(Bloomberg) -- The prospect of tighter American corn supply is bad news for livestock and poultry farmers who feed the yellow grain to their animals.
Chicago hog futures dipped to a three-month low on Tuesday while cattle prices eased after the U.S. Department of Agriculture said historically rainy weather would lead to a smaller corn crop than previously thought.
Higher corn prices -- futures rose more than 3% on Tuesday -- may prompt farmers to send animals to slaughter rather than fattening them up, which will increase supplies in the short term, said Brian Hoops, senior analyst at Midwest Market Solutions in Springfield, Missouri.
“Production growth for livestock and poultry is expected to be slower as producers respond to higher feed costs,” the USDA’s World Agricultural Outlook Board said in a report. “Pork production is lowered from last month primarily as the pace of slaughter to date has been slower than expected.”
The USDA outlook contributed to the drop in hog futures, after prices surged on Monday, according to Craig VanDyke, risk management consultant at Top Third Ag Marketing. “They are not going to be willing to pay up both for feeder pigs and feeder calves” because the cost grains will be an even bigger problem, he said by phone.
One beneficiary in the tightening corn outlook is wheat. The government said more wheat would be used as animal feed, which might help draw down U.S. stocks.