Ethanol's Demand for Corn May Trim US Meat Output
US: May 23, 2006


CHICAGO - The ethanol market's hunger for corn has driven up corn prices and livestock analysts believe if corn prices continue rising, US cattle, hog, and chicken producers will cut production and that could trim meat supplies and possibly mean higher meat prices in 2007 or later.

 


"The higher feed costs could speed up the rate in which they cut back," Todd Duvick, a research analyst for Bank of America, of livestock producers..

The ethanol industry is forecast to use about 2.15 billion bushels of this year's US corn crop. That would be up 34 percent from the 1.6 billion bushels being used now.

In addition, 44 plant projects are under way that will add 1.4 billion gallons of capacity this year, says an industry trade group.

"The whole ag industry is starting to become aware of what ethanol plant construction means to the future. It gives us an outlook of ever higher corn prices for as far as we can see," said Ron Plain, a University of Missouri agricultural economist.

As a result, Plain said livestock producers will likely have to reduce production.

"Longer term the livestock industry is not going to go away, we will just find a new equilibrium. In my mind, the new equilibrium is going to be with fewer hogs, fewer chickens and fewer cattle than we had planned on," said Plain.

"We cannot afford to pay the feed prices that are coming at us given the current prices of meat," he said.

Nearby corn futures at the Chicago Board of Trade are about US$2.50 per bushel. However, the CBOT market indicates corn will be more than US$3.00 per bushel from late this year through next year.

"Corn has basically averaged around US$2 a bushel for the last four years. We are looking at corn likely to average US$2.90 a bushel in the next four years," said Plain. "The reality is we are going to have to have a lot smaller livestock and poultry industry at US$2.90 corn than we can support at US$2 corn".

Chicken and hog producers can change production quicker than cattle producers. As a result, economists believe those two industries will be the first to react to high corn prices.

"It will play out differently in different sectors. You take a look at the (cattle) feedlot sector, that will cause them to delay placement of animals because the cost of finishing them will be higher," said Duvick.

Cattle producers are currently expanding herds, but Duvick said higher corn prices could have feedlots reducing the time they feed cattle, which may lower average cattle weights and as a result trim beef production per animal.

Cow-calf producers will react to prices, but it may be a slower process.

"I suspect if we have well over US$3 corn in 2007 it really doesn't impact producer decision making on the breeding herd until late 2007 and you won't see much impact until 2008. So it is not very immediate," said Jim Robb, an economist with the Livestock Marketing Information Center.

(Additional reporting by Lisa Haarlander, Chicago)

 


Story by Bob Burgdorfer

 


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