09/07/08 — Producers concerned high corn prices will increase meat costs

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Producers concerned high corn prices will increase meat costs

By Anessa Myers
Published in News on September 7, 2008 11:50 AM

The rising price of corn has livestock companies in Wayne and surrounding counties concerned over how they will continue to feed the millions of hogs, turkeys and chickens their operations depend upon.

With corn currently topping $6 a bushel, mostly due to flooding in the normally corn-rich Midwest, officials with companies such as Goldsboro Milling Co. and Case Farms are facing a crisis that could wind up with consumers seeing higher meat prices at the grocery store.

Much of the corn used in feed for livestock here is not grown locally, but is shipped by rail from Indiana, Iowa and other Midwestern states. The flooding in those areas devastated the harvest there, just as the drought in the Southeast has crushed the hopes of farmers who planted more acres of corn again this year, looking to cash in on the high prices.

Wayne County growers, for instance, are looking at a crop that will likely produce only 25 percent of what was hoped for.

The demand for corn to be used as ethanol also has contributed to the shortage of grain and the high prices corn now commands.

Wayne County Extension agent Kevin Johnson said the cost of feeding poultry and swine has nearly tripled this year. Livestock producers have no alternative to corn, which forms the basis of the feed. They simply have to pay the higher prices -- and eventually pass the cost on to the meat-eating public.

Most all livestock production in the eastern part of the state is done through contract farming, meaning the company owns the animals and provides the feed. The farmer is simply the caretaker of the livestock until the animals reach slaughtering age.

"(The price of corn has been) devastating for swine and poultry industry or any livestock that you have to feed grain to," Johnson said. "The way to get the price to go up is to lessen the supply so the demand goes up. There is plenty of livestock, so the price is relatively low, but the input costs are going up. They have gone up triple."

Johnson believes local livestock companies like Goldsboro Milling, Case Farms and Smithfield are going to have to cut back production just to try to make ends meet.

"Their costs are higher, but the price of the product won't go up. So they will be losing money. It's just a vicious cycle," he said.

John Pike, director of operations at Goldsboro Milling Co., said he has watched as corn prices have shot up. He blamed much of the problem on the political push to create more ethanol as a way to reduce dependency on oil.

"Corn prices, up until the ethanol mandates were enacted by Congress in 2006, had ranged mostly in the $2 to $3.50 per bushel area. Since fall of 2006, prices have steadily climbed and are currently trading around $6 after peaking out in early summer at about $7.90," he said.

And, companies like his are already facing the loss of dollars.

"The pullback in prices has helped a little, but the livestock industries are still a few months away from being able to even cover the increases in growing costs that have occurred because of this misguided energy legislation," Pike said. "Many producers have been forced to cut production to try to curtail what has been billions of dollars in cost increases in these last two years."

The meat supply will likely dwindle, allowing livestock companies to increase prices, and "hopefully stay in business," Pike added.

And that, like Johnson said, will drive costs up for consumers at the meat counter.

"This will, unfortunately, result in at least 20 to 30 percent higher prices on most protein items in the grocery stores, and many other items as well, once the increases fully roll through," Pike said.

If the Midwestern corn crop that livestock companies rely so heavily on takes another hit next year, there could be even bigger consequences for consumers.

"It doesn't look like we have a bad crop of corn in the Midwest this year, unlike in this area. However, when that does happen, because ethanol now uses a third of all the corn produced in the U.S., there won't be enough corn in this nation to satisfy demand. Rationing will occur through prices even much higher than today," Pike said.

Goldsboro Milling Co. prefers to buy all the local corn it can, but that is typically only 60 percent of its needs, he added. And this year, the local crop let the company down.

"This is a terrible corn crop year for the state. It probably yields at about 65 to 75 bushels per acre (in the Midwest) and maybe 20-40 (bushels) around here," Pike said. "We are unsure how much local corn we will buy. The remainder will come from Indiana and Ohio on unit trains."