CHICAGO - The slowest U.S. grain harvest in 30 years is increasing the cost to feed cattle, hogs and chickens, adding to the pain from the recession that has cut demand for meat.
Daily rains in the Midwest grain belt have sidelined combines and could hurt yields and grain quality. And that has sent corn and soybean prices higher.
Corn prices Cc1 have surged toward $4 a bushel as the harvest delays mount. Just weeks ago they briefly dropped below $3 amid forecasts for the second-largest corn crop ever that promised plenty of grain for livestock producers, food makers and ethanol plants.
The slow harvest has pushed soybeans Sc1 close to $10 per bushel, up more than 10 percent this month.
We were hoping for a great harvest that would bring (corn prices) down close to $3. Instead we have a so-so harvest that is bringing it closer to $4. That is a big difference, said poultry economist Paul Aho.
Corn accounts for about 25 percent of the cost to raise chickens, and a $1-per-bushel increase can hurt bottom lines. Chicken producers are already losing money as the recession has slowed chicken sales in restaurants and in export markets.
We expected a minor loss in the winter and then getting better in the spring. But now it looks like it will be a more significant loss before we get to profitability, Aho said of chicken sales.
J.P. Morgan analyst Ken Goldman this week cut his earnings estimate for Tyson Foods Inc, the largest U.S. chicken producer, because of the higher grain prices.
Other companies that could be affected include hog producer Smithfield Foods Inc and chicken producers Pilgrim's Pride Corp and Sanderson Farms Inc.
BIG CORN CROP MAY SHRINK
Earlier this month the U.S. Agriculture Department estimated farmers would harvest 13.02 billion bushels of corn, the second-largest crop ever, and 3.25 billion bushels of soybeans. Soybeans are processed into soymeal, a popular livestock feed.
But harvest delays have raised worries some of those bushels may remain in the fields.
The longer it stays in the field, we will have more loss, said Ron Plain, a University of Missouri livestock economist. The livestock and poultry industries lost a lot of money this year and higher corn and feed costs are making things worse.
The U.S. corn harvest is the slowest in 30 years, said grain analyst Rich Feltes.
We should have, by this date, 4.5 billion bushels out of the field. We've only pulled out about 1.7 billion, said Feltes, who is senior vice president at MF Global Research. There are more acres in the Midwest with double October precipitation than those with normal October precipitation.
The crop delays are affecting cattle producers in Texas and Oklahoma.
The late harvest is causing problems because of availability, said Don Close, director of marketing for the Texas Cattle Feeders Association.
Cattle producers rely on newly harvested Midwest corn and soybeans to promptly flow south to feedlots.
However, Close doubts the weather delays will cause a serious reduction in the crops and that corn prices may come down once the weather clears.
I think the contraction because of the frost and rain will be nominal, said Close.
While Chicago Board of Trade corn futures may not drop significantly, Close said local cash prices for corn should drop considerably once the harvests gain momentum. FACTBOX-US corn use by cattle, hogs, chickens. (Additional reporting by Julie Ingwersen; Editing by Jim Marshall and Lisa Shumaker)