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New Video's 03/13/2012
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Should the livestock industry receive a government safety net?
By Ken Root "No," if you don't want to read any further. The price support system that has given livestock producers cheap grain for fifty years should not be expanded to cover their production losses. I am sure there is pain in livestock operations where the price of feed has been run up without a corresponding increase in wholesale meat prices. However, once you start down the path of producing for the government, it will be tough to break away. For cattle and hog feeders, it's always been an art of balancing supply with demand and the challenge has not changed. We are incapable of predicting the future with any degree of accuracy; otherwise, we'd all be rich now from the actions of the futures market. In 2005, wheat farmers didn't know that a worldwide shortage would trigger a major run-up in prices that would tie in with a sharp increase in demand for corn based ethanol in 2006 and reduce soybean acres in 2007. The assumption was that these prices would spike and fall back to normal levels. Contrary to events of 1988 and 1996, the uptrend continued and wheat on the Minneapolis exchange crossed ten dollars last week, with Chicago corn futures above four dollars and soybeans above eleven. A word about supply and demand, for those of you who rejected the concept in times of surplus. When the marketplace is uncertain about supply, it bids up prices. It only takes a small increment of change for the buyers to go from complacent to concerned and only a small amount more to move from perplexed to panicked. We exported more wheat at its highs in this marketing year, than at its lows in previous cycles. Grain prices are now high, relative to livestock prices, but a part of this is due to the sharp increase in the supply of pork on the market. Hog slaughter is running at record levels and prices could be as low as 1998, if it weren't for worldwide demand. The pork industry broke through a production barrier last year with a new circo-virus vaccination, that an Iowa feed salesman says is adding one pig per litter and ten pounds per pig. The vertically integrated swine industry had maintained a balance of supply and demand, resulting in profitability for over three years, until this increase tipped them into overproduction and lower prices. The cattle feeders (bless their hearts) still think they have to keep the pens full or surrender their manhood. If the formula for the price of feeders and cost of gain doesn't work going in, how can it work coming out? I now have an Iowa bias, but it appears the cattle feeders that are using the byproducts of the ethanol plants are keeping their costs down and making money. Technology may move the industry back to cold country, as agriculture engineers are designing small (up to 2,500 head) covered feedlots that meet environmental regulations and the owners have the choice of feeding their own corn and soybeans to cattle or letting the lot stand empty and selling the grain. The pork industry is also feeding a small portion of ethanol byproducts and, by volume, actually using more than the cattle feeders. Now, all this goes against the "God given right to feed livestock whenever and wherever I want." That right remains, as long as you can find a way to make a profit doing so. The livestock industry moved away from crop and forage production because of confidence that those supplies would be economically produced by others. At this point, that conclusion appears to be wrong. Whether mixed enterprise (livestock and grain) operations re-emerge will be determined by the length of time that prices stay out of kilter and whether grain operations want to invest their profits in livestock facilities, increase their workload and add labor to their farms. It is possible that large livestock operations may choose to develop captive supplies of feedstock, but that may be difficult with worldwide buyers bidding for the same grain. Since the run-up in grain prices, the pork, poultry and cattle sectors have been screaming that subsidizing ethanol is unfair because it causes higher prices for feed ingredients. I never heard the grain sector screaming that subsidizing their overproduction was making money for the livestock feeders. Livestock, fattened on grain, is a downstream industry and, good or bad, you get what floats to you. If there is any truism in agriculture, it is that grain farmers will overproduce. This year, they grew over 13 billion bushels of corn and almost 3 billion bushels of soybeans. Next year, the price structure appears that they will grow more acres of soybeans and less of corn, but the yields per acre continue to increase. Wheat farmers--weather permitting--will flood the marketplace with grain and cut their prices in half. For the livestock producer, who is submerged in red ink, I feel for you, but if you succeed in your plea to get the government to throw you a lifeline, you won't be able to turn loose of it. It's best to keep your grain growing brethren tied to the subsidy program that causes an attempt at overproduction every year. Try to practice restraint in your pastures and pig pens, to find profit in the marketplace. Editor's note: Ken Root is now celebrating his 34th year as an agricultural professional. His career began as a vocational agriculture teacher, then turned to agricultural broadcasting and writing, as well as environmental consulting and association management. He was the original host of AgriTalk (1994-2001) and now is lead farm broadcaster for WHO Radio in Des Moines, Iowa. Date: 12/13/07
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