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This drought-damaged ear of corn is from a field |
IT HAS BEEN a hot,
It's not too difficult for a grain farmer to figure what the drought cost him in gross crop revenues. It is much more difficult to figure out what the drought will cost everyone, farmers included, for years to come.
We all know about the proverbial snowball rolling downhill. A shortage of one thing, in this case feed grains such as corn, wheat, barley and soybeans, will inflate prices for all feeds in which these commodities are used. We have already seen this in the past three years, as we now pay on average 20 percent more for commonly used products such as dog and cat food.
This year's drought may turn out to be among the worst in recent memory. Across the commonwealth, most counties are reporting 40 to 70 percent losses in corn yields. According to the U.S. Drought Monitor, Virginia is not as drought-stricken as some Midwestern states, especially those in the Corn Belt, where 80 percent of the area is classified as being in extreme or exceptional drought. So here we are with not enough corn to go around--and all these animals to feed. That alone will cause grain prices to rise.
However, grain-based-feed manufacturers are not the main buyers of feed grains anymore. Now there are new shoppers for corn, namely fuel distillers, and they want grain as badly as feed manufacturers. Recent federal ethanol mandates, specifically the 2007 Energy Independence and Security Act, require that every gallon of gas contain 10 percent ethanol by 2022. New "go green" incentives and demands also encourage distillers to purchase soy oil for use in biodiesel. The result is a greater demand for corn and soybeans, with a severely drought-reduced supply.
Livestock producers are already feeling the pinch of higher feed prices. Compounding the lack of grain caused by the drought are the low quantities of hay and grazing pasture. Beef producers all across the nation have been culling their herds--selling off their least productive and older cattle--because they cannot afford to feed inefficient cattle. They'll need to conserve what little hay they have for winter feeding.
This heavy stream of animals being sold in stockyards across the nation is due to show up on supermarket shelves in November and December, driving down meat prices.
But these low beef prices will not last too long. As more producers cull their herds, the beef cattle population is already beginning to decline to record low numbers. The resulting beef shortage will show up by early next year, causing a temporary spike in prices. The USDA expects beef prices to jump as much as 5 percent, making it the largest price hike for food products. Dairy products are expected to climb by as much as 4.5 percent, pork prices by 3.5 percent and chicken and egg prices by 4 percent.
Things could be worse. Other than meat, dairy and egg products, you probably won't see other food costs rise. Most vegetables at large grocery stores come from irrigated parts of the country. Some are even imported from other countries, such as peppers from Holland. There is no expected price spike for fruits and vegetables. Even grain-based foods such as bread, oatmeal and cornflakes, which are specialty grains and usually irrigated, will see a normal rise in price.
Keep in mind that the cost of corn is a very small percentage to the cost of a box of cornflakes. Manufacturing, labor, advertising and fuel costs all contribute to the price of that box of cereal.
And that brings me to the most costly aspect of the drought: fuel costs. As I noted earlier, corn will be very expensive this year. Therefore, if the government continues to require the addition of ethanol to every gallon of gas, expect fuel to be expensive. That's probably the cost that will hurt us the most. High fuel costs will force all producers and manufacturers to increase prices on all sorts of things--not just what's on the dinner table.
So perhaps the EPA will relax its mandates on ethanol use. "Congress has given EPA the authority to grant a full or partial waiver if implementation would severely harm the economy or environment of a state, region, or the entire country, or if EPA determines that there is inadequate domestic supply of renewable fuel," the EPA said in a statement. "EPA and its federal partners continue to closely monitor the drought's impacts on crop supplies"
