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Low Grain Supplies Put Pressure on Livestock

April 12, 1996

WASHINGTON (AP) _ Supplies of wheat and grain have moved from tight to tighter, putting pressure on livestock producers and eventually on what people pay for meat at the supermarket.

Depending on how cattle ranchers, hog farmers and others respond to the newest forecasts for low grain supplies, store prices could start rising in 1997. Livestock producers first cut back by sending their animals to slaughter, causing short-term surplus and low prices, followed by long-term price increases.

Wheat supplies will hit 50-year lows before the spring harvest, the Agriculture Department said Thursday. The bleak outlook for wheat was compounded by a forecast for the tightest corn supplies since the late 1930s.

The same department report showed pork, poultry and milk producers starting to cut production in response. The monthly report showed that beef production fell slightly after higher-than-expected slaughter in the first three months of the year.

The big livestock cutbacks have yet to be made as customers battle it out in the marketplace.

``The industry people and the exporters can outbid the domestic users, the livestock users,″ said Bill Uhrig, agricultural economist at Purdue University. ``I think ultimately there’s going to be some more liquidation.″

As Uhrig and Agriculture Secretary Dan Glickman pointed out Thursday, foreign buyers have the benefit of a weak dollar to lower the price impact. Users who can react swiftly have done so: The report noted a cutback in corn use for ethanol.

Glickman declared there was no emergency, saying the ``marketplace will do its job of allocating supplies.″

The short supplies were caused by heavier than usual export demand, low yields in 1995 and less-than-ideal growing conditions for the fall-planted winter wheat crop now awaiting harvest.

Only a 6 1/2-week supply of wheat will be available starting June 1, when the new crop hits the market, if current use continues. Scarcely more than two weeks’ worth of corn will be available as the major harvesting begins in August.

The driest season in more than 100 years has hit the belt of states from Texas northward that grow hard red winter wheat, the major U.S. wheat crop. Frost has also damaged the soft red winter wheat crop in Illinois, Indiana and Ohio.

Glickman, at a news conference, handed out vegetation maps that told the story: Vast areas of Colorado, Kansas, Oklahoma and Texas showed brown where this time last year they showed a yellow-green or blue-green.

``We’ve got to have decent rain in the next two weeks in the winter wheat belt,″ said Gregg Doud, analyst for U.S. Wheat Associates, the export marketing group for wheat growers.

The outlook means a price boon for farmers who can manage to harvest their winter wheat or plant a spring wheat crop in the north, and for corn growers.

The immediate consumer impact should be minimal, the department said. Prices for cereal and baked goods will rise, with some of the costs already passed on to consumers early this year. Overall food costs should rise no more than 2.5 percent in 1996, according to a rough estimate that includes unrelated increases for fruits and vegetables.

The forecasts leave an opportunity for growers of spring wheat to plant more in North Dakota, South Dakota, Idaho, Minnesota, Montana and Washington, where conditions seem better this year. Many in the Northern Plains may opt for equally attractive corn, however.

Lester Brown, president of the Washington-based Worldwatch Institute, said the price rationing may be dramatic when it finally happens because users have been putting it off so long.

``The longer the delay, the more traumatic the adjustments may be,″ he said.

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