Economics: Grain Prices Raising Poultry Production Costs

You already have heard about inflation rearing its ugly head and high fuel prices. This may be poor timing to explain the following, but here is my attempt at explaining our poultry and beef price increases.

In many farming publications and farming circles there is huge amount of truth deflecting, distortion laden propaganda regarding ethanol’s impact on food prices. Who are “they” trying to fool?!

Okay, let’s get this straight: economics 101 suggests when there is a shortage of something in demand; prices go up to encourage production increase to satisfy demand. In 2008, during the last run-up in energy/food prices, ethanol production consumed 30% of the US corn crop. Now it is up to 40% and still climbing! With this increased demand for corn, prices for corn rise to encourage production to meet this demand. Many farmers shift acres originally intended for other crops to corn because of the higher price for corn. But wait, if there are less acres of other crops, then prices for those crops (i.e. hay, oats, pasture) go up too, but just not quite as high relative to the corn price – which is indirectly subsidized by the government through the ethanol subsidy. Not only does the expensive corn raise the cost to produce a hog or chicken, grain farmers take this padded income from higher grain prices and bid it into higher land purchase or rental prices. Even though I am growing grass on the land I farm I still have to be able to economically compete against a “well-healed” corn farmer. Indirectly, it is our US government picking the winners and losers by setting up the rules with feel-good subsides cunningly sold to our fellow American citizens in the name of “save the farmers” and “energy security”. In the end, there are only a few winners and then there are the rest of us who pay taxes to pay for the subsidies and when we pay for higher priced food. This isn’t rocket science economics and I sure most of us can understand this. Leave it to a PhD propaganda spewing, bought and paid-for economist, to tell you the reason for higher food prices has to do with China’s booming economy, Japan’s earthquake, Russia’s drought – everything BUT subsidized ethanol. I guarantee you that if ethanol demand suddenly dropped off the cliff, corn prices would hit rock bottom before ethanol demand. I’m so glad that you and I still have brains and can think and not have to have someone do the thinking for us. Granted, there are many tangents to this topic, but the point I wish to make is significant demand for ethanol IS a major reason for increase food prices.

One of the financially astute leaders in the grass-fed industry is keenly aware that there is little margin left for producers and retailers to absorb the increase wholesale food prices and distribution costs. Up to this point, consumers have not felt the full impact of the inflation bump. Unfortunately they are nearly out of margin and prices will have to rise.

Beef is expensive and is going to go higher. This winter we raised the prices on our beef products to account for recent and forecast production costs. My industry leader friends say “consumers need to realize the upcoming higher beef prices are the long-term costs of 60 years of government grain price subsidization. The basic rule of economics is that you get more of what you subsidize (grain acres) and less of what you tax (pasture acres). “

For the record, Farmer Mark, as a generalization, is in opposition to our government interfering with markets through subsidies. I will also say that I do grudgingly accept government subsidies and assistance through various farm related programs. Unfortunately I am not in a position to play the same game by my rules. These are the economic rules of the game that our elected representatives thought were “good” and sold to us. After seeing the waste in some of these programs, admittedly even on my own farm, I have become an even more firm believer that individual persons are better equipped with the judgment to spend their hard-earned dollars wiser than other people or agencies, and collectively we would have better results and a better, stronger country.

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One Response to Economics: Grain Prices Raising Poultry Production Costs

  1. Ellen says:

    Thanks for the explanation. I have noticed that corn-fed beef steak is up to $10-12/lb at my grocery store. I wonder if the pricing is up on corn fed beef because of ethanol too. While grass-fed meat used to be considered a “premium” good, the prices are now about the same. You might as well buy the grass-fed meat.

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