farmgate: High Livestock Feed Costs: The Message To Congress
As Congress debated and passed a new Farm Bill, Members curtailed grain price supports because of current record high market prices. But they were also constantly reminded that the high grain prices were eroding profitability for livestock producers. In fact, the Congressional Research Service provided Members of Congress with a detailed analysis of livestock feed costs and offered suggestions for resolving the problem.
The CRS Report for Congress on Livestock Feed Costs indicating competing demands for corn and soybeans, along with higher energy costs were hitting hard at livestock producers and options were available for Congress to provide relief if desired. The impact results from the fact that 60-70% of the cost of livestock production is feed cost and that should reach a record $45 billion this year, up 18% from last year. CRS economist Geoffrey Becker says the higher prices for corn and soybeans are “a boon for farmers who grow the crops, but bane for animal producers who must buy them.” And he adds that many producers are unable to cover higher production costs.
CRS quantified the losses as $22 per head for every hog marketed between November 2007 and April of 2008. Additionally, the Livestock Marketing Information Center estimated per head cattle losses at $134 since June of last year. While high milk prices have kept the dairy industry out of the red, nearly all livestock areas are suffering from high feed costs.
Among the reasons cited by CRS in the report to Congress are:
1) A strong economic growth in developing countries like China and India, where consumers are demanding different forms of meats and high value food, and the shift means more demand for animal feeds.
2) Weather problems in Australia, Canada, European Union, Eastern Europe, and other grain producing areas have curtailed production. Additionally, the Cornbelt may have lost 3 to 5 million acres of productivity this year because of flooding.
3) The lower value of the dollar spurred exports of US feeds because their costs were much higher in other nations, with an 18% boost in export sales of corn.
4) Other factors that contributed to the problem was a high number of animals in the US which increased domestic demand; increased production costs for US grain, foreign nations curtailing exports to typical buyers, and subsidization of their own production.
One factor not among the initial reasons was the US biofuels policy, which generated nearly 6.5 billion gallons of ethanol in 2007 and is supposed to reach 9 billion gallons in 2009, with the help of a tax credit on US domestic blended ethanol and a tariff on imported ethanol. CRS says the rapidly increasing demand for corn has sparked higher corn prices, and bid them away from other users, such as the livestock industry. Those higher corn prices were estimated by former USDA Chief Economist Keith Collins at 25% to 60% due to the ethanol industry. The Food and Agricultural Policy Research Institute estimated the ethanol impact at a 20% increase in corn prices.
So what should Congress due to make life easier for the livestock producer? CRS says there are several options:
1) Domestic ethanol incentives can be reduced, despite agriculture economists who say that will not have any immediate impact on corn prices, and would be overshadowed by higher oil prices and continued production problems in other countries.
2) Return up to one-third of the 35 million acre conservation into row crop production with little environmental harm. Opponents say the loss of environmental benefits would outweigh any gains in animal agriculture.
3) Financial assistance could be distributed to livestock producers in the form of emergency agricultural aid that would help cover the high cost of feed.
4) Other options that have been mentioned include a harder push to dismantle trade distorting actions by other nations or to increase ag research investments in developing foreign nations to increase productivity.
Summary:
Livestock producers have been losing money on each head sold because of high grain prices that have destroyed budgets for feed. Causes have included a variety of issues, including trade, energy, and overall increased demand. Solutions to the problem include reduction of domestic ethanol incentives, produce more crops with the help of the CRP, and to provide financial help to producers with livestock.
How would you solve the problem, if you think there is a problem?
Posted by Stu Ellis on August 18, 2008 12:56 AM to farmgate