Meat price surges as poor weather hits US feed crops

By Javier Blas
Published: June 16 2008 23:18 | Last updated: June 16 2008 23:18

The world economy faces a fresh wave of food inflation as the price of meat surges on the back of record prices for corn and soyabean, the main fodder crops for farm animals.

Both crops jumped to fresh highs on Monday after US farmers said heavy rain and low temperatures over the past six weeks had damaged millions of acres of crops and meant several million more acres had been left unplanted.

Traders said rising prices for corn and soyabean would reverberate through the food supply chain, pushing up the cost of meat, poultry and dairy products. The surge in corn prices would further affect a range of foodstuffs, including breakfast cereals and sweeteners.

The United Nations’ Food and Agriculture Organisation warned that higher feeding costs, strong demand and tight supplies were pushing up the retail prices of meat.

“In the face of strong demand, meat supplies are tight and this situation is contributing to the increase in prices,” the FAO said. “Higher feed costs are...pushing up retail prices,” it added in its monthly food price index report.

In Chicago, live cattle futures for delivery in April 2009 – a key contract – surged to 115.5 cents a pound, the highest for any cattle contract traded in the US. The spot live cattle contract traded at 96.075 cents a pound, approaching a record high for spot contracts.

Meat prices have increased by almost 15 per cent in the past six months, accelerating from a 5 per cent rise in the previous six-month period, according to the FAO.

The rise in meat prices will be felt most strongly in richer countries such as in Europe and the US. Poor countries rely more on staples such as wheat and rice and suffered during last year’s price surge in those cereals.

Sudakshina Unnikrishnan of Barclays Capital said the impact of extremely wet weather in the US had continued to buoy the grain markets. The concern now, she said, was that farmers might decide it was too late to plant their fields and would, instead, cash in their crop insurance policies.

The US is the world’s largest corn exporter, accounting for 70 per cent of global trade, and the second largest exporter of soyabean, with a market share of almost 40 per cent. It is also a large exporter of beef.

The expected fall in corn production means global corn stocks, measured by days of consumption, would fall by next summer to the lowest level since the early 1970s, according to Deutsche Bank.

Spot corn prices in Chicago reached a record of $7.60 a bushel, with contracts for delivery next summer trading for the first time above $8 a bushel. Spot soyabean prices rose to a fresh high of $15.93 a bushel.