WASHINGTON – Strong demand for corn from ethanol plants is driving up the cost of livestock and will raise prices for beef, pork and chicken, the Agriculture Department said Friday.
Meat and poultry production will fall as producers face higher feed costs, the department said in its monthly crop report. Ethanol fuel, which is blended with gasoline, is consuming 20 percent of last year's corn crop and is expected to gobble up more than 25 percent of this year's crop.
The price of corn, the main feed for livestock, has driven the cost of feeding chickens up 40 percent, according to the National Chicken Council. The council says that chicken, the most popular meat with consumers, will soon cost more at the grocery store. The industry worries the competition from ethanol could cause a shortage of corn.
The average price of corn, unchanged from last month, is $3.20 a bushel, up from $2 last year.
While chicken producer Tyson Foods Inc. (TSN) posted its first profitable quarter in a year Jan. 29, executives warned that a dramatic rise in feed costs will raise chicken prices.
"Companies will be forced to pass along rising costs to their customers, meaning consumers will pay significantly more for food," Chief Executive Dick Bond said.
Deputy Agriculture Secretary Chuck Conner said USDA is keeping an eye on corn supply and demand. Demand likely will prompt farmers to plant more acres in corn, he said.
"We do have confidence in the marketplace's ability to react," Conner said. "We believe producers are seeing the market saying, `I need more corn, not only for ethanol, but for our feed needs in this country.'"
The department will issue planting predictions later this month.
For soybeans, analysts said prices are averaging $6.30 a bushel, up from last month's average of $6.20. Last year's price was $5.66. Wheat prices are averaging $4.25 a bushel, unchanged from last month and up from $3.42 last year.
Also in the crop report, the department updated the citrus forecast to include the effects of a January freeze on California oranges. The California crop will be 39 percent smaller than last year, and combined with freezes that are expected to reduce the Florida crop, the nation's crop is expected to be 18 percent smaller than last season.
Shares of Archer Daniels Midland Co. (ADM), the country's biggest ethanol producer, fell 36 cents to $34.45 in morning trading on the New York Stock Exchange. Shares of Tyson fell 6 cents to $17.99.