Barley growers will be smiling but cow-calf producers will be grimacing if the U.S. corn crop falls short next harvest.
Stocks are so low and demand is so high that any problem with the 2004 crop will cause feed grain prices to stampede higher, two American analysts told the Canadian Wheat Board’s Grain World conference.
“We need at least as much as the 2003 corn crop in the U.S. just to maintain prices near the current range,” said James Robb, director of the Livestock Marketing Information Centre in Lakewood, Colo.
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“If we have any shortfall, prices will spike.”
American corn stocks have fallen compared to consumption. Feed grain market analyst Emily French of the Washington, D.C.-based World Perspectives Inc., said feed grain users are living in a just-in-time delivery world that cannot take a sudden supply shock. Stock levels are the lowest since 1975 and have fallen by half since 2001-02, French said.
“We are extremely bullish” about corn prices for 2004-05, she said. The tight stocks situation has set up a “train wreck” if production falls short.
“Something’s got to give,” said French.
Robb said a short corn crop could easily double corn prices from to-day’s levels.
The rule-of-thumb in the United States is that for every 10-cent in-crease in the price of a bushel of corn, the price of a 500-600 pound steer in the southern U.S. will drop by $1 US per hundredweight. If corn goes from $2.50 today to $5 next year, that would cut calf prices by about $25 per cwt.
Ethanol and pig producers probably will not be able to do anything but pay higher prices for feed grains, Robb said.
“They probably won’t be able to adjust their production too well,” he said in an interview.
But feedlot operators will probably try to keep animals out of their operations.
“The cattle feeding sector has to price feeder cattle low enough to stay – as they have in Canada right now – on farms and ranches on forage programs,” Robb said.
That doesn’t mean American producers could end up in the same boat as Canadian producers, Robb said. If the American ship founders, the Canadian vessel will be submerged far deeper.
Canada’s risk “is higher than it has been for five years,” Robb said. If the U.S. border does not open by the end of 2004, many Canadian farmers will be stuck with two years of calves that should be in the feedlot, rather than the single year’s production that American producers will have to carry.
Robb said Canadian producers need to pressure their governments to push more aggressively to get the U.S. border open.
And he said someone in Canada needs to build a cull cow kill plant, because he believes cull cows will not be allowed across the border any time soon.
Robb said some Canadian producers are worried that if they build a plant and the border opens, it will not be able to compete. But he said the market will be short cow meat for the next two to three years, so a Canadian plant would have an easy start, and after that, there is no reason it could not succeed.
“I’m pretty sure you can compete.”
