April 18, 2011
 

US chicken firms affected by increasing corn prices

The recession may have ended, but Delmarva's chicken companies are affected by stinging inflation of corn prices, according to the media.

Costs for corn have doubled in a matter of months, surging to and briefly beyond three-year highs in recent trading. That has pinched poultry producers like Perdue Farms, Mountaire Farms and Allen Family Foods, which add billions to Delmarva's economy and employ thousands here but remain heavily susceptible to price spikes in corn, a prime chicken feed.

Consumers are also expected to share in the pain in the form of costlier grocery bills. After two years of only modest gains in food prices, supermarket inflation is back in a big way, experts said.

Some of Delaware's poultry producers are responding to the cost surge by slashing production or putting planned capacity expansions on hold. The hope is that shorter supplies will lead to higher prices.

Perdue, the Salisbury-based chicken giant that has processing plants in Milford and Georgetown, is pushing average prices higher by moving production to higher-margin products, such as pre-cooked or individually packaged chicken breasts, said company spokeswoman, Julie DeYoung.

Mountaire, a Millsboro-based company that employs 3,500 people in Delaware, recently abandoned plans to increase capacity by 3-5% this year, said President Paul Downes.

He explained, "The only way to higher prices is less supply. The only way to less supply is chicken companies will shut down or cut back. That is not good for poultry growers or the economy but I think that's what we're going to see."

Corn futures prices climbed to a record of US$7.66 per bushel on CBOT, about twice what chicken producers were paying for their primary feed input just a year ago.

Prices have surged primarily on concerns about tightening supply, experts said. The USDA said on March 31 that stocks of corn fell 15% from March 2010 to March 2011. The department on Friday (Apr 15) said reserves are projected to fall to 675 million bushels in late August, when the harvest begins, or roughly 5% of all corn consumed in the US. That would be the lowest surplus level since 1996, according to the media.

"That price has to be high enough to make sure we do not run out of corn," said Bruce Babcock, an agricultural economist and director of the Center for Agricultural and Rural Development at Iowa State University.