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Little Change Seen in Livestock Sector
Despite High Corn Costs
By
Laura Skillman
PRINCETON, Ky., (May 2, 2007) – While corn prices have increased
dramatically within the past year, making feed more costly,
little change is expected in livestock production levels in the
coming months.
“The normal way markets respond to a shortage is for prices to
increase, then the increase in feeding costs reduces
profitability. This leads to a reduction in supplies,” said Lee
Meyer, livestock marketing specialist with the University of
Kentucky College of Agriculture. “Prices go up and consumers pay
a higher retail price.”
In this way, the impact of increased input costs is shared.
Producers pay higher costs and get lower revenues from their
sales. Consumers typically lower their consumption and pay
higher retail prices for what they do buy. However, because of
the complexity of the markets, this process is not always smooth
and quick, he said.
Today, the price of corn is about $3.50 per bushel in cattle
feeding areas compared to $2.07 a year ago, due mainly to demand
for ethanol production. Despite this increased cost, production
totals for beef, pork and poultry are not expected to change
much in 2007. Beef production is expected to increase slightly,
while pork production will be about 2 to 3 percent higher and
poultry production will be near 2006 levels.
Meyer said he initially thought slaughter weights on cattle
would be lighter because of the higher grain prices, but with
slaughter cattle prices at 94 cents per pound, that has not
occurred.
Strong cattle prices are one reason for little change in
production. That is also true with chicken. Prices are at high
enough levels that producers are not facing dramatic economic
losses, Meyer said. Also, many production decisions are made a
year or more in advance. A third explanation is that meat is
increasingly part of a global market. For example, with about 15
percent of broilers exported, chicken processors do not want to
cut back and lose a share of the export market.
The lack of dramatic changes in production has led to minimal
farm level, wholesale or retail meat price impacts in recent
months, Meyer said. But that could change. Prices for slaughter
cattle are likely to be very high in 2007, averaging near the
2005 record highs.
At the grocery, beef prices are less than 2 percent higher than
they were in late winter 2006, even though wholesale price is 20
percent higher. The higher wholesale price will probably get
worked into retail prices soon, so consumers can expect to pay
higher prices for beef in the coming months, he said.
The same situation will apply to chicken prices. The wholesale
price may be up 10 percent or more and retail prices could jump
by 5 to 10 percent during 2007, Meyer said. However, while
increases in production will help to moderate the increase in
retail pork prices, they also will respond to market pressure
and increase over the coming months.
Meyer said he does not expect to see corn prices impact
production levels in poultry or livestock until 2008.
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Contact: Lee Meyer, 859-257-7272, ext. 228
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