Corn Crunch Means Costliest Beef in Quarter Century
By Whitney McFerron and Elizabeth Campbell
Oct. 11 (Bloomberg) -- Meat prices are poised to extend a 14 percent rally this year that drove U.S. retail costs to the highest levels since the 1980s as surging corn futures prevent livestock producers from expanding their herds.
The U.S. cattle herd in July was the smallest since 1973 and the number of breeding hogs last month was near the lowest ever, government data show. Corn futures jumped to a two-year high today and the price of the main feed ingredient is more than 70 percent above the 10-year average.
U.S. per-capita beef supplies next year will be the lowest since 1952 and pork the smallest since 1976, industry researcher CattleFax said. Hog futures will rise 14 percent by July and cattle may gain 3.6 percent by April, according to a Bloomberg survey of analysts. Wendy’s/Arby’s Group Inc., the maker of the 1,360-calorie Baconator Triple burger, and CKE Restaurants Inc., owner of the Hardee’s chain, have warned investors they are contending with higher commodity costs.
“If grain prices go up, then meat prices are going to have to move up,” said Mark Greenwood, a vice president at AgStar Financial Services Inc. in Mankato, Minnesota, who oversees $1 billion in loans and leases to the hog industry. Corn costs “tempered any enthusiasm there was on expansion,” he said.
Livestock prices failed to keep pace with third-quarter rallies of as much as 40 percent for corn and wheat, as too much rain and heat eroded U.S. yields and drought hurt crops in Russia and Europe. Cattle futures rose 11 percent in the period and hogs dropped 8.3 percent.
Corn soared the 45-cent maximum limit allowed by the Chicago Board of Trade today to $5.7325 a bushel, the highest price since September 2008, after the U.S. Department of Agriculture on Oct. 8 cut its harvest forecast for the second time in two months. The December corn futures contract was up 43.25 cents, or 8.2 percent, at $5.715 a bushel at 10:51 a.m. in London. Wheat, soybean, rice and oat futures also rose.
U.S. cattle feedlots that didn’t lock-in corn costs faced losses in the third quarter, said Ron Plain, an economist at the University of Missouri in Columbia. Feedlots made money in the first half after two years of unprofitable markets from surging feed costs and the global recession, he said.
“Normally, six months of profit will get you to the early stage of herd expansion,” Plain said. Costlier corn “slows expansion plans,” he said.
Farmers may earn $5.46 per hog in the first seven months of 2011, according to Steve Meyer, president of Paragon Economics in Des Moines, Iowa. That’s down from his July forecast of $19. Cattle feedlots lost about $17 a head last month, compared with profit of $42 in the first half of 2010, Plain said.
Hog futures will advance to 84 cents a pound on the Chicago Mercantile Exchange by July, up from 73.85 cents on Oct. 8, according to the average estimate of seven analysts surveyed by Bloomberg. The top estimates were 90 cents, which would be the highest level since 1996.
Cattle futures will rise to $1.024 a pound by April, from 98.875 cents on Oct. 8, according to the survey. Goldman Sachs Group Inc. last month predicted $1.05 as early as December, which would be the highest since September 2008.
4. Sentiment has risen substantially to the bullish side without reaching an extreme though but we are ready for an correction now starting today with a higher weekly opening.
|MONDAY, OCTOBER 11, 2010|
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