Meat&Poultry - August 2012 - 10

Business Notes

Ongoing drought withers industry production
Drought continues to batter the nation’s corn crop, resulting in surging feed costs for producers and higher prices for meat and poultry. Damage to the corn crop is viewed as probably irreversible in what is considered to be the worst drought in five decades. Drought in the US has typically been isolated to specific areas of the country in recent years. But in 2012, 70 percent of the US cattle inventory is located in regions of drought, claimed Kevin Good, senior market analyst for CattleFax during the National Cattlemen’s Beef Association summer conference in Denver. “The widespread drought has ultimately led to the worst pasture conditions in the past 15 years,” he said. “The US calf crop is down 800,000 head. The bottom-line, when all is said and done, the cattle herd will decrease by about 500,000 head. This is compared to a 900,000 decrease a year ago, so we are seeing a liquidation, but at a slower pace than last year.” The good news is consumer demand for US beef remains strong with solid retail and foodservice sales. As long as consumers continue to demand beef, cattlemen are given reason to remain in the cattle business and avoid liquidation. Cattlemen are facing serious challenges, however NCBA is encourag i ng t hem to trust market signals and maint a i n cowherds if possible, said Forrest Roberts, NCBA CEO. The US Department of Agriculture said that in 18 major corngrowing states, a total of 26 percent of the crop was rated good to excellent during the week of July 22, down 31 percent from the previous week. The proportion of the crop that was very poor to poor surged to 45 percent, up from 38 percent from the previous week. In the comparable year-ago period, 62 percent of the crop was rated good to excellent and only 14 percent was very poor to poor. Smithfield Foods Inc. took the unusual step of importing corn from Brazil to feed the company’s hogs, according to news reports. A spokeswoman with the company confirmed Smithfield’s decision to use Brazilian corn following a report in the Financial Times that revealed meat companies were shipping corn from Brazil to the East Coast. Details about Smithfield’s shipments were not disclosed. McDonalds Corp. has positioned itself well to weather difficulties emanating from the summer drought, said Peter Bensen, executive vice president and chief financial officer. Bensen commented on McDonald’s commodity coverage during a July 23 conference call with investment analysts after issuing quarterly financial results. “Our supply chain folks, our suppliers, our treasury folks really spent a lot of time earlier this year looking at the markets and did a great job in securing a lot of our grains and other commodities at costs before they ran up related to the recent drought,” Bensen said. “So, that is why we are able to lower our outlook for this year. “You can imagine, while I won’t get into specific details, we have taken a greater amount of coverage for the next year sitting here at this time than we did have a year ago. So we feel pretty good that the impacts from the drought are going to be minimized on next year’s results as well, to the extent we can see that sitting here today,” he added. ■

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Meat&Poultry - August 2012

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