Driving County Roads

An on line journal sharing my views. The content reflects my background as a rural person employed in agriculture and as a retired elected official of local government.

Saturday, May 19, 2007

Higher Priced Corn does not equate with higher priced meat

Even though we are paying more for corn today, it has little effect on the price of meat to the consumer. I can share a true picture of how the price of corn affects the cost of meat for the consumer. We raise hogs and sell them at a weight of 265 pounds. A 265 pound live weight hog will produce about 200 pounds after slaughter. Since hogs are good converters of feed to meat, (2.5 pounds of feed to create 1 pound of meat); this hog ate 662.5 pounds of feed. The key word here is feed. One must remember that the feed ration for hogs is more than corn. The ration we use is 65% corn. (The ration also contains DDG's, but I am not including this in the analysis.) We used 431 pounds of corn ((.65 X 662.5= 431 pounds) to grow the 265 pound hog. A bushel of corn weighs 56 pounds so we used 7.7 bushels of corn to grow the hog.

Historically, corn has been priced under $2.00 per bushel. For this analysis, I will take the price we paid for corn in August 2006. At that time it was $1.80 per bushel. So last August, it cost us $13.86 to raise the hog and the value of the corn in a pound of carcass was 7 cents. On May 4, the corn price was $3.43 per bushel putting our new cost at $26.41 and the value of corn in a pound of carcass would be 13 cents.

If the cost increase to raise a hog created by the higher corn price is carried forward to the consumer, the increase in the price of pork would be 6 cents a pound or 1.5 cents per four ounce serving. This is a big if. The retail markets usually do not react in a rational way. In fact, history tells us, the prices of corn and the price of retail meat have been decoupled. Looking at the years 2001-2005 shows a couple of years when the price of corn went down and the price of beef and pork went up.

Renewable fuels like ethanol and biodiesel are all the buzz and have been "sweetheart subjects" of the print media, newscasts, and forums. No politician worth their salt at any level of government has made a speech that did not include a reference to ethanol and biodiesel. As with all new technologies, after the first excitement, the nay sayers come out of the woodwork. The latest news flashes have been in reference to a perception that using farm commodities for fuel will deprive people of a food source and furthermore the food that is available will be subject to a huge price increase. These perceptions are a world apart from the reality of the situation.

There will be no shortage of corn. According to the USDA the U.S. corn farmers have continually increased corn production from 1988 to now. In 2005, there was a 2 million bushel surplus after all demands were met. Farmers have produced more corn from fewer acres. They have done this by increasing yields.

While use of corn for ethanol has increased, the traditional uses for corn (beef, poultry, swine, and dairy feed) as well as other uses have remained static for the past decade. Field corn used for human consumption is a very, very small fraction of the total corn crop. The plain truth is that the overwhelming majority of corn produced in the United States, including the corn that is exported is fed to livestock, not to humans. The end of the story is that the marketplace will even out once the ethanol industry becomes more stabilized. end

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