The price of corn, used mostly as animal feed, has jumped to a two-year high as more of the grain is used to make ethanol, a gasoline additive. About 34 percent of the crop will be used to make the fuel in the marketing year that began Sept. 1, boosting average corn prices 25 percent to $2.71 a bushel on the Chicago Board of Trade, Hussein Allidina, a research analyst at Morgan Stanley in New York, said in the report.

U.S. beef production will rise 2.6 percent, lowering cattle prices 5.8 percent in 2007, as feedlot owners in the Great Plains and Midwest states are forced to speed up the liquidation of their herds, Allidina said.

"Faced with higher production costs, livestock producers will increase slaughter rates in an effort to contain costs, resulting in an increase in supply, sending prices lower,'' Allidina said in the report.

Average cattle futures on the Chicago Mercantile Exchange will fall to 81 cents a pound in 2007 from an estimated 86 cents in this year and a record 87 cents in 2005, Allidina said. Beef production will rise to a record 26.891 million pounds from an estimated 26.215 million this year, overwhelming packer capacity, he said.


Source: bloomberg.com