Just like the 1897 report of Mark Twain’s death, stories of a bacon shortage in the year ahead are an exaggeration. What isn’t, however, is that consumers will likely pay more for pork next year because of projected lower hog supplies, a condition driven by this year’s severe drought and U.S. energy policy.
According to USDA’s latest hogs and pigs report, the U.S. sow herd dropped by 74,000 head from June 1 to Sept. 1, resulting in projected lower hog supplies for the last quarter of 2012 and the first three of 2013.
There also are reports that producers are sending hogs to market at lower weights and that some have gone, or will go, out of business. Both factors are likely to lead to a decrease in pork production.
All of that means, if pork demand holds to current levels, consumers will face higher prices for bacon in grocery stores by this time next year.
But what has prompted those production cuts?
It’s clear that the rising price of feed, which comprises up to 70 percent of the cost of raising a hog to market weight, has had a negative effect on U.S. pork producers. In fact — as of this writing — pork production costs for the year are nearly $91 per hundredweight (carcass), which is up from 2011’s level of $86.70. That had the average pork producer losing more than $27 a head in September, according to Paragon Economics of Adel, Iowa.
Everyone, including the soccer mom who could be staring at a much more expensive pound of bacon and higher prices for other foods next year, knows that the worst drought in more than 50 years severely affected this year’s corn crop. Indeed, USDA’s Oct. 11 crop report estimated just 10.7 billion bushels of corn will be harvested, down from the spring forecast of 14.8 billion bushels. (In 2011, 14.3 billion bushels were harvested.)
While the soybean crop, estimated at 2.86 billion bushels on Oct. 11, gained a few bushels from September’s projection, it is well short of 2011’s 3.06 billion bushel crop. Meanwhile, the global soybean supply is tight and the appetite is robust.
This year’s smaller harvest has pushed corn prices from the mid-$6-per-bushel range in 2011 to the mid-$7 range this year, with predictions of even higher prices next year.
There’s not much producers — or anyone else — can do about the drought, but something can be done about a federal law that has been putting steady upward pressure on corn prices for the past five years and raising pork producers’ costs of production.
The federal Renewable Fuel Standard requires ethanol producers to blend a certain amount of ethanol into gasoline annually. This year, 13.2 billion gallons of corn ethanol must be added; next year, 13.9 billion gallons must be blended.
The RFS was first enacted in 2005 as part of the Energy Policy Act and was amended — the annual biofuels production mandates were increased — under the Energy Independence and Security Act of 2007. It was around those times that we saw a rapid expansion of the ethanol industry, with more and more corn being diverted from feeding livestock and poultry to producing the gasoline additive.
The problem with the RFS mandate is that it must be met regardless of how much corn is available. With this year’s expected small harvest, the ethanol industry could use nearly 45 percent of this year’s corn crop. (Under USDA’s spring corn crop forecast, ethanol producers would have used just 32 percent.) That means other corn users, including livestock and poultry farmers, could be hard-pressed to obtain supplies at any cost. It also means consumers will likely be paying higher prices for products that use corn. In fact, USDA and the Federal Reserve have estimated food inflation to run 4 percent to 5 percent next year.
Don’t get me wrong, pork producers like me support the development and use of renewable fuels, including ethanol, as a way to reduce our dependence on foreign oil, but we need to balance our food and fuel needs.
Given the severe drought that most of the nation’s breadbasket suffered this summer and the adverse effect that drought had on crops, America’s livestock and poultry farmers have been looking for a little relief.
That’s why this summer the National Pork Producers Council and other livestock and poultry organizations, seven governors, 34 U.S. senators and 156 U.S. House members petitioned the U.S. Environmental Protection Agency for a one-year waiver of the RFS. (EPA is expected to decide by Nov. 13 on the petitions.)
As Colin Carter, professor of agricultural and resource economics at the University of California-Davis, and Henry Miller, a fellow at the Hoover Institution, pointed out in a New York Times op-ed: “Reducing the renewable-fuel standard by a mere 20 percent — equivalent to about a billion bushels of corn — would offset nearly half of the expected crop loss due to the drought.”
Iowa State University economist Bruce Babcock estimates a waiver of the RFS could reduce corn costs by 7.4 percent, and Purdue University economist Chris Hurt estimates a drop of 5.6 percent. Those may not seem like huge decreases, but as Babcock notes, “the impact does not have to be major to be economically important to hog producers.”
Congress gave EPA authority to waive the RFS requirement in part or in whole if the agency’s administrator determined that it “would severely harm the economy or environment of a state, a region or the United States.”
America’s livestock and poultry farmers believe that, given the devastation wrought on much of the nation’s cropland by the worst drought in half a century, to require so much corn for fuel instead of food qualifies the RFS as doing severe economic harm.
But regardless of EPA’s decision, pork producers, who have dealt with escalating feed-grain costs and price volatility over the past five years, are beginning to question the efficacy of a federal policy that mandates we burn such a large share of a key component for food production.
Is it time to require the ethanol industry to stand on its own? Is it time to scrap the RFS?
Whatever the answers are to those questions, we cannot — as we said in these pages more than five years ago — jeopardize the nation’s food security and sacrifice the livestock industry for a product that accounts for only a small percentage of the nation’s oil needs. We need to strike a balance that benefits all segments of the economy.
Or we could wait until that bacon shortage is no exaggeration.
Ethanol Driving Production Costs Higher?
The Renewable Fuel Standard was first enacted in 2005 and expanded in 2007. Notice the trendline for pork production costs. While no one can control weather patterns or a drought, the RFS mandate has added to the pressure this year.