The cost-to-produce/price-to-buy situation is worsening as corn and feed costs for livestock and poultry producers continued increasing this week and projected food prices -- especially dairy, meat and poultry prices -- for consumers next year also continued increasing.
The U.S. Department of Agriculture, in its supply and demand report Aug. 10, confirmed the damage that the very dry, very hot weather has wrought in little more than one month.
Compared with its June report, USDA reduced the corn yield for this year by 25.7% and the harvest by 27.1%, wiping out more than 4 billion bushels of corn in the stroke of a drought.
The loss of production isn't over yet, advised Bill Helming at Helming Consulting Services in Olathe, Kan.
The drought this year is much worse than the drought in 1988, and the odds are that the corn yield and harvest will come in even less than they were estimated in the August report, particularly when considering what will be a major reduction in acres harvested, he said in a paper sent to clients this week.
He noted that fully 50% of the corn crop is rated poor to very poor, compared with 16% at this time last year, and that just 23% of the crop is good to excellent, compared with 61% last year.
Accordingly, he predicted that this unproductiveness will average 2012-13 corn prices in the $8.00-9.00/bu. range.
Prices this high will decrease demand and use by everyone, he said, including ethanol producers, livestock and poultry producers and exporters. "The reality is that buyers and users of $8-9 corn cannot make the economics work," Helming said.
This "reality" will force producers to abandon any expansion plans and, in fact, liquidate breeding stock, including cows, sows and hatchery supply flocks.
Liquidation will, for the short term, infuse the marketplace w ith meat and provide consumers with good deals in the dairy and meat cases, but once the liquidation is over, consumers will need to dig deeper and deeper into their pockets to buy dairy and meat products, the Federal Reserve Bank in Kansas City, Mo., said in a report this week.
Historically, a drought of the proportions of the one this year prompts an influx of meat supplies, but within a year, reduced breeding and commercial herds shrink the meat supply, after which livestock and poultry prices and meat prices rise sharply, the bank said.
This happened in the aftermath of the 1988 drought in which livestock prices rose 8% in 1989 and meat prices rose 10% in 1990, the bank noted. "This historical pattern could likely re-emerge," the bank said.
It already is happening.
The U.S. Bureau of Labor Statistics this week reported that July consumer-level beef and chicken prices were new record highs and that ground beef -- one of the few refuges for consumers seeking to hide from high meat prices -- was also record high.
The bureau said ground beef was $3.085/lb., up from $3.007 in June, with June the first month ever that ground beef priced above $3.00.
The average price for fresh beef was $4.715/lb., up 0.2% from June and up 6.0% from July last year, and the average price for chicken was $1.921/lb., up 0.6% from June and up $10.4% from last year.
Furthermore, the bureau said the retail price for extra-lean and lean ground beef is exceeding the overall food inflation rate for the first time ever.
Alarmingly, these records and trends are for producers who were working off of June dynamics, noted Steve Meyer and Len Steiner in an edition of their "Daily Livestock Report" last week. None of the July prices reflected the July costs, they said.
Consumers enjoy meat, Tyson Foods Inc. chief executive officer and president Donnie Smith said during a media teleconference last week. However, from here on, "it will be a tough call" for them to balance what they want with what they can afford, he said...
Source: Argentine Beef Packers S.A.
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