US corn prices have rocketed by more than 35pc in the past three weeks and further rises are anticipated in the wake of heatwave conditions that have caused irreversible damage to large sections of the country’s corn crop.
Corn futures prices have rallied from around $4.5/bushel not long ago to over $7 per bushel, with analysts such as the Chicago Mercantile Exchange’s Steve Meyer expecting that a rise beyond $8/bushel is likely as yield estimates continue to fall.
Mr Meyer said many US farmers planted early this year in the hope their crops would pollinate in late June/early July and avoid hot temperatures from mid-July onwards.
However, conditions in June were far drier and hotter than expected, with temperatures consistently reaching between 90 and 110 degrees (33 and 43 degrees celcius) throughout the Midwest .
Last week’s USDA crop condition report said 48pc of the US crop was now rated in good/excellent condition, a drop of 8pc from the previous week. Further downgrades are expected in this week’s report.
Mr Meyer said there was little question irreversible damage has been done to the crop, and comparisons were now being made to the devastatingly dry year of 1988, which resulted in widespread crop failures and a 150pc rally in US corn prices.
North Dakota State University livestock marketing economist Tim Petry told US publication AgWeek that the rapid rise in corn prices was placing downward pressure on revenues for cow-calf producers.
“As a rule, a change in the corn price of 10 cents a bushel can change feeder cattle prices by a dollar (per hundredweight) in the opposite direction,” he said.
As corn availability declines, competition for available product between the main users in the US – ethanol producers and livestock feeders – intensifies.
Mr Meyer said ethanol plants were making negative returns as a result of high corn prices and some had suspended operations. While that partially reduced overall demand for corn, there was a floor below which ethanol production was not allowed to fall, due to the ‘Renewable Fuel Standard’ set by the Environmental Protection Agency.
Mr Meyer said wheat prices were trading at a 50pc premium over corn, and were unlikely to trade below corn this year because of the generally tighter supplies worldwide this year.
His expectation is that rising corn prices will limit planned expansions by chicken and pig producers which in turn will push up all meat protein prices in the US, including beef.
He said more feeder cattle are also expected to be forced into feedlots as expanding drought negatively impacts pasture conditions.
“High corn prices have also changed the economics of cattle feeding,” Mr Meyer said.
“Cow producers now face weaker calf values and poor feeding conditions.
“More cows should be coming to market although the year over year comparison in July will still show slightly lower numbers than a year ago.
“Longer term, the ongoing liquidation of the US beef cow herd implies significant shortfalls in US beef supplies and higher beef prices.
“These higher beef prices will help ration demand but also will likely shift more of the protein dollar to other species, especially chicken.”