Straight from the Horses Mouth

Duane A. Lienemann,

UNL Extension Educator,

Webster County January 14, 2011 Edition I had a unique opportunity to sit in the local co-op Wednesday morning to listen to the final 2010 US Crop Production report, along with the latest Grain Stocks & World Ag Supply/Demand reports – all released on January 12. Not only were the rolls and coffee good, it was fun listening to the farmers around the room talking about the possible scenarios and where they think things will end up. I thought I would expound on what I heard and what I think may be in our future. One thing that resonated with me is that the report showed that corn yields were 5 percent lower than the 2009 harvest; stocks of corn in elevators and farmers' storage bins is 8 percent lower than in November; and estimated US corn supplies for 2010-11 market year down 10%, the lowest since 1996. It also showed world-wide corn supplies at a 7 year low. As a result, corn for March delivery reached a two-year high of $6.35/bu. on the CBT. Soybeans, also hit with a lower-than-expected supply report, soared to $14.17/bu. on the CBT. With this bullish report, the markets look to stay relatively strong for grains for what I think will be a long future. But what affect does this have on livestock markets and food? What was interesting to me is that it wasn’t just grain markets that took off. Live cattle for March delivery went up to $110.20, and feeder cattle, those headed for feedlots for final fattening, climbed to $126.45, which as I understand it, is an all-time record. To round out the commodities grand slam for agriculture - hogs for February delivery matched the increase in cattle by taking them up to $81.12. How many of you have seen the rare occurrence of grain and livestock prices running parallel rather than in opposition directions? We're in the twilight zone with these prices and the fact that grain and livestock are going up at the same time. What a difference a couple of years can make. Hog and cattle producers will reportedly gain $6 billion to $8 billion in cash receipts from sales and it looks like they will enjoy their first profitable year at the end of 2010 after three consecutive years of losses. Although cattle and hog prices are up this year, I think that consumers have yet to feel the full force of the increases. Choice steak, for instance, on the average sells for 7 percent more at the supermarket counter than it did a year ago, although cattle prices are up 25 percent. While hog prices have risen 30 percent in the last year, ham and pork chop prices have risen by 7 to 10 percent, according to figures from the U.S. Department of Labor. That is a big surprise to me, as it usually works the other way around. But there is no doubt in my mind that meat will become more expensive in 2011. I am certain we will now hear consumer alerts about raising fears about crop shortages and higher food prices. The price of retail pork and beef is going to have to go up. You're going to feel that at the grocery store as a consumer. There are a lot of factors that are contributing or will contribute. For instance, right now beef demand is partially being driven by flooding in Australia, which is likely to cause Asia to increase its imports of U.S. beef that are already running about 25 percent ahead of last year. We sometimes forget that we live in a global economy and that should not be lost on us as consumers and as producers. The high grain and livestock prices may be welcome for all of our producers and the state's economy, but farmers have learned that they can also bring political problems. I remember, as do most farmers and ag lenders I am sure, that the brief surge in corn prices above $7 per bushel in 2008 stimulated the "food vs. fuel" debate that continues to haunt the ethanol industry to this very day. While the United States and the world so far has avoided “food inflation”, the United Nations warned last week that high commodity prices raise the possibility of food riots in developing nations this year, where food costs can account for up to 80 percent of a typical household's income. Don’t think for a moment that won’t have an effect on us in the long run. In reading market reports and some trader blogs it seems that some traders expect corn to eventually push toward the record $8 per bushel achieved briefly in mid-2008. As most of you remember, prices that year fell back quickly, but not before wreaking hardship on livestock and ethanol producers. There are a lot of factors, including global in nature that will likely drive the price of grains higher. Many experts suggest that the United States has just a 20-day supply of corn available for ethanol, livestock feed and other uses. If that really is the case the market will have to ration corn use, and that means higher prices. It also looks like soybeans are going to be short so expect the same there. It could well be that the days of cheap food in America are coming to an end. The recent unprecedented rise that we have seen in agricultural commodity prices is showing no signs of letting up. It is just not grains and livestock. At the same time that corn futures reached a new 29-month high, and soybean futures reached a new 27-month high, in the past few days, sugar futures reached a new 30-year high, coffee futures reached a new 13-year high, orange juice futures reached a new 3-year high. We will see a spike in the price of all food coupled with the rise in energy/transportation costs. Ag economists estimate that it takes as long as six months for rising agricultural commodity prices to be felt by U.S. consumers in their local supermarket. Even if food producers and retailers accept substantially lower profit margins in 2011, we will likely see double-digit food price inflation across the board in the US, possibly even in the first half of the year. We have never really worried about inflation in the food production sector. I think we are going to see a new chapter in agriculture being written right in front of our eyes. Who is going to get the blame? Are you ready for a wild ride? The preceding information comes from the research and personal observations of the writer which may or may not reflect the views of UNL or UNL Extension. For more further information on these or other topics contact D. A. Lienemann, UNL Extension Educator for Webster County in Red Cloud, (402) 746-3417 or email to: dlienemann2@unl.edu or go to the website at: www.webster.unl.edu/home