Why Meat Prices are Rising or the Real Cost of Energy

Why Meat Prices are Rising or the Real Cost of Energy

Many of you have asked about the costs associated with meat production, specifically the increase in our grain. As you know, we purchase all of our grain from the family owned Poulin grain company out of Vermont. They make specialized pellets for our pigs, poultry and sheep – while the components vary from species to species, they all include corn as a main part of the grain. Hence the change in the demand for corn has a significant impact on our costs as well. I thought I would provide a bit more information based on what we are learning.

Our corn prices are skyrocketing due to the demand for oil and gas in the US and in China. As we all know prices at the pump continue to rise and there seems to be no satiating the world’s energy demand. Gas and oil are finite resources. Recent advances in technology have allowed ethanol (an gas-like liquid derived from corn) to be mixed with petroleum based gas to power engines. Some engines can be driven on 100% ethanol. Currenly, most gas sold in the US contains 10% ethanol. The demand for gas is strongly affecting the demand for corn which in turn impacts livestock production in the US.

A recent UDSA repot indicates that the ethanol industry’s strong demand for corn is having a big impact on the cost of livestock and will hike the price for beef, pork and chicken. According to the USDA, ethanol production is consuming a full 20 percent of last year’s corn crop and is expected to use 25 percent of this year’s harvest driving up the price of corn. The average price of corn as I write this is $3.20 per bushel, up from $2 last year – a 62.5 percent increase!

These higher prices will reduce meat and poultry production and increase prices according to a slew of experts. As a local farmer, I am just concerned about careful monitoring of our production costs. The National Chicken Council reported that the price of corn resulted in a 40 percent increase in the cost of feeding chickens in the last three months alone.

In classic Washington- speak, the Deputy Agriculture Secretary states that the USDA is closely monitoring corn supply and demand and the result will likely force farmers to plant more of the crop. “We do have confidence in the marketplace’s ablity to react” Conner stated. “We believe that producer are seeing the market and saying ‘I need more corn, not only for ethanol, but for our feed needs in this country’.

While Conner states his faith in the farmers, the USDA continues to pay farmers NOT to grow corn. The CRP program pays landowners to take land out of production that is highly erodible or otherwise environmentally sensitive and this land is often used for hunting preserves. It is unclear whether Dick Cheney was on land formerly known as a corn field when he shot his friend last year.

While Washington is trying to figure out who is on first - here is what we know according to the Miner institute:

1. Ethanol Plants are proliferating. In December 2006 there were 110 ethanol plants with 73 more under construction and 200 additional plants in the planning stages.
2. Corn based ethonla production is expected to grow by at least 1 billion gallons each year to reach 8 to 10 BILLION gallons by 2008 -09 and 31.5 Billion gallons by 2015 comprising a full 20 percent of the US fuels consumption.
3. There will be less corn for livestock. Depending on assumptions, experts predict between 20 and 50 percent of the US corn crop will be used for ethanol production by 2008 (next year). The Center for Agriculture and Rural Development (The CARD group) predicts the cost of production for hogs to increase 31 percent.
4. Corn prices will increase. On April 4, 2007 corn futures on the Chicago Board of Trade shot up to $4.39 a bushel for May.

The demand for energy is hitting everyone. Iowan, the number 1 state for corn, hogs, eggs and now ethanol is projected to become a net importer of corn to feed both the livestock and ethanol plants. Nebraska will need to import corn if only ½ of the proposed ethanol plants come on line. Land value in the Midwest is being fueled by the ethanol industry with an average increase of 12.7 percent from 2005 to 2006 and no end in sight.

The demand for energy continues to drive all other aspects of the economy. The ethanol boom is not going away any time soon – some countries in Central and South America get up to 50% of their energy from ethanol. As farmers, we will likely see many impacts on how we do business. We have already seen a dramatic increase in crop process and will likely see shifting use in crops, different crop systems evolve and lots of opportunities for those who understand the the issues and economics driving the bio-fuel industry.

The upshot for small family farms is a continued diversification and focus on the bottom line. We compete with feedlot operations, grass-fed beef from Central and South America and hogs raised in barns where people need to don protective gear to simply enter. The economies of scale drive the lower costs of commercially raised meat. Our family-farm raised animals have happy, healthy lives. They are fed high quality grass and grain, live as nature intended and taste great!