What is in this article?:
- Corn prices must convince some end-users to cut consumption
- Will foreign countries cut imports?
Ultimately, the question is how high corn prices have to be to get a sufficient number of end-users to reduce consumption.
Will foreign countries cut imports?
"Given the low value of the dollar and the strong desire of many foreign governments to do what they can to moderate food inflation, the question remains whether the foreign sector will cut U.S. corn imports this year," Hurt said.
In 2007-08, the domestic livestock industry could not pay more than $6 per bushel for corn. That is no longer true as reduced per capita production over the past four years has increased farm level prices for animal products. Corn prices will have to move to new record highs on a marketing year basis to get animal industries to reduce corn use.
"What are these corn price levels for the pork industry? That, of course, will vary sharply by individual producer, but the current estimate is that producers could pay about $6.65 per bushel based on a U.S. average farm price for the 2011-12 marketing year and still meet all other costs," Hurt said.
USDA's August World Agricultural Supply and Demand Estimates (WASDE) report forecast the U.S. average farm price between $6.20 and $7.20, with $6.70 being the mid-point of the range.
"The corn futures market is now expecting prices above the $6.70 USDA mid-point and closer to $7 per bushel for a U.S. average price received. Corn prices above $7 per bushel would be required for the domestic livestock industry to cut back on usage," he noted.
Pork producers were well aware of this season's corn price uncertainty and have kept expansion plans on hold. Those decisions appear fortuitous now.
Estimated farrow-to-finish margins for the 2011-12 corn marketing year now appear to be slightly negative, with an average loss of $4 per head. This potential loss is small enough to keep the industry at about the same size. An alternative way to say this is that corn and meal prices above current levels could cause the industry to begin to shift toward moderate liquidation, Hurt said.
"The industry remains hopeful that both China and South Korea will purchase more pork from the United States. Greater pork exports would stimulate hog prices and enable the industry to pay more for feed. Unfortunately, domestic consumer demand is expected to be weak as consumer income growth is expected to remain modest in coming months," he added.