May 23, 2006

 

Rising corn prices may force producers to cut production
 

 

Corn prices, driven up by the demand in ethanol, would force US producers to cut production and that could reduce meat supplies and result in higher meat prices in 2007 or later, according to livestock analysts.

 

The faster feed costs rise, the faster producers would cut back, said Todd Duvick, a research analyst for Bank of America.

 

Corn consumption by the ethanol industry is expected to rise 34 percent this year.

 

The insatiable demand for ethanol would lead to ever higher corn prices, said Ron Plain, a University of Missouri agricultural economist. As a result, Plain said livestock producers would likely have to cut down on production until an equilibrium is reached.

 

Plain said the new equilibrium is going to be with fewer hogs, fewer chickens and fewer cattle.

 

Producers would not be able to afford rising feed prices at a time when meat prices are falling, he said.

 

Corn futures, which has been trading at around US$2 a bushel for the past four years are now at US$2.50 and may rise to more than US$3.00 per bushel by next year, Plain said. 

 

While chicken and hog producers can change production within short periods, it would take cattle producers longer to do so.

 

Meanwhile, figures show the number of cattle in US feedlots on May 1 increased nine percent on-year, the highest May 1 inventory since records began in 1996.

 

While he concedes that cattle producers are currently expanding herds, Duvick said feedlots may have fewer cattle in the near future or they may reduce the time they feed cattle, thus leading to lower average cattle weights.

 

Even with US$3 corn in 2007, producer decision-making may not be affected until late 2007 or 2008 as these changes would not be very immediate, said Jim Robb, an economist with the Livestock Marketing Information Centre.