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Short Crop Not Good News For Livestock Producers

Short Crop Not Good News For Livestock Producers
If corn goes above $7 per bushel, it may be tough to turn profits.

The August USDA crop report suggested corn production will be up nationally, but only by 4% compared to 2010. Soybean production based on the August estimate was actually down about 8%. These aren't the numbers Chris Hurt was hoping to see. Hurt is a Purdue University Extension ag economist.

"It will probably mean good farm income for crop farmers, even if yields are lower than usual, as forecast for Indiana, because the commodity price will likely be higher," he says. "Based on the August USDA numbers, we could be looking at corn averaging above $7 per bushel and soybeans in the $13 to $13.50 per bushel range."

Even with national production expected to be up slightly for corn, it won't be enough to build a sufficient carryout surplus to bring down prices, Hurt says. Current carryout is only about 20 days or slightly higher. He says the industry is more comfortable if the world food supply of these commodities is more like 40 to 50 or even 60 days. At only 20 days, some corn will need to be harvested in September just to keep up with demand, he notes.

While possibly good news for crop farmers, it's a different picture for livestock producers, Hurt says. "Most people had figured out how to turn a profit at $7 per bushel corn in their operations," he says. "However, if corn goes over $7 per bushel, it may mean they can't maintain the profit margin.

Demand has been buoying livestock prices, some of which are at record levels. However, the uncertainty of the global economy, and the U.S. economy, after the recent turmoil and downgrading of U.S. bond status, could be a concern. It may or may not affect international demand for meat products. But it could affect domestic consumers if the economy sours and people back off spending on food, especially meat products, he notes.

High yield estimates might have offered relief from increasing food prices, which went up about 4% this year vs. last year. However, with the August numbers coming in as they did, if they hold, food prices could rise again in 2012, perhaps by 3 to 4%, Hurt believes.

The other thing that makes Hurt nervous is the Congressional mandate for 2012 that says 5 billion bushels of the corn crop must be turned into ethanol as an alternative fuel. That may be difficult to do and still maintain enough supply for other uses, he notes. It's an area Congress may have to revisit.

On the flip side, take ethanol production away completely and suddenly there is an over abundance of corn. It's just one of the dynamics that will likely play out  before the 2012 crop is harvested.

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