August 3, 2010
Mounting feed prices hike production costs for US meat
This summer's rising feed grain costs are starting to factor into American meat and poultry production costs; the surge in cost leads one analyst to ponder producers' hedging strategies.
Feed prices have risen roughly 2.5 cents per pound for pork producers, estimates Heather Jones, analyst for BB&T Capital Markets. Jones estimates chicken producers' feed costs have risen 1.5-2 cents per pound.
In a note to investors, Jones said margins have so far not been squeezed because hog and chicken prices have improved. She predicted hog margins will hold for the next few quarters but was less confident about poultry margins, given lacklustre demand.
"Sharply higher grain prices are clearly negative for producer profitability going forward and higher cattle and hog prices reflect the higher costs of doing business later this year and in 2011," said Steve Meyer and Len Steiner in the CME Daily Livestock Report. "2011 corn futures are above US$4 per bushel despite expectations of good yields this fall."
"The rise in corn prices, up by more than 60 cents or 18% since late June, has in part resulted from a reassessment of current corn stocks," reported Meyer and Steiner. "Both the supply and quality of corn appear to be worse than previously thought."
Last week, December corn and November soy were up 24 and 26 cents per bushel, respectively.