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Who is fooling whom?By Trent Loos I can say without one shred of doubt that the dynamics of agriculture in 2008 will be unlike anything I have witnessed in my lifetime. Land prices continue climbing like there is no end in sight. Land sale representatives foster that by telling potential buyers the world food stocks are short and 6.5 billion people need to be fed. I would assume similar logic was used in justifying unsound loans from Bear Stearns which led to its buyout by J.P. Morgan for little more than a song. The promise of $5 corn, $10 wheat and similarly high soybean prices have people thinking that they can pay $10,000 an acre for land in places like Sioux County, Iowa and it will turn out well. Maybe so, particularly if our history doesn't teach us anything. Now with that little commentary I have to say that I am troubled by something else today. I continue to see editorials popping up everywhere about the rising cost of groceries. In fact, I am greatly troubled by the very same pundits who whined about farm subsidies and now they are complaining about higher food prices. First and foremost, I do not agree with the legislative mandates that led to an increase in energy-based demand for farm crops, but I have an even bigger problem with the hypocritical, well-fed American citizens who rarely, if ever, say "thank you." Look at the following report, out this week: "Kraft and Sara Lee are in trouble because, at the end of the day, they are going to have to pay more for meat," says Ann Gilpin, a Morningstar Inc., analyst in Chicago who follows meat processors. "The ability to pass on the higher cost is limited in a very competitive industry, as consumers are increasingly sensitive to the price of food." Last year, total commodity costs rose by 9 percent, or $1.3 billion, from the previous year, according to a Kraft spokeswoman. She says the company sees "a fundamental shift" in the commodities markets. "It's likely these factors will influence input costs for the foreseeable future." They are blaming the rising cost of their products on the fact that since last fall, beef prices have risen by 6.8 percent and pork prices by 8.3 percent. Now basic economics tells us that with feed prices at unprecedented levels, shorter supplies of meat will lead to higher food prices but that hasn't happened yet. The U.S. Department of Agriculture, National Agricultural Statistics Service reports that live hogs sales are $5.60 per hundredweight lower than one year ago. That is almost 14 percent lower farm receipts than the same period last year. So instead of the revenues leading to higher commodity pork prices, just the opposite has occurred. In fact, we learn that the increased profit margin is not at the packer level but at the retail level. The beef industry also requires a closer look. Indeed, the live market beef animal has increased by $1.70 per hundredweight which is less than a 2 percent increase from one year ago--but stay tuned, it gets a little more interesting. From 2002 until 2006, the retail beef price spread from the packer to the retailer was $760 per head. For the calendar year 2007, the packer-retailer spread was $780 per head. Compare that to the current spread of $840 per head. If we take a look at the live to retail spread one year ago it was $915 per head and today in March 2008, it is $975 per head. Now it doesn't take much cowboy arithmetic to figure out that the folks who own the live cattle are not reaping the rewards of higher meat prices. In fact, since January of 2004, records indicate only 14 months of profitable cattle feeding. The sad fact is that the beef packer doesn't seem to be doing any better. The moral of the story, as it is apparent to me, is that as the live animal system continues to produce a higher quality product and we are asking more money from the consumer, the reward is not being pushed down the supply chain but it is landing squarely in the pockets of the retailers. Ironically, retailers are blaming higher meat prices on higher production costs at the farm. While it is true that higher production costs are being incurred at every level, no one dealing with live animals has yet to see any increase in revenue. At this point, the consumer is being told that higher farm prices are leading to higher food prices. The laws of supply and demand may eventually get us there but today the finger pointing is a little premature. The bottom line is that our extended period of ignorance about the importance of domestic energy production has been the cause of knee jerk reaction in mandating renewable fuels. Are we foolish enough to head down the same path with food production? Fool me once, shame on you; fool me twice, shame on me. Editor's note: Trent Loos is a sixth generation United States farmer, host of the daily radio show, Loos Tales, and founder of Faces of Agriculture, a non-profit organization putting the human element back into the production of food. Get more information at www.FacesOfAg.com, or e-mail Trent at trent@loostales.com. 3/24/08
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