August 16, 2010


Livestock producers face higher feed costs amid Russian drought



Beef, pork and dairy producers face higher feed costs and crimped profits over the next year as drought slashes Russia's wheat crop and competition for US grain supplies increases.


Despite an outlook for record US corn and soy harvests in 2010, crop prices will be higher than previously forecast because of stronger exports and tighter stockpiles, according to USDA reports.


Analysts said beef and pork prices, already climbing much of this year, may get more expensive as higher feed costs are passed along. Additionally, the wide grain price swings, fuelled by market skittishness over the Russian drought, are sure to continue.


Thanks to early planting and abundant rainfall across much of the Midwest, farmers are expected to reap a corn harvest of 13.365 billion bushels, up 1.9% from 2009 and an all-time high, the USDA said.


The soy harvest is projected at 3.433 billion bushels, up 2.2% from last year and also an all-time high.


Still, corn, soy and wheat futures in Chicago surged today after the USDA cut its projection for Russia's wheat crop by 15%, citing extreme drought and record heat during July and early August. The USDA also hiked estimated US exports and trimmed stocks.


Russia is now expected to harvest 45 million tonnes of wheat in the 2010-11 marketing year, down from 53 million tonnes in a July forecast.


The drought has also hit other major wheat-growing countries in that region, including Kazakhstan, whose projected harvest was lowered 21%, to 11.5 million tonnes.


Worldwide, wheat stocks next year are expected to drop 6.6%, to 174.8 million metric tons, the USDA said.


In late trading late last week, December corn futures in Chicago rose 12 cents to US$4.23 a bushel, November soy rose 16 ¼ cents to US$10.31 ¾ a bushel and December wheat rose 24 ¾ cents to US$7.49 ¾ a bushel.


Data suggest corn and soy futures may establish a price "floor" around US$4 a bushel and US$10 a bushel, respectively, for the foreseeable future, according to analysts.


Still, the prospect of cooler Midwest weather later this month may send prices below those levels temporarily, analysts said, noting that there is potential for corn futures to decline to US$3.65 to US$3.75 a bushel in coming weeks and for soy to fall to US$9.50 to US$9.65.


The average US farm price for corn in 2010-11 is expected to range from US$3.50-4.10 a bushel, up from a July estimate of US$3.45-4.05, the USDA said. Estimated soymeal prices were raised to US$250-290 a tonne from US$240-280 previously.

Also, the USDA cut projected US beef production for 2010, citing lighter carcass weights that will offset higher slaughter. US pork production is also expected to be lower because of smaller than anticipated live hog imports from Canada. Beef and pork exports were increased.


In dairy, the USDA raised estimated 2010 milk production 0.4% from July, to a record 192 billion pounds, saying producers continue to add cows to the herd and the rate of growth in milk per cow has increased.


But stronger exports and tighter global supplies will help boost milk prices. Class III milk prices, an industry benchmark, are expected to average US$14.15-14.35 per hundredweight this year, up from a July estimate of US$13.80-14.10, the USDA said.

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