Corn went over $8 a bushel last week, and soy beans were around $17 a bushel. These are new record level prices for these commodities. This situation makes one wonder where the grain markets will end up when it’s time to harvest. I don’t see moisture conditions getting any better. At these prices, it makes me think it will be a little tougher to sell a crop. Oil might have to go to $140 for the ethanol producers to make a buck; many have already shut down operations because of these high corn prices. Cattle feeders have also backed off on what they will pay for feeder cattle.
The national news media has been all over this drought story and is now warning folks about food prices going higher next year. They have forecast beef prices to go up about 5 percent on meat products.
It looks like we might get back into the debate about corn and if it is food or fuel. Livestock producers and ethanol producers are both in a pickle if we’re looking at corn prices staying above $7 for any length of time.
For cattle producers, grass will be gold; problem is that most of it already looks like gold because many places are looking at last year’s grass, which has a golden color to it. Some areas have had some spotty rain and have made a little feed, but not much.
We have a bunch of senators and congressmen pushing harder on completing the farm bill and approving more disaster and insurance elements to the bill. Crop insurance claims will be high this year and many farmers and ranchers will be more interested in purchasing insurance for next year. I think the deadline for drought pasture insurance is the end of September, so it’s worth checking into it now to see if it’s offered in your area.
These ethanol mandates are insulting to livestock feeders. The mandates and the subsidies allowed companies to produce more ethanol than was required and then export the stuff. I’m glad to see the incentives expire on that government program, and level the playing field for livestock producers and ethanol producers. It will be a little better now that they both have to pay the same price for corn without any outside stimulus.
Part of the ethanol problem was sugar prices exploding because all the candy makers moved operations to cheaper sugar sources. All of a sudden it was cheaper to make ethanol with corn instead of sugar cane.
But, on the other hand, if ethanol production changes too much, it could create another problem with the use of dried distillers grains which cattle feeders have come to rely on. Cattle feeders would still prefer to feed steam flaked corn but $7 corn prices make that a challenge.
There are many discussions going on about alternative feed sources and getting creative. Last year, cattlemen in Texas and Oklahoma were chopping up cotton stems and using processed sugar cane, rice straw and just about everything that wasn’t highly toxic.
Some market analysts have suggested we could see $10 corn prices this next year which makes you wonder if anyone can use the product at that level. We’ve talked about beef prices getting too high and that consumers will choose other products, but at that price, any meat products will be very expensive, even chicken wings. Corn is utilized in a multitude of products and I’m sure that all food manufactures are very concerned about the impacts of higher grain prices.
Just how high can food prices go? One thing about the U.S. is that we have always had an abundance of food and plenty of fuel. In most other regions of the world, folks are used to spending up to 30 percent of their disposable income on food while in the U.S., we spend around 10 percent. If grain prices get too high, this could have serious economic impact worldwide.
At the last count, there were 1,350 counties in the U.S. that were eligible for drought aid, including low cost loans to buy feed, conditional CRP grazing options, and a variety of other programs.
I read one story where an irrigation dealer in Georgia was having his best year ever selling pivot irrigation systems. He said that producers in his area have experienced enough drought conditions over the past few years that they felt like an irrigation system would be good insurance. He is planning on over a billion dollars in sales over the next few years. As usual, when someone makes big money, it’s at the expense of someone else’s demise. — PETE CROW