Dairy, egg and sweeteners feel impact of high prices

by Ron Sterk
Share This:

Record high grain and oilseed prices have sent feed costs for dairy and poultry operations soaring and created competition for planted area with sugar beets and dry edible beans, resulting in projected tighter supplies.

Analysts saw a combination of factors as responsible for higher dairy and egg product prices. Most dry dairy product values peaked in the third quarter of 2007, due to strong domestic demand and a weak dollar along with reduced production overseas.

Milk output in 2008 is forecast by the U.S. Department of Agriculture to increase 2.3% from 2007 despite lower prices due to the time involved in building dairy herds when prices were high last year. But outturn in 2009 is projected to increase only 0.3% as lower milk prices and higher feed costs finally have an impact. Milk prices are expected to climb again in 2009.

Prices for most dry dairy products have risen modestly since mid-March but remain well off record highs of a year ago. For the year, the U.S.D.A. projects dry whey to average 27½@30½c a lb, well below the 60c average in 2007, and climb only about 2c in 2009. Nonfat dry milk prices are projected to range from $1.36@1.40 a lb in 2008, down from $1.71 in 2007, before climbing to $1.47@1.54 next year. Butter and cheese prices remained strong, despite heavy production this spring, largely because of strong export demand, according to the U.S.D.A.

Egg and egg product prices also have been driven higher due to higher feed prices, prompting egg producers to cut production in an attempt to maintain profit margins, analysts said. Retail egg and breaking stock prices peaked in mid-March, in part due to this year’s early Easter holiday. Since then prices have plunged 40% to 50%, to the point analysts say producers are near or below break-even prices, which could spur another round of cutbacks in production, or an increase in egg exports.

Most egg product prices also are sharply lower since March, with dried whole eggs down about 20%, frozen 30% and liquid 40%. Dried whites have fallen about 15%, frozen 20% and liquid 30%. Yolk prices were down only slightly.

While the effects of high grain and oilseed prices on dairy and poultry feed is direct and widespread, the impact on sugar and dry beans has been more indirect in the form of competing for acreage, which is especially acute in the Upper Midwest where much of the nation’s sugar beets and dry beans are grown.

Growers indicated they would trim sugar beet area in the United States by 11% from last year, to the lowest level since 1985, the U.S.D.A. said in its March 31 Prospective Plantings report. But producers in some areas might have switched from sugar beets in even greater numbers because some beet cooperatives had a "walk away" clause that allowed members to opt out of agreements.

The probability of reduced beet sugar supply in 2008-09 because of the 2008 acreage cutback was reflected in the May 9 U.S.D.A. World Agricultural Supply and Demand Estimates report that projected production next year at 4,400,000 tons, raw value, down 410,000 tons, or about 9%, from the current year. Refined sugar prices for the coming marketing year (beginning Oct. 1) moved up 1@3c a lb because of the projected decrease in supply, industry sources said.

"Prices are going to be fairly strong," said Tom Earley, executive vice-president, Promar International, an Alexandria, Va.-based consulting firm. He noted that Mexico tends to not have as much excess sugar in the fall and with the smaller U.S. beet crop, "there is potential for tightness through the first half of the marketing year."

Bulk refined beet sugar prices for 2008-09 were 30@31c a lb, f.o.b. Midwest, last week, up from 28@29c in April and compared with 24@24½c in January and 25@26c a year ago, according to Milling & Baking News. Prices previously had moved higher after reduced cane sugar production capacity that resulted from an explosion at an Imperial Sugar Co. refinery in Georgia in February.

Rising corn prices also have spurred increased talk of switching from corn sweetener products back to sugar as the traditional cost savings of corn-based sweeteners has eroded. But the recent increase in sugar prices might have dampened that interest somewhat.

Dry edible beans also have fallen victim to less available area as farmers opt to plant other crops. The Prospective Plantings report showed farmers intended to cut dry bean area by 8% from a year ago and by 14% from 2006. Area was down in 12 of the 18 major producing states due to higher prices for competing crops and a lack of moisture, the U.S.D.A. said.

"Strong prices for competing crops in California, Idaho, Michigan and Oregon led to a decrease in dry bean acres," the U.S.D.A. said.

Dry bean prices reflect existing and expected tight supplies. Navy bean prices are nearly 80% above year-ago values, great northern, kidney and black beans more than 50% above and pinto beans more than 30% over, according to the U.S.D.A.

This article can also be found in the digital edition of Food Business News, May 27, 2008, starting on Page 30. Click here to search that archive.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.



The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.