With the USDA this week tightening U.S. and world grain supplies and lowering production, livestock producers can expect even higher input costs in 2011. The question marketwatchers have is whether this latest step-up in corn prices will spark higher retail meat prices and U.S. hog and cattle liquidation.
David Hightower, The Hightower Report vice-president, says there isn't much more that can be done, the livestock numbers have already been culled a lot.
With escalating corn, soybean prices, rationing is becoming a buzz word in the grain trade. Most experts believe the first area that can be rationed is corn used for ethanol. Dan Basse, AgResource Inc. president, says if the corn price hits a range between $6.82-$7.20 per bushel, the amount of U.S. corn used for ethanol production would drop from 5.1 billion bushels to 4.5 billion.
The second-tier of grain rationing could force even more liquidation in the livestock industry. "It's believed that hog and cattle producers are already operating in negative margin territory. If input cost relief doesn't arrive, you could see even more livestock operators exit," says Dustin Johnson, EHedger analyst.. .