Anyone who had driven even a few miles in corn country by mid-summer had little doubt that this year’s corn and soybean crops would fall short of expectations. There were some exceptions, but the worst drought in 50-plus years swept across 60 percent of the United States, so only a lucky few avoided the devastation. Of course, the reprieve is only temporary if you’re a corn user.
This was supposed to be a banner crop year as the seductively warm spring started planters rolling weeks ahead of schedule. Planted acreage set records. It took a while for the crystal blue skies to become an unwelcome sight, as week after rainless week passed. We tend to view the drought as this summer’s phenomenon, but in many places it started last July, as scarce rainfall ushered in a dry fall, a winter with little snow or moisture and then that glorious early but dry spring.
Following weekly downgrades in its Crop Progress Report, USDA’s first official assessment of the 2012 crop came in August. USDA cut its 2012 corn production forecast by 13 percent to 10.778 billion bushels and dropped soybeans by 12 percent to 2.692 billion bushels. Since then, this year’s early harvest has moved along, and some farmers know all too well what kind of crop they have in hand. Suffice it to say that a hidden treasure is unlikely to surface.
As if the daily task of scanning the sky for rain clouds and watching corn leaves curl wasn’t stressful enough, awaiting you are months and months of high-priced feed and tight supplies. Both corn and soybeans will need rationing. If a 10.78 billion-bushel U.S. corn crop does materialize (and it could be less), that would be the smallest crop since 2006. Between animal agriculture and ethanol, there are a lot more corn users today.
(BF Lead-in) While corn gets all the attention, soybeans — and soybean meal —present real concerns for pork producers in 2013. Adding to the challenge is the fact that the 2012 South American crop fell dramatically short, and the world appetite for soybean-related products, especially in China, is beyond most Americans’ imagination. South America’s growing season is underway, and we’ll have to wait and see if Mother Nature’s attitude has changed.
Similar to the buildup of this year’s drought, the recovery will be slow and drawn out. Livestock and poultry producers have begun to cut herds, and that will continue for some time. After all, the feed outlook will not change substantially until mid-2013 at best.
USDA has been slow to respond to this sector but will purchase a token $170 million of pork, lamb, chicken and catfish for federal food programs to lighten the burden this fall while those sectors cut production. No word yet as to whether the Environmental Protection Agency’s director, Lisa Jackson, will lift the Renewable Fuel Standard, which requires 13.8 billion gallons of ethanol to be blended into gasoline in 2013. With agriculture groups and state governors calling for a waiver, the pressure is mounting, but that doesn’t always sway EPA. Plus the reality is that waiving the RFS may produce little more than a positive gesture. Blenders have used ethanol because it’s profitable and because it boosts the octane rating.
(BF Lead-in) Pork producers are facing record-high breakeven costs, and sow culling has begun. Sow slaughter in August was running 7 percent to 10 percent above 2011 levels, and some expect the liquidation to be even larger this fall. There are rumors of $5-per-head or even free weaned pigs available. (Free pigs can still cost you dearly.) One can expect slaughter weights to trend lighter — to the point that packers will allow.
Losses of $10 to $15 per head are projected through this year and into next. There will be herd reductions, but the actual degree is hard to measure because you don’t know if you’re hearing about the same 200 sows going to market over and over. The September Hogs & Pigs Report will provide more insight as the numbers will be collected while crop harvest realities set in. Some are estimating a breeding herd reduction of 2 percent. Complicating matters, the summer 2013 hog futures have been trading high enough to maintain some interest in the longer term, if you can ride it out.
A bitter pill is that once cooler temperatures set in and rain (and snow) returns, consumers will only reflect back on the drought of 2012 as a rough patch, but you will have to live it daily. With pork, beef, dairy, poultry and other protein sectors downsizing, food prices will rise — 3 percent, 5 percent or 8 percent, depending on who you believe. Already-high meat prices will move higher, raising the question whether your customers at home and abroad will still buy your product. Domestic consumers are more likely to have amnesia about why meat prices are so high. I read a string of comments tied to a New York Times article recently; not surprisingly the public had not grasped the farm/food situation. One person actually argued that “farmers could have saved their crops if they wanted to — they want to cash in on the high prices.” Hmmm, well you can’t sell what you don’t have.
The harsh reality for animal agriculture is there’s no middle-ground when it comes to feeding animals, and you can’t feed what doesn’t exist.