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The coming meat shortage

Agriculture.com Staff 09/08/2008 @ 9:48am

Cheap corn brings cheap hogs, right? But what about expensive corn?

We're about to find out. Expect to see breeding herd liquidation of unprecedented levels as cattle, hog, and poultry producers cope with $5 and $6 corn. What happens when all three meat groups downsize so dramatically at the same time?

Ron Plain, University of Missouri economist, says, "If corn averages $5 per bushel going forward, we need to reduce the sow herd by 10%, the beef cow herd by seven percent (they eat grass and DDGs), and the poultry flock by 10%, compared to corn at $2.35."

And, he says, $5 corn now looks to be too low. "Today, $6 looks like a better forecast. Heck, if ethanol policy doesn't change, it could be $7." At $5, hog numbers need to reach a level that will sustain at least $60 per cwt liveweight to produce modest profits. In early summer, hog prices were about $50 a cwt.

Whether corn is $5 or higher, animal agriculture is downsizing. Pork megagiant Smithfield Foods is cutting sows by five percent. Beef cow numbers are down 300,000 head, says USDA.

Plain compares it to the early 1970s, when corn prices ratcheted up with new export demand. Meat supplies dropped about seven percent before finding a new balance, then climbing again in the cheap-corn 1980s.

If he's on target now, herd contractions will be even more dramatic when the dust settles this time. While that might predict higher prices for cattle and hogs, it doesn’t tell the whole story. Meat exports are a bigger factor than previously, and they are booming. "Cutbacks won't have to be as large if other countries cut faster and we increase our meat exports," says Plain. "Pork exports are running 40% above last year."

The good news in this is that livestock producers who hang on through the adjustment period may be rewarded with good prices, possibly record high. But Plain cautions that it will take longer than you wish.

"I expect 2008 to be a money-losing year for all the meats," he says. "Poultry producers will make money in 2009; hogs will profit in 2010. I'd say it will be 2012 before the cattle industry can stop downsizing."

Cheap corn brings cheap hogs, right? But what about expensive corn?

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