AmericanFarm.com

Agriculture industries bracing for after-effects

By BRUCE HOTCHKISS
Senior Editor

The continuing drought and record-breaking heat which has ravaged the Midwestern Corn Belt and scalded isolated areas of the Mid-Atlantic will test the resiliency of the livestock and poultry industries and reach deep into the pockets of American consumers.
That’s the unforgiving assessment of commodity analysts and ag economists of the worst drought to strike this nation’s heartland since 1956 and now officially listed as a national disaster.
The headlines read: “USDA says corn crop deteriorating” and “Forecasts show U.S. drought getting worse.”
The USDA already has named 1,016 counties in 26 states natural-disaster areas, the agency’s biggest such declaration ever. Many farmers, who have lost all hope for their crop, are cutting down the stalks and baling them as silage.
And experts are telling consumers: Tighten your belts.
The price of food is going to skyrocket.
Everything from hamburgers to chicken sandwiches to milk and corn flakes is going to go up. And up.
And it all happened like a blowtorch hitting a flower.
The year started with high expectations.
The USDA was predicting a record crop. Spring came early, and wet.
Farmers planted 96 million acres in corn, up from 91 million the year before.
They would harvest some 14 billion bushels, putting an estimated 166 bushels an acre into the combine, the USDA said with confidence. Corn was selling in the neighborhood of  $5 a bushel.
A Virginia grower, in the Shenandoah Valley, said, “I had the best corn I had ever seen.”
Then came the blowtorch.
The USDA estimated that 60 percent of the corn crop in  the Midwest has been damaged and has dropped its  yield average  estimate to 146 bushels. Many believe it will go much lower than that.
What are the reverberations of all of this?
“In just three weeks, the entire tone of the (poultry) industry has changed,” said Matt Hamilton, senior sales manager for Allen Harim Foods LLC in Seaford, Del. “It’s scary.”
There has been what he called “a fundamental change in the (poultry) production model.”
In the early years of this century, farmers were getting anywhere from $2.10 to $3.10 a bushel for corn. In the last five years, the price has risen slowly to a little over $5.  Last week, December corn, including basis, was over $8.
“We (the poultry industry) are overproduced at $8 corn,” said Hamilton. He said the industry formerly could send a broiler out of the plant for a cost of about 50 cents. Today what he called the “meat cost’ is 73 cents and the “plant cost” somewhere between 17 and 22 cents, bringing the total production cost  to just shy of a dollar.
There are no easy answers. “It is not pretty at all,” Hamilton said. “There is no way to attack the situation.”
The nation’s cattlemen also are on alert.
“This is going to be a beef issue as well as a pork and poultry issue. We’re all sitting here with short breath watching the soybean and corn crops develop this year,” said Michael Miller, senior vice president of global research for the Denver-based National Cattlemen’s Beef Association.
Miller, according to a story in the Ft. Worth (Texas) Star-Telegram, reported that cattlemen were encouraged by this year’s huge corn planting  because it anticipated growing demand in an improving U.S. economy and from big developing countries such as China.
That led cattlemen to expect corn prices in the range of $5 a bushel. Instead, corn was selling at around $7.50 a bushel.
“That’s a 50 percent increase, based on their expectations,” said Miller, noting that it adds $75-$80 per head of cattle in production costs, which in turn could lead to an increase of as much as 6 percent when reaching consumers.
And that’s if the drought doesn’t get considerably worse, he said.
The drought underscores the need — indeed the necessity —  for crop insurance, ag officials are saying.
A drought specialist with the national weather service recently compared the drought and heat wave across the Southern Plains and the Midwest with the catastrophic dry period of 1988 that, at the time, cost agriculture $78 billion.
“The farmers who suffer crop losses from this drought, or any other covered peril, can rest assured that crop insurance indemnities will be paid timely,” said Tom Zacharias, president of National Crop Insurance Services.