Obama meat aid plan lifts prices but not farm sentiment

CHICAGO Mon Aug 13, 2012 4:02pm EDT

CHICAGO Aug 13 (Reuters) - President Barack Obama made few new fans among the nation's ailing hog farmers and cattle ranchers on Mo nday with his plan to boost their incomes by buying $170 million worth of meat -- equivalent to about 10 hours' worth of U.S. output last week.

Obama unveiled the plan on a campaign trip to farm state Iowa o n M onday as record-high feed costs force cattle ranchers and hog farmers to cull their herds.

But he failed to address producers' biggest complaint: that the U.S. mandate to use 40 percent of this year's corn crop to produce ethanol threatens their livelihood.

"We do appreciate it but it's a drop in the bucket," said Steve Meyer of Paragon Economics consultancy.

He said $170 million will buy about 100 million lbs of meat, and by comparison, some 1.68 billion lbs of pork, chicken, beef and turkey were produced last week in the United States.

"It doesn't solve the problem of having enough affordable corn next summer," Meyer said. "Without changing the ethanol program, nothing can be done," he added.

Under the plan, the government will buy $100 million worth of pork, $10 million of catfish products, $50 million in chicken and $10 million of lamb.

The worst drought in over half a century has caused a more than 60 percent surge in the price of corn, and the rally is ultimately expected to drive up meat costs.

But in the short-term it is creating a glut of supply as producers rush to sell livestock they can no longer afford to feed. The slaughter rate of sows, which are typically kept for breeding, hit an eight-month high last week.

On Monday, Chicago Mercantile Exchange hog futures for October rose more than 2 percent to 77.15 cents per lb, the highest in 10 days.

But gains were also attributed by traders to a sharp retreat in corn prices, which have tumbled since setting an all-time high of $8.49 per bushel on Friday in a rally sparked by the government slashing its estimate of the U.S. crop.

About 40 percent of this year's U.S. corn crop, the world's largest, will be used to produce ethanol -- more than the amount used to feed the country's livestock herds.

HIGH CORN PRICES HURT

One part of the Obama administration's plan involves the Department of Defense encouraging its vendors to speed up purchases of lamb, pork and beef to freeze for later use.

Analysts said that could pressure prices when the meat comes back to the market at a later date.

"If the Department of Defense buys product now and freezes it, it's not necessarily getting product out of the market. It could be detrimental to the market place when the product comes back at a later date," said Ryan Turner, a commodity risk consultant with brokerage INTL FC Stone.

Leon Sheets, 58, owner of Sheets Farms in Ionia, Iowa, wants a long-term solution to the problem of high feed costs.

"All extra movement of the end product through consumers is great and always helpful. But what's hurting the livestock sector right now is the high input costs; corn is around $8 per bushel and soybean meal that's $500-plus per ton, are taking away our opportunities to break even," he said.

"What would really help would be the easing of the input prices," Sheets added. (Reporting by K.T. Arasu; Editing by Dan Grebler)