Corn remains king and livestock are the beggars. That’s the way U.S. federal farm policy has been for years and nothing has changed, based on latest moves by the Obama administration. But unlike the corn-biased support of the past, current policies are causing permanent damage to the U.S. livestock industry.
Ironies abound. Corn farmers have never felt embarrassed about living on federal subsidies. Livestock producers regard subsidies with distaste. Cattle producers in particular are proud of standing on their own feet. Trouble is, this independence has come at a growing cost. Producers have lost the battle over corn usage. In fact, they never came close to winning it.
Support for corn provided the genesis for billion of dollars of subsidies for ethanol production, subsidies that continue to this day. Farm policy has also given extensive support to other crop farmers and to the dairy sector. But very little has gone to cattle, hogs or poultry. To be fair, “cheap” corn through subsidy support helped protein producers. But that began to change in 2006 after Congress mandated certain required amounts of “alternative” fuels be produced each year. With ethanol from corn being the only viable such fuel, corn prices began to advance faster than a combine.
Fast-forward to today and corn prices are now heading towards $6 per bushel. That’s three times more than prices averaged up until 2005. Prices rallied sharply last month because USDA put out a 2010 corn crop forecast far lower than expected. Then came the Environmental Protection Agency’s decision to raise the allowable blending percentage (of alternative with conventional fuels) to 15 per cent from 10 for cars and light trucks built from 2007. Cash corn prices the second week of October were 50 per cent higher than the same week last year.
EPA’s decision was expected but it reignited the food-versus-fuel debate. But the reality is that the food industry lost this debate a long time ago. The federal government, and not just the current administration, somehow believes that supporting corn-based ethanol has minimal impact on consumer food prices. This denial is shocking enough. But even worse is that the government fails to see any relationship between its ethanol policy and the continued shrinking of the U.S. livestock industry.
Uncertainty about the future is why U.S. cattle producers continue to send their cows to town. The U.S. cattle herd will decline again this year, the 12th year of contraction in 15 years. USDA raised the “risk” factor for producers in June when it published its proposed rule on livestock and poultry marketing. Now escalating corn prices have squelched any expansion plans by either cattle or hog producers.
The federal government’s disregard for the fate of the livestock sector is staggering. It ignored the fact that the cattle feeding sector, according to the National Cattlemen’s Beef Association lost a record $7 billion in equity from December 2007 and February 2010. Economic factors negatively affected beef demand but high feed costs were a significant factor as well, says NCBA. Corn prices quadrupled between 2005 and 2008, reaching a record high of $8 per bushel. According to USDA’s Economic Research Service, feed costs in 2008 for livestock, poultry and dairy reached a record high of $45.2 billion, an increase of more than $7 billion over 2007 costs, says NCBA. Hog producers between October 2007 and March this year lost $6 billion, according to the National Pork Producers Council.
Shrinking herds mean fewer not more producers and fewer jobs throughout the livestock and meat-processing sectors. It’s inconceivable how the administration can reconcile this prospect with its avowed aim of revitalizing rural America.
Cattle Buyers Weekly covers the North American meat and livestock industry. For subscription information, contact Steve Kay at P.O. Box 2533, Petaluma, CA 94953, or at 707-765-1725, or go towww.cattlebuyersweekly.com.
A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly
The U.S. government somehow believes that supporting corn-based ethanol has minimal impact on consumer food prices