Summary
An over-emphasis on ethanol has combined with a poor production year and a major speculative push on commodity prices to push livestock net returns into the red. Animal feed has long been US corn and soybeans primary source of demand, but high feed costs, with no way to push up the selling price of their products, has created a situation that will soon, if not corrected, turn into a significant liquidation of the US pork industry. To push up commodity supplies, changes need to be made now in the US CRP program rules to push up 2009 planted acres. In addition, (possibly) temporary waivers in the ethanol subsidy and or import tariff should be considered to slow the conversion of corn into ethanol, keeping those supplies available for feed, and helping to ease the price of livestock feed.
Analysis
Livestock producer are price takers, not makers, and right now, they are caught in a squeeze between ethanol escalated feed costs, without adequate price increases of their product to match the cost increases.
Pork producers are facing significant losses-per-head of production, and in an excellent example of Murphy's law, the only way for them to improve their net margins, is for them to get out....leave the business, as most producer's fixed costs won't allow them to scale down. It's pretty much all or nothing, and so most producers are faced with the situation of deciding how long they can hold out, hoping for better times.
Meat prices will go up, as soon as enough producers exit the business, and profits will return, but the US livestock industry may be permanently changed by that point, consolidated, or perhaps even relocated off-shore, where costs are lower and environmental regs are easier.
It's also not just the pork industry, as this story points out, the poultry industry is also under feed-price pressure as well. - Butterball cites ethanol policy in local job cuts
As a farmer, $7.00 corn is a great thing to sell, but as a business owner, any change or impairment of the client that buys 1/2 of the product I produce is something I need to be seriously concerned about.
In the short-term, temporary waivers on Renewable Fuels Standards and the ethanol production subsidies and import tariffs should be considered.
Longer term, changes in the CRP program to increase planted area for 2009 and beyond should be considered as well.
