Pork and chicken will join beef on the menu of expensive meats as drought and US ethanol policy combine in a corn “disaster”, the head of the world’s largest pork producer has said.
The cost of the main ingredients in animal feed, corn and soyameal, have set records this month as the worst drought in half a century and extreme heat damages crops in the US, the world’s main surplus producer.
“Beef is simply going to be too expensive to eat. Pork is not going to be too far behind. Chicken is catching up fast,” said Larry Pope, chief executive of Smithfield Foods. “Are we going to really take protein away from Americans?”
Analysts inside Smithfield believe the US corn crop will yield less than 140 bushels an acre and possibly 130 bushels, which would sharply reduce harvest expectations at a time of scarce global supplies, Mr Pope said. The US government forecasts average yields of 146 bushels.
“I’ll use the word catastrophe – that’s my definition,” Mr Pope told the Financial Times in an interview. Meat producers feel immediate pressure when feed prices surge. New York-listed Smithfield’s hog production segment, which sold 15.8m head of swine last year, suffered lower gross profit margins as raw materials prices rose in the fiscal year ended in April. Smithfield shares declined 13 per cent in the month to Tuesday.
Are we going to really take protein away from Americans?
Mr Pope said the company has used futures to lock in feed costs “well into” the spring of 2013, He had to defend the position at a board of directors meeting June 18, before corn had jumped to a record $8 per bushel.
“I thought that $6 corn was end of the world,” said Mr Pope, who has worked at Smithfield more than three decades. “I never could have realised that I would be thankful to be buying it at $7.”
Most analysts expect the livestock industry will respond to higher feed prices by culling pig herds. Mr Pope warned US meat prices will rise by “significant double digits,” or more than 10 per cent per year.
Like others in the livestock and poultry industry, Mr Pope called for the US Environmental Protection Agency to suspend the Renewable Fuel Standard, a congressional mandate requiring more than 13bn gallons of corn ethanol to be used in transport this year. The US Department of Agriculture estimates almost 40 per cent of the US corn crop is consumed by ethanol refineries.
“It’s almost a government-mandated disaster here, which is distressing,” he said. “The EPA has the administrative authority to waive this mandate. They ought to do it. They ought to do it now,” he said.
US agriculture secretary Tom Vilsack has said he opposes waiving the mandate, which is politically popular in corn-growing states. The Renewable Fuels Association, an ethanol industry group, said: “We firmly believe any official request of EPA to waive the RFS will be met with a swift rejection. The flexibility already provided under the RFS for obligated parties to be compliant is substantial. Taken with the availability of ethanol supplies and current production, there is no need or cause for EPA to act. The market will and already is rationing supply.”