May 2, 2007 | By: Laura Skillman
PRINCETON, Ky.

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.

Contact: 

Lee Meyer, 859-257-7272, ext. 228