Expensive Corn Could Result in Smaller Pigs, Profits

PENNSYLVANIA - “This industry has recovered financially,“ was the good news Steve Mayer, founder and president of Paragon Industries, said of the pork industry Tuesday at the 29th Pennsylvania Pork Expo here.
calendar icon 23 February 2007
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However, a potential dark cloud is looming. That cloud, Myer said, is the ethanol boom. Its effect on corn prices could mean a significant profit downturn in pork over the next few years.

Ethanol, Myer said, is the most important advance in farming since the invention of the tractor and it is here to stay. “This situation with ethanol is one that’s going to be quite important and more or less permanent,” he said.

The ethanol explosion took off when oil prices, driven by increased demand and security issues in the Middle East, surged above $70 per barrel in 2005. Oil prices have been flirting with $60 recently and even gone as low $50 within the last few months.

Myer said people betting they will see $40 oil once again should not hold their breath, considering developing countries like China and India will continue to grow in the next few years. In China for example, Myer estimated another 500 million peasant farmers will move into large cities, driving the demand for oil. “This (China) is an economy that is going at a clip of about 10 percent,” he said.

Higher oil prices and the increased movement towards ethanol has sent corn prices in the U.S. above $3 per bushel and many experts, including Myer, think prices could reach $4 or even $5 per bushel.

So what does all of this mean for the pork industry?

Myer said the higher corn prices will lead to lower average carcass weights on the market and lower selling prices because producers won’t be able to feed hogs as much as they used to. “We’re going to see weights two to three pounds below average,” pretty regularly he said.

Source: Lancaster Farming

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