Investors received a further insight into the pressure on livestock producers from high grain prices as poultry group Sanderson Farms warned of reduced margins ahead, while academics said that the hog industry is set for "short-term carnage".
Joe Sanderson, the Sanderson Farms chairman and chief executive, warned of a "challenging environment growing forward" as the Mississippi-based company copes with feed prices swollen by drought damage to US corn and soybean crops.
"While market prices for chicken remain higher than they were last year and have strengthened over the past few weeks, they are not high enough to offset what we now expect to be significantly higher input costs during the coming months," he said.
The group had reduced by a further 2% the number of eggs placed in incubators for growing into broiler chickens, in addition to 4% already cut, "to lessen the impact of the higher grain costs we are facing".
Furthermore, it has put on ice plans for a new plant in North Carolina "until market fundamentals improve, including sufficient confidence that the global supply of feed grains will be adequate to meet world demand at reasonable prices".
The caution followed a warning from Purdue University academics that the US pork industry "is facing losses unseen even in the fall of 1998, when hog prices at times approached zero".
High grain prices, besides raising hog producers' feed costs, have prompted a wave of herd liquidation which has driven animal values lower, with Chicago hog futures, on a front contract basis, down more than 20% over the last month.
The spot October contract stood at 73.025 cents per pound in early deals on Tuesday, down 0.1% on the day, and 10% month on month.
Hog slaughter last week hit 2.265m head, up 4.6% week on week and 6.7% on the same week a year ago. Pork production rose even faster, up 7.2% year on year to 454.3m, receiving an extra boost from higher hog weights encouraged by cooler weather in recent weeks.
Hog producers "tragically" face feed costs of more than $75 cents per live hundredweight of hog "for the remainder of the summer, th is fall, and winter", well over the prices expected at $55 cents per hundredweight, Purdue said.
This implies record quarterly losses of more than $60 per animal, beating the previous high of $45 per head set 14 years ago.
"Financial losses of the magnitudes projected here will cause massive erosions of family equity and some bankruptcies," Purdue economist Chris Hurt said, forecasting "short-term carnage" and adding that producers were still recovering from losses in 2008 and 2009.
"Some producers face this tsunami in weakened financial condition
"The irony is that hog production may return to profitability by mid-summer 2013 when meal prices begin to moderate, hog prices move to record highs, and rain and reasonable temperatures bless our nation's corn and soybean fields once again."
'Steady retail grocery store demand' ...
Source: Argentine Beef Packers S.A.
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