Sector Snap: Meat Producers
Associated Press 06.29.07, 10:24 AM ET
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Meat producer shares rose Friday after the Department of Agriculture said the number of acres of corn planted by farmers this year will be higher than expected, raising hopes that the price of corn - a key food for cattle - may drop.
In the crop acreage report, the USDA estimated that 92.9 million acres will be planted in 2007, a rise of 19 percent from 2006. The number is also 3 percent higher than the department's initial guess in March of 90.5 million acres.
The earlier estimate came from farmers who estimated how many acres they intend to plant. Friday's report gives the number of acres farmers actually planted.
The number is the biggest U.S. corn planting since 1944 when 95.5 million acres were planted.
Meat producers have been awaiting the report to see if an increase in the number of acres planted will help drive down skyrocketing corn prices.
The price of corn, which meat producers use to make animal feed, has soared recently as demand increased for the alternative fuel ethanol, which is also made with the grain.
The higher costs have forced meat producer Tyson Foods Inc. (nyse: TSN - news - people ), pork producer Smithfield Foods Inc. (nyse: SFD - news - people ) and chicken producer Pilgrim's Pride (nyse: PPC - news - people ) Corp. to either raise prices on meat or warn that an increase may be inevitable.
But even if corn prices fall, producers may still take a hit if soybean prices rise significantly - a good possibility given that the report estimated that the number of acres of soybeans is down 15 percent from last year, said Greg Wagner, director of marketing risk management for Horizon Ag Strategies, a brokerage for grain and livestock commodities.
Wagner called the drop in soybean acreage "a very, very acute situation," and if the crop is threatened by unfavorable weather in the next few months during the pollinating season, the price could climb.
Soybeans are also used to make animal feed.
Tyson shares climbed 9 cents to $23.33 in morning trading while Smithfield Foods shares rose 16 cents to $31.03.
Pilgrim's Pride shares rose 39 cents to $38.33. Shares of Sanderson Farms Inc. (nasdaq: SAFM - news - people ), which produces both fresh and frozen chicken, rose 22 cents to $45.33.