November 29, 2006

Higher-priced corn may bring more competition for US pork producers
 

Unless crude oil prices drop of federal subsidies are withdrawn for ethanol, there would be nothing to stop corn prices from reaching US$4 a bushel, agricultural economists said. 

The equilibrium price for corn is US$4.05/bushel when crude oil is $60/barrel, Ron Plain, an economist at Iowa State University said. This is double of the average US$2.10 a bushel for the last 7 years.

As the US accounts for nearly 40 percent of world corn production, it sets the world price. Doubling the price of corn would lead to worldwide expanded corn acreage, he said.

While some would use the extra corn for ethanol production, there would be others who would use it to expand their livestock industry.

In those cases where countries were able to expand their livestock industry and export the excess, they would pose more competition for US producers who export. Currently, 14 percent of US pork production is exported. 

Plain listed Argentina as a potential country which could build a large hog and poultry industry and threaten US exports.

With corn at US$4, pork would have to be US$70/cwt of carcass for farmers to break even. This, according to 2004 figures, meant a lowering of slaughter rates by 1.2 percent, which is well within the industry's capability, Plain said.