July 25, 2012

 

Smithfield Foods to buy Brazilian corn

 

 

Smithfield Foods Inc. (SFD) will import Brazilian corn, a move that reflects how surging costs for US feed grains are rippling through the livestock and meat industry, the company said Tuesday (July 24).

 

The move comes amid tight supplies for US corn and a recent jump in prices to record levels as the worst US drought in decades batters the Corn Belt.

 

Analysts say it is unusual for a US livestock producer to import supplies from South America, though it could be cheaper to ship corn from there to the eastern US than by rail from the Midwest amid high domestic corn prices. The US is by far the world's biggest producer and exporter of corn.

 

A Smithfield spokeswoman confirmed the company's decision to use Brazilian corn in its hog-raising operations. She declined to say how much of the feed the Smithfield, Va., company has purchased, or when the first shipments will arrive. Smithfield has hog-production operations on the US East Coast and elsewhere.

 

The Financial Times reported earlier this week that meat companies including Smithfield had arranged to ship Brazilian corn to the East Coast.

 

The cost of animal feed is a critical factor for big livestock producers, such as Smithfield, which buy millions of bushels of feed each year as they stock the meat supply chain with new pens of animals ready for slaughter.

 

Tyson Foods Inc. (TSN), the world's largest chicken producer, declined comment on whether it has purchased Brazilian corn, citing a quiet period ahead of an August earnings report.

 

Spot-market prices for physical corn in the US surged early this year as supplies ran low, and farmers demanded a higher payoff for their corn that was still in storage from last year's harvest. Prices have been pulled sharply higher again in the last month as corn futures have rallied due to the hot, dry weather in big corn-producing states such as Illinois and Indiana.

 

September corn futures are currently down US$0.335, or 4.1%, at US$7.805 a bushel, off about 6% from an all-time intraday front-month high of US$8.2875 reached Friday (July 20).

 

Paulo Molinari, a consultant at Brazil's Safras & Mercado, said corn at Brazilian ports is currently going for around US$290 per tonne, compared with US$345 in the US Gulf of Mexico. The cost of shipping corn to the US from Brazil amounts to between US$30-40 per tonne extra.

 

"There's never been this big of a difference in price," Molinari said. "Brazilian corn is almost always at the same level as in the Gulf of Mexico, if not higher."

 

Even with this year's record crop, projected by the Brazilian government at nearly 70 million tonnes, Brazil's corn output is only a fraction of US production, which routinely exceeds 300 million tonnes. Corn prices in Brazil tend to track prices abroad but have had trouble keeping up in recent weeks, given the large surplus expected from this year's crop.

 

Molinari said that while the price difference appears to be encouraging some exports of corn from Brazil to the US, the shipments have yet to turn up in official trade data or in reports from shipping agencies. "So far, nobody knows who's importing, the final destination or the volumes," he said.