ShapeShapeauthorShapechevroncrossShapeShapeShapeGrouphamburgerhomeGroupmagnifyShapeShapeShaperssShape

Poultry Industry: Government's Corn Estimates Optimistic

by 5m Editor
18 August 2008, at 10:37am

US - The recent government forecast that farmers will harvest 12.3 billion bushels of corn, bringing prices down to roughly $5 per bushel is a 'cheerful and overly optimistic' expectation, according the National Chicken Council (NCC).

Dr Paul Aho, international poultry economist with Poultry Perspective, agreed in an article in The Morning News from West Arkansas.

"There are a lot of leaves and stock in the fields, but not that much grain as the corn crop is two weeks behind, making the government forecast a little premature," Dr Aho said.

"The government is wagering the Midwest won't see an early frost."

Richard Lobb, spokesman for the NCC, said the government's recent forecast offers more evidence of a policy built on hope, instead of sound economics.

The Agriculture Department is projecting corn prices will settle the year between $5 and $6 per bushel, down from their near $8 high, after the grain belt was flooded earlier this summer. At $5 per bushel, the corn prices are still 50 per cent higher than two years ago.

Industry groups said the government's assumptions are more wishful thinking than reality because it is banking on back-to-back bumper crops of corn, allowing for no weather disasters.

Tyson Foods Inc. (based in Springfield, Arkansas) has commented that the government's latest crop estimate is encouraging, however, corn prices remain substantially higher than normal. The company said it believes the federal government's corn ethanol policy of using food for fuel continues to have a significant adverse impact on the economy.

Tyson Foods and the NCC have been outspoken against the government's ethanol mandate, which the industry largely blames for soaring corn and soy bean prices during the past 18 to 20 months.

The energy bill passed in December requires that 9 billion gallons of ethanol be blended into gasoline this year, rising to 11 billion gallons next year. Roughly 30 per cent of the corn supply will go toward ethanol production. As demand increases, corn supply must also increase in order to keep prices stable.

The World Agricultural Supply & Demand Estimate is a periodic report from the government with projections of supply and demand. The latest report expects corn used for feeding animals to drop more than 10 per cent by 2009. That equals a loss of 750 million bushels designated for animal feed. At the same time, corn set aside for ethanol is expected to increase by one billion bushels.

Mr Lobb said the Agriculture Department tried to ease the sting by predicting greater usage of wheat and other crops in feed. Sceptics doubt there will be extra wheat and sorghum available for chicken companies to acquire because corn is a much larger crop.

Dr Aho said the government's assumption that meat and poultry processing will be reduced by 10 per cent is too aggressive, although chicken processors have vowed to cut production in recent months amid staggering losses and an oversupply.

Poultry companies have been operating in the red this year, losing an average of $0.05 per pound, according to a recent food and commodity report from Stephens Inc.

Dr Aho expects it will be early next year before the production cuts really bear any fruit for chicken companies.

Industry-wide, higher grain prices have cost the broiler chicken industry more than $6 billion since October 2006, according to NCC.

Further Reading

- Go to our previous report on the US government predictions by clicking here.

5m Editor