The poultry industry will be the first to be facing losses from record corn prices, due to the shorter lifespan of chickens compared to red meat animals. The first birds fed on $8 corn will soon hit the market, reports CNBC.
"We estimate that the average producer, by December, is probably going to be losing somewhere on the order of 5 to 10 cents a pound," said Heather Jones of BB&T Capital.
Chicken wing prices are already at record levels, averaging $1.90 a pound now, double what they were a year ago. Even so, poultry prices are not high enough to cover the cost of the corn and soybeans used to feed the birds.
"We're holding our own right now," said Mike Cockrell, treasurer and chief financial officer for Sanderson Farms "But when we start feeling the full brunt of these grain costs, with current chicken markets, there won't be many companies, if any, that can make that work."
Cockrell said that Sanderson Farms is spending $63 million more on feed this fiscal year, which ends in October. If corn prices remain high, the company could spend up to $250 million more next year. Many poultry companies, including Sanderson Farms, did not lock in their feed costs earlier in the year, when corn was $5 a bushel. That price was before this summer's drought that devastated the Midwest corn crop.
In response, the poultry industry is starting to plan for production cuts by ordering fewer "egg sets." Jones said the impact of reduced supply will start to be seen by the end of November, and by January, poultry prices could be as much as 10 percent higher, regaining solid margins.