Hogs, Cattle Jump as Higher Corn Costs May Spur Herd Liquidation

Hog futures jumped to a three-week high and cattle gained on speculation that rising corn costs will discourage U.S. producers from expanding herds, tightening supplies to meat processors.

The U.S. Department of Agriculture today cut its forecast for domestic corn supplies as wet weather delayed planting. The price of corn, the main ingredient in livestock feed, climbed to a three-year high. Costlier feed may spur producers to sell animals to meatpackers at lower weights. Lighter livestock yield less beef and pork.

“There’s less incentive to expand, and down the road, it could lead to lighter weights,” said Chad Henderson, a market analyst at Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. Livestock prices rose because “the job of the market is to dangle a carrot out there and give producers the incentive to stay in production,” he said.

Hog futures for July settlement climbed 1.625 cents, or 1.8 percent, to close at 92.975 cents a pound at 1 p.m. on the Chicago Mercantile Exchange. Earlier, the commodity reached 93.8 cents, the highest since May 16. The price has gained 16 percent in the past year.

Hog farmers are facing record production costs, based on current futures prices, Steve Meyer, the president of Paragon Economics, said yesterday at the World Pork Expo in Des Moines, Iowa.

Cattle futures for August delivery gained 0.875 cent, or 0.8 percent, to $1.05425 a pound. Earlier, the price reached $1.0655, the highest since May 20. The commodity has climbed 21 percent in the past year.

Feeder-cattle futures for August settlement rose 0.525 cent, or 0.4 percent, to $1.25325 a pound.

Today, the USDA cut its forecast for 2012 domestic beef production by 0.3 percent to 25.115 billion pounds from last month. The agency boosted its projection for exports by 2.7 percent to 2.515 billion pounds.

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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