CME: Feed Crisis Deepens

US - Corn futures were sharply higher in overnight trading and as of the writing of this report, September corn futures were at an all time record high of $8.20/bushel, 22 cents higher than the previous close, write Steve Meyer and Len Steiner.
calendar icon 30 July 2012
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Similarly, the benchmark December 2012 corn futures contract was priced at $8.16/bushel, 22.75 cents higher than the previous close. Limited rainfall overall the weekend and the prospect of ongoing drought conditions across much of the US corn belt and the Greta Plains has caused farmers and market analysts alike to lower their expectations about the potential of the current corn and soybean crops.

Some estimates now openly pegging the expected average yield of the US corn crop below 130 bushels per acre with one well followed firm indicating yields could be in the low 120s. Also dramatic will be the impact of the drought on the number of harvested acres. As we noted in our reports in early July, previous drought impacts have significantly reduced the number of acres harvested for grain.

In addition to lower yields, we could a decline of about 3 million harvested acres from previous estimates. Yields in the 120s and lower harvested acres would imply even more significant reductions in US feed use in order to ration the available supply. A big wild card at this point is the position of the EPA with regard to the ethanol mandate. At what point does the impact of high feed costs on livestock producers becomes high enough to warrant a temporary waiver of the mandate?

In some areas livestock production has been tenuous enough that the current feed crisis could lead to thousands of family farms getting out of business. This kind of structural change would have long lasting repercussions for US meat production going forward. It is a political decision that becomes even more complicated in a presidential election year.

Meat supply update

Combined red meat and poultry production for the week ending 28 July was 1.703 billion pounds, 0.7 per cent higher than a year ago. Beef supplies remain limited but some of the dramatic reductions in slaughter numbers have been offset by heavier cattle coming to market. Dressed cattle weights are currently some 2.5 per cent above year ago levels.

As packers slow down slaughter in an effort to bring a margin back in their business, cattle on feed are tacking on more pounds, with steer and heifer weights sharply higher than a year go. Hog weights also quoted by USDA some 2 per cent above year ago levels but that number appears to be overstated and will likely be revised lower. Full supply details on page 2 (please see link below).

Further Reading

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