July 18, 2012

 

US pork prices expected to spike due to drought

 

 

As the US experiences its worst drought in years, long-term pork prices are expected to rise, affecting both producers and consumers.

 

The US futures market for corn, soy and wheat saw sharp increases recently. After a weekend full of drought and excessive heat, the forecast for the next seven days gives much the same picture. The prognosis for farmers is grim as fields become drier by the day.

 

Corn futures were reported to be trading US$0.29 higher on Monday morning. For soy, futures were trading US$0.34 to US$0.40 higher. Wheat futures were trading US$0.19 to US$0.30 higher early morning.

 

The CME Group Daily Livestock Report, published by Steve Meyer and Len Steiner, informed that soymeal prices are up 36% from last year and distillers' grains with soluble (DDGS) are also up 35%.

 

As of last Tuesday, 61% of land in the lower 48 states was experiencing drought conditions - stretching from Nevada to South Carolina - the highest percentage in the 12-year record of the US Drought Monitor.

 

US authorities have already declared more than 1,000 counties in 26 states as natural disaster areas. A county is generally qualified as a natural disaster area if it has suffered severe drought for eight consecutive weeks. Farmers are then eligible for low-interest emergency loans from the USDA's Farm Service Agency.

 

These emergency loans come after some areas of the USA suffered record-setting heat waves, killer storms and blazing wildfires.

 

The Daily Livestock Report also stated that a sharp rise in feed costs and softer wholesale pork prices may be pushing more sows to market on the short term.

 

This view is shared by Dave Miller, director of research and commodity services at the Iowa Farm Bureau. He told CNN that consumers will be hurting as well down the line when they feel the drought in their pocketbooks. He added that meat prices could fall at first if farmers slaughter more animals to decrease the cost of buying feed.

 

The hot weather has been reducing pork demand, the CME report states. "High temperatures across the country appear to have limited grilling demand, with prices for ribs and loins down sharply last week."

 

With feed costs for this fall and winter being higher than hog futures prices, the outlook is grim for all. Pork producers may not have a profitable season - and consumers will end up paying more than usual.

 

"It's likely that in three to six months from now, you will start seeing an increase in prices in the meat case," Miller said. "There will be a quicker impact on eggs and poultry because the production cycle is shorter."

 

Global coarse grain production forecast for 2012/2013 is down 48.0 million tonnes this month to 1,183.6 million, mostly due to sharply reduced prospects for US corn, according to the July 13 Feed Outlook of the USDA.

 

To put the US corn crop cut into perspective, this month's decline is more than twice as big as Argentina's entire last corn crop.