Corn, currency troubles in Brazil
May bring U.S. leg quarters up to 50 cents per pound
A poor grain harvest in Europe last year combined with the European preference for non-GM (genetically modified) grain sent the Europeans on a worldwide hunt for non-GM grains. One stop was in the USA to pick up some milo (sorghum). Milo is normally priced at 95 percent of the value of corn because of having a slightly lower energy value. As a result of the European purchases, the price of milo rose from $3 to $6 a bushel, far above the price of corn. The purchase will have little effect on the price of U.S. corn, since U.S. milo production is relatively small.
Another stop for European grain buyers was Brazil. Brazil produces exclusively non-GM corn and is normally a small exporter of corn. A total of 10 million metric tons of corn were purchased by the European Union in Brazil last year, an unusual amount of corn exports for Brazil. The purchase had the effect of doubling the price of corn in Brazil (from $3.50 up to $7.00 a bushel). With open trade and nowhere else to turn for non-GM corn, Brazil is stuck with high corn prices.
High-priced corn is not the only headache for Brazilian poultry producers. The value of the Brazilian currency, the Real, has been rising as well, compared to the beleaguered U.S. dollar. As a result, all of the goods and services purchased in Brazil by Brazilian poultry companies increased in dollar terms. The combination of higher-priced grain and a stronger currency had the effect of dramatically increasing the price of Brazilian chicken meat in U.S. dollars.
For years the price of Brazilian whole, ready-to-cook (RTC) chicken was about half that of U.S. whole RTC chicken. At times it appeared to be Metric/English measurement system confusion, since the price of a kilo of Brazilian whole chicken was the same as the price of a pound of U.S. whole chicken. Alas, there was no confusion; whole Brazilian chicken was simply a bargain in U.S. dollars. In that environment, the USA could not compete with Brazil. The USA, however, did compete with Brazil with leg quarters. U.S. leg quarters were competitive in the world market at a price similar to that of Brazilian whole chicken.
Now, the relative competitiveness of the USA and Brazil has changed in ways that would have been unimaginable a few years ago. The price of Brazilian chicken (in U.S. dollars) has doubled in the last two years making U.S. leg quarters the bargain. Given the high price of Brazilian chicken, leg quarters should fetch 50 cents per pound at times this year (barring any unusual trade disruption) and average 45 cents per pound for the entire year. As can be seen on the graph, the price of Brazilian whole chicken and the price of U.S. leg quarters tend to track each other fairly closely. There is no reason to believe that this year will be any different.