Rising Corn Prices Squeeze Chicken Firms15 April 2011
DELMARVA, US - Poultry companies are feeling the pinch as corn prices soar.
The recession may be over, but stinging inflation is back for Delmarva's chicken companies, reports Delmarva Now.
Costs for corn have doubled in a matter of months, surging to – and briefly beyond – three-year highs in recent trading. That has pinched poultry producers like Perdue Farms, Mountaire Farms and Allen Family Foods, which add billions to Delmarva's economy and employ thousands here but remain heavily susceptible to price spikes in corn, a prime chicken feed.
Consumers are also expected to share in the pain in the form of costlier grocery bills. After two years of only modest gains in food prices, supermarket inflation is back in a big way, experts say.
Some of Delaware's poultry producers are responding to the cost surge by slashing production or putting planned capacity expansions on hold. The hope is that shorter supplies will lead to higher prices.
Perdue, the Salisbury-based chicken giant that has processing plants in Milford and Georgetown, is pushing average prices higher by moving production to higher-margin products, such as pre-cooked or individually packaged chicken breasts, said company spokeswoman, Julie DeYoung.
Mountaire, a Millsboro-based company that employs 3,500 people in Delaware, recently abandoned plans to increase capacity by three to five per cent this year, said President Paul Downes.
He explained: "The only way to higher prices is less supply. The only way to less supply is chicken companies will shut down or cut back. That's not good for poultry growers or the economy. But I think that's what we're going to see."
Corn futures prices climbed to a record of $7.66 per bushel on the Chicago Board of Trade, about twice what chicken producers were paying for their primary feed input just a year ago.
Prices have surged primarily on concerns about tightening supply, experts say. The US Department of Agriculture said on 31 March that stocks of corn fell 15 per cent from March 2010 to March 2011. The Agriculture Department on Friday said reserves are projected to fall to 675 million bushels in late August, when the harvest begins, or roughly five per cent of all corn consumed in the United States. That would be the lowest surplus level since 1996, according to Delmarva Now.
"That price has to be high enough to make sure we don't run out of corn," said Bruce Babcock, an agricultural economist and director of the Center for Agricultural and Rural Development at Iowa State University.