Meat companies have been negatively impacted by higher grain prices because animal feed is one of their biggest costs. Meat processors haven't been able to pass on many of those costs because consumers aren't willing to pay more for meat at the grocery store.
On Oct. 12, the US Department of Agriculture released its monthly report on global crop supplies, estimating farmers will have 866 million bushels of corn on hand at the end of next summer, a 29 percent increase over the agency's estimate last month. The agency also increased its estimate of next year's wheat surplus by 10 percent to 837 million bushels.
As a result, corn and wheat prices dropped on futures markets Wednesday, with wheat losing 34 cents, or 5 percent, to finish at $6.2675 per bushel. Corn fell 4.25 cents, or less than 1 percent, to end at $6.4075 per bushel.
Thanks to grain prices falling, meat companies can increase their profit margins without having to raise prices.
Several months ago, experts speculated that corn might trade as high as $8.50 a bushel, which would have wiped out profits for many meat companies. But now, corn may likely trade much closer to $6 a bushel, said analyst Jason Ward, with Minneapolis-based Northstar Commodity. One reason is that wheat is now far less expensive. Meat companies can substitute wheat for corn in their animal feed if corn prices start to climb again, Ward said.
As a result of yesterday’s announcement, shares of Tyson Foods increased 48 cents, or 2.7 percent, to close at $18.43. Smithfield Foods gained 29 cents, or 1.4 percent, to $21.76. Hormel Foods Corp. rose 12 cents to close at $28.79. ConAgra gained 26 cents to close at $25.60. The broader market edged up less than 1 percent.