prices and continued governmental subsidies would keep corn flowing to ethanol and keep corn prices high for the foreseeable future, Meyer concluded. This would eventually translate into potential long-term pricing issues for pork.