Sep 16, 2011
Let the games begin

Congress typically pays little attention to agriculture but appears to all of a sudden be concerned over agriculture production after they reviewed USDA’s World Agriculture Supply Demand Estimates (WASDE). The House Ag Sub-committee on Livestock, Dairy and Poultry held a hearing to discuss CROW grain resources and other Ag production issues last week. Of course, ethanol was the center of the debate with corn used by the ethanol industry growing eight fold since 2005, accelerating after the Obama administrations renewable fuel mandate.

The WASDE report estimated the current corn crop yields to be at $148.1 bushels, five bushels lower than their August estimate which would reduce the crop by 400 million bushels and put the year’s corn crop at 12.5 billion bushels, just over last year’s production.

USDA suggested that the reduction in the corn crop will have the most dramatic affect on the livestock industry, and overall feed use is expected to be down 300 bushels next year. Much of the reduction in corn use by livestock producers will be offset with the use of more dried distillers grains, which typically benefits cattle producers but not hog and poultry producers because hogs and poultry cannot digest it.

This reduction in feed use will also show up in meat supplies in the coming year. USDA seems to think that meat protein price inflation will be in the cards for this next year. They also expect to see the ethanol industry reduce corn use by 100 million bushels, but this remains to be seen. It will likely be influenced more by oil prices than corn production.

This past year the U.S. became the largest ethanol exporter in the world, surpassing Brazil. The price of sugar has risen dramatically on the world market and it is now less expensive to produce ethanol with corn rather than sugar. This seems to add insult to injury for the food/fuel debate and ethanol subsidies.

The corn market is a double edge sword for many in agriculture. If you’re farming, you’re enjoying the best gross revenues ever in corn growing history. However, if you’re a livestock feeder, you’re faced with expensive production costs and what looks like a lasting impact on livestock production systems. As if the dry hot weather has not imposed enough tough conditions for much of agriculture in many areas. Everyone needs rain and moisture at the end of the day.

Cattle feeders have seen the price of fed cattle advance sharply in the past two weeks with the October futures contract well over $120 last week. This has pulled the cash market with it which reported trade at $117-$118 for the week. Supporting live cattle prices was the boxed beef cutout, which has moved up to $185 mid-week, shoring up the price packers will pay for those fed cattle.

Ironically, $120 cash fed cattle may not be enough with many pens of cattle needing $125-128 to break even. The price of corn seems to have settled down a bit after the WASDE report came out early last week. Corn yields were anticipated to go lower, and did, but corn prices actually came down in the wake of the report. December corn was just over $7 last week.

Also in the news was a hearing in the house committee on oversight and government reform on excessive regulations. It appears that is getting some real traction in D.C. During the hearing, Congressman Darrell Issa, R-CA used USDA’s GIPSA proposed rule as an example of an excessive and intrusive regulation. Colorado rancher Robbie LeValley delivered testimony regarding the proposed regulation.

Sources also tell us that the Administrator of Regulatory Affairs at the Office of Budget and Management, Cass Sunstien testified about the intrusive regulations, again using the proposed GIPSA rule which was initiated by Packers and Stockyards administrator, Dudley Butler. Ironically, Sunstein said he had no idea who Mr. Butler even was, but did admit that a regulation of this magnitude would require an economic impact statement. It is becoming very clear that Butler has taken it upon himself to push this intrusive regulation through the system and exceed his authority.

The government regulatory assault of the Obama administration becomes very obvious when you realize that employment at government regulatory agencies has risen 13 percent since president Obama took office. Apparently they are on track to add 10,000 more government regulatory jobs in 2011 and 2012 to cover the more than 1,800 new regulations in place, not to mention the ones that are still being considered. EPA alone has more than 300. This assault has to stop. —Pete Crow