Corn prices soar, but cattle farmers take a hit
WORTHINGTON, Minn. — Corn prices are at their highest in a decade this fall, but it’s a double-edged sword for many Midwest farmers.
Farmers are selling corn at over $3 a bushel, a 60 percent increase from last fall that means generous profits for grain farmers. The main reason for the rise is demand for corn by the ethanol industry as companies look for alternative fuel sources.
But it’s a less rosy picture for livestock producers who often grow their own corn as feed for their animals.
Larry Liepold, a hog producer in southwestern Minnesota, said every producer is talking about it.
"We did see it coming. We’ve had these discussions for probably better than two years already," he said.
A past president of the Minnesota Pork Producers Association, Liepold grows most of the corn he feeds his hogs. In a matter of weeks, he watched as that corn went from cheap feed to high dollar energy component.
"It’d be really appealing to take the last few thousand bushels I’ve got, put it on the market and turn it into cash," he said.
But that’s a risky move, since if he sells his corn he’ll eventually have to buy more for his animals on the open market. Liepold would be betting that corn prices will retreat some in the next few months, not a sure thing.
It’s a dilemma facing many hog, chicken and turkey farmers. Liepold said the bottom line is that continued high corn prices would likely put some hog producers out of business.
"This could be a couple years down the line, it may be sooner," Liepold said. "Yeah, there could be a reduction, there could be a huge reduction."
Dermot Hayes, a researcher at Iowa State University, has studied how corn prices will affect hog production. Nearly everyone who studies the issue sees trouble ahead for livestock producers.
"There’s a general consensus that if ethanol continues to grow that there will be some displacement of livestock," Hayes said. "And there’s a consensus that in rural areas at least that that’s not a good thing to happen."
If oil stays around $60 a barrel, Hayes said, then ethanol will remain competitive with gasoline, which in turn would keep ethanol production and corn prices high.
The Iowa State study takes it one step further, envisioning a scenario where corn prices — currently about $3.25 a bushel — reach $4.
"That would cause a production cost increase to pork producers of about 30 percent," Hayes said. "Now the way that they would pass that cost increase on to U.S. consumers is to reduce their output."
The law of supply and demand would force hog prices higher as production drops. It would also raise the price of a pork chop or slab of bacon at the grocery store.
Hayes said he thinks U.S. hog and poultry production could decline as much as 15 percent to compensate for higher corn prices. That could drive many farms, especially smaller ones, out of business.
Hog producers like Larry Liepold are bracing for several years of uncertain times. For now he wants to see if predictions of a long run of high corn prices comes true.
"The same thing was said back a few years ago in 1996 when corn hit $5 for a period of time there," Liepold said. "At that time they said we’d never see below $3 again. Yeah, we’ve seen it. We’ve seen $1.50."
Liepold thinks farmers may compensate by producing more corn, which could drive prices down. Currently millions of acres of farmland are seeded to grass in various conservation programs, and Liepold expect some farmers will convert some of that back to corn production.