News and analysis on the global poultry
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on May 12, 2011

Corn prices cloud poultry’s outlook

Ending corn stocks are expected to decline to 1.1 billion bushels, down 196 million bushels.

A not-so-funny thing happened to the poultry industry on the way to a profitable 2011. USDA’s projection of the size of this season's corn crop began to wilt before the harvest wagons were out of the fields. USDA’s September estimates for the crop year reduced production by 2% and increased prices by at least 50 cents a bushel.

Now, some industry analysts are worried there might be more bad news to come as corn harvesting progresses, if yields continue to fall below projections.

With most chicken and turkey companies operating profitably in 2010, projections are for poultry industry production increases in 2011 of 4% in chicken and 1% to 2% in turkey. Particularly if the corn situation deteriorates further, poultry companies might be forced at some point to curtail planned production increases.

The crop report put corn production at a record 13.2 billion bushels, down 2 percent from the August forecast, but up from the previous record of 13.1 billion bushels set in 2009.

Lower ending stocks  

What really caught analysts’ attention, however, was the World Agricultural Supply and Demand Estimates (WASDE) report, which showed lower ending stocks of corn. Ending stocks are expected to decline to 1.1 billion bushels, down 196 million bushels. At this level, the 2010-11 carryout would be the lowest since 2003-04, and stocks as a percentage of total use would be the lowest since 1995-96.

Wider price range, record high  

The report’s season-average farm price was projected at $4.00 to $4.80 per bushel, compared with $3.50 to $4.10 in August.

“What is amazing is that USDA increased corn’s projected price range – it is very seldom that this happens – from the August report to the September report,” said poultry industry economist Dr. Tom Elam. “The August range was $3.50 to $4.10 a bushel – a 60-cent range. The September price range is $4.00 to $4.80 – an 80-cent range.

“USDA raised the price estimate by 50 cents a bushel,” he continued. “That’s almost unheard of in the history of these estimates – to raise it that much from one month to the next.

“The $4.40 mid-point in the range of projected average corn prices for the season would be a record high. That is even higher than the 2007 crop, which is the crop that hit $8 a bushel in July of 2008, just before the end of the crop year,” he said.

No replay of 2008  

“There’s the potential for a not-so-good year for poultry producers in 2011,” said poultry industry consultant Dr. Paul Aho. “The industry always adjusts, however, no matter what the problem. I’m cautiously optimistic but not predicting that 2011 will be the greatest year ever.”

Aho and Elam agreed in their assessments that corn is not likely to spike into the $8 a bushel range as occurred in 2008, even if corn supplies slip further than indicated in the September report.

“I don’t think there will be a huge run-up and then drop-off in corn prices as occurred in 2008,” Elam said. “But higher prices are likely to be sustained for a longer period of time.

“Two things have changed. One is that the higher prices have occurred earlier in the season in 2010, which allows for the orderly rationing of the available corn. The other is that the poultry and meat sectors have adjusted supply which has resulted in higher meat prices to better cover higher costs,” he said.

Future corn inventories  

There is a real possibility of continuing, long-term shortages in corn inventories, according to Aho. “Even with USDA continuing to predict a record corn crop this year, the projected ending inventory is still plummeting. That sends up a yellow flag for me because it means a record crop is needed every year to make up for the deficit created by the diversion of corn to ethanol production,” he said.

For now, the question is if and when the other shoe drops on this season's corn supply. 

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