What is in this article?:
- Some well regarded economists contend $20 a bushel soybeans and $10 a bushel corn and wheat are not only possible, but likely for this year and beyond.
- But are such high grain prices really good for any of us?
Corn that went into the ground in May for a projected return of $5 a bushel, went into the combine worth more than $8 a bushel, if the grower bypassed a lucrative futures market at planting time or before.
Not an ideal ethanol source
Though there is some level of agreement among all parties involved that ethanol from corn is not the ideal source of renewable energy, corn growers have been quick to step up production to meet their part of the mandate.
The same congressional act calls for a higher percentage of fuel to come from cellulosic sources. So far, virtually no ethanol is being produced from any source other than corn in the U.S.
There is no doubt the livestock industry is being hard hit by the high price of grain — none harder than the huge poultry industry in the Southeast.
In a plea for help, Georgia Governor Nathan Deal, citing a study by the University of Georgia, complained recently that rising corn prices are costing chicken farmers in his state an extra $1.4 million a day.
In a letter to EPA administrator Lisa Jackson, the Georgia governor contends, “these additional input costs are not sustainable.”
The clock is now ticking on the government’s response to the petition from Governors Perdue and Beebe and will soon begin ticking on the late August petitions from Governors Deal, Perry and McDonnell.
The EPA has acknowledged receipt of the waiver petitions from the governors. Once that acknowledgment is formally published in the Federal Register, which happened in late August, the clock on the 30-day public comment period began to tick.
Publication also begins the clock on the 90-day window in which the EPA must rule on the petition request. Back of the envelope math puts that date sometime in the middle of November — after the U.S. presidential election.
The Renewable Fuels Association (RFA) contends the petition is an illogical attempt by politicians to help their constituents.
“While the drought has reduced the size of this year's national corn crop, USDA says it will still be the eighth-largest in U.S. history.
“Moreover, this year's world corn crop will be the second-largest ever, trailing only last year's record,” says Matt Hartwig, director of communications for the Renewable Fuels Association.
Hartwig points out that the ethanol industry also produces animal feed. In the ethanol production process one-third of every bushel used is returned to the feed market as high-protein feed, commonly called DDG or distillers dry grain.
University of Kentucky Agricultural Economist Will Snell says politicians may be too liberal with their use of numbers to describe the impact of the ongoing food versus feed versus fuel controversy.
Overall, only about 15 cents out of every dollar consumers spend on food can be attributed to the value of farm products. Packaging, storage, transportation, labor, profits, among other non-farm items comprise 85 percent of what we pay in the grocery stores for our food, Snell says.
“Actually in the short-run, we could see meat prices decline or at least stabilize due to the drought forcing herd liquidations and thus inducing higher short-term meat supplies,” he adds.
As livestock inventories shrink, future meat supplies will be lower, pushing meat prices higher this winter and in early 2013.
The USDA is projecting meat prices to increase 3.5-4.5 percent and food prices overall to increase by 2.5-3.5 percent in 2012. Most consumers would likely be surprised to know that is only a 1 percent greater increase than has occurred over the past decade or so.
There is no minor surgery when it’s happening to you. Likewise, there is no minor blip in the global production of grain or livestock, if that blip is happening on your farm.
It’s likely in the short-term ethanol manufacturers and livestock producers will come to some middle ground, but same comfort zone for sustainable grain prices may be tougher to come by.