The government Wednesday sharply cut its crop estimate of what Midwest farmers will harvest this fall, sending grain prices higher, causing more headaches for livestock producers and sounding a small alarm for consumers.
America’s dwindling corn supply and higher prices could lead to higher pork prices at the meat counter and financially squeeze some smaller hog producers and cattle raisers.
But analysts and farmers assessing the Agriculture Department’s October crop forecast found few reasons to hit the panic button.
“With our cost of production at just below $40 a hundred pounds, we can make money when hogs are priced at $47 to $48,” said Philip Nelson who raises corn, soybeans, hogs and cattle on a farm near Seneca, Ill., in LaSalle County. “But it was tough a year ago, when hog prices dropped to $28.”
Costs for hog farmers who must buy corn are high and could go higher. On Wednesday, corn futures for December delivery on the Chicago Board of Trade advanced by 5 cents to close at $3.22 3/4 a bushel, the highest price since the drought summer of 1988.
“I don’t believe the market has finished rationing supply with higher prices,” said Daniel Basse, executive vice president of AgResource Co. “Corn could go as high as $3.50 to $3.75 a bushel.”
Based on conditions as of Oct. 1, the USDA projected corn production of 7.54 billion bushels, down 4 percent from the September forecast and 25 percent from the 1994 record of 10.1 billion bushels. The department cited late planting in Illinois, Indiana, Iowa and Nebraska, coupled with an early freeze for the reduced crop prospects.
Soybean production expectations also were trimmed by 4 percent from September because of dry conditions and the early frost, to 2.19 billion bushels. November soybeans bounded ahead by 10 1/2 cents to end at $6.59 1/4 a bushel.
Traders pointed to reduction in the USDA’s projected supplies at the end of the marketing year next Aug. 31 to the tightest in years as a major reason to expect higher prices.
“Ending stocks of corn at 685 million bushels are the lowest since 1975, wheat stocks are the lowest since the early 1970s and soybean stocks are the lowest since 1988,” Basse said.
Corn prices are likely to stay above $3 a bushel for six to nine months, and that will add pressure to a gradual liquidation of the hog herd already underway, according to Dave Miller, livestock specialist with the American Farm Bureau Federation in Park Ridge.
Still, medium-size operators should at least break even with corn at $3.50 a bushel if hog prices stay at least at $48 to $49 a hundred pounds, he said.
“Consumers won’t see much change in retail prices for six to nine months when supplies should begin to decline,” Miller said. “Prices are sticky at the retail level, so the meatpacker and the retailer could face lower margins.”
Competition also can keep prices in check.
Increased beef supplies have lowered the retail price margin between pork and beef, and that means retailers usually will feature beef in promotions, said Dale Durchholz, analyst with AgriVisor, a market advisory service affiliated with the Illinois Farm Bureau in Bloomington.
Even with the expected decline in hog numbers, Durchholz noted that the USDA still expects per-capita supplies to rise by about a pound in 1996. It expects the beef supply to increase by a pound and poultry by more than 3 pounds.
The most immediate effect of higher corn prices will be seen on the so-called cow-calf operators in the West, who already are showing losses, he said. They sell young cows to feed lots for finishing. Now, those lots will wait until the cattle are at higher weights before buying, thus cutting feed costs.
