The floods that have ravaged the Midwest have added to the soaring price of corn and soybeans creating a severe economic hardship for livestock producers. Next, it’s consumers that will have to worry as they can almost certainly expect higher prices for meat, eggs and dairy products.
The floods engulfed an estimated 2 million or more acres of corn and soybean fields in Iowa, Indiana, Illinois and other key growing states, sending world grain prices skyward on fears of a smaller corn crop. The government will give an estimate of how many corn acres were lost before the end of the month, but experts say the trickle-down effect could be more dramatic later this year, affecting everything from Thanksgiving turkeys to Christmas hams.
Rod Brenneman, president and chief executive officer of Seaboard Foods, Mission, Kan., which produces 4 million hogs a year, said high corn costs were forcing producers in his industry to cut back on the number of animals they raise. "There's definitely liquidation of livestock happening," and that will cause meat prices to rise later this year and into 2009, said Brenneman, who is also the vice chairman of the American Meat Institute.
Brenneman estimates that the cost for feeding a single hog has shot up $30 in the past year because of record-high prices for corn and soybeans. Passing that increase on to consumers would tack an extra 15 cents per pound onto a pork chop.
It's a similar story for US beef producers, who now spend a whopping 60-70 percent of their production costs on animal feed and are seeing that number rise daily as corn prices hover near an unprecedented $8 a bushel, up from about $4 a year ago.
"This is not sustainable. The cattle industry is going to have to get smaller," said James Herring, president of Amarillo, Texas-based Friona Industries, which buys 20 million bushels of corn each year to feed 550,000 cattle.
Corn's prices have soared as much as 80 percent over the past year as developing countries compete for grains to feed people. U.S. production of ethanol, which claims around one third of the U.S. corn crop, has also contributed to the escalating price, prompting livestock owners to lobby Washington to roll back ethanol mandates.
Before the floods, corn farmers were enjoying record profits selling the grain to feed animals and for use in cereals and as a sweetener in soda and candy. But a sharply smaller corn crop could wipe out those gains.
In Iowa, the number one US corn grower, floods inundated about 1.2 million acres - almost 1.5 percent of the country's anticipated harvest. In Indiana, another 9 percent of corn and soybean crops were flooded, potentially costing farmers up to $840 million in lost earnings, Indiana Agriculture Director Andy Miller said.
Floodwaters also tossed farm equipment, released effluent and sucked away large chunks of topsoil. For livestock owners, the damage may be felt long after the corn grows back.