September 11, 2002
The monthly report of prices received by farmers has become
so uninteresting that few business outlets even report the results any more.
After all, production of 11 billion bushels of corn and 3 billion bushels
of soybeans no longer seems to be a monumental achievement.
Indeed, the surface reading of the latest report remains
placid enough. Farm prices rose 1
percent in August as prices for grains and lettuce rose more than prices for
hogs, broilers and some fruits declined. The
8.2 percent drop in farm prices during the past year is large, but the recently
enacted farm bill will ensure that farm incomes will be strong even if deficit
spending must rise in the agriculture department.
So why was I startled when I read this report?
As an observer of price changes for the past three decades, I know that
grain prices fall as the new harvest is about to be reaped.
The only exception is when something is wrong with farm production.
Are the rising grain prices saying that we have production
problems on the farm? Large parts
of Southeast agriculture are
struggling this year as a five year drought appears to be intensifying?.
But much as we wish it were different, grain prices are not
dictated by Southeast production. Those
open plains from Ohio to the foothills of Colorado are where U.S. grain
production is made and they have been unusually productive in recent years.
Not this year. Rains
have been unusually heavy in Texas and some southern plains (although cotton is
more important there). Drought has
been severe in the western Mississippi basin.
As a result, estimates of grain production are plunging.
A weakening dollar also has changed the export of our
agriculture products. When the
dollar was at record levels early this year, the U.S. was the grain supplier of
last resort. With the dollar down
15 percent against the euro since April, U.S. grains are selling more briskly
abroad. Thus, the stuffed granaries
are emptying at a relatively rapid rate.
Which takes us to the second part of the farm price report.
Prices of hogs and broilers are falling, and dairy and cattle prices also
have been sharply lower this year. Some
of this price weakness even surfaced with the meat specials at our local
grocers. My freezer is stuffed with one dollar per pound boneless
Do these declining livestock prices reflect more plenty or
the beginning of herd reductions in the face of rising feed costs?
If you guessed the latter, you would be right.
Of course, production elsewhere in the world could
compensate for U.S. production problems. However,
the floods in Europe suggest that ideal weather has not visited them either.
Chinese production should be solid but their continued conversion to
higher protein in their diets means that their increased production will be
exhausted by internal needs.
In short, livestock raisers are beginning to prepare for
the first significant increase in feed costs in several years.
A mild winter still could reduce feed needs, but few livestock raisers
want to make that bet.
Of course, some of the reduction in livestock raising
reflects shifts in our own diets. Protein
has been slowly squeezed from our household menus.
That is why livestock is responding so quickly to forecasts of higher
feed costs. A weak economy,
unfavorable long term trends, and higher costs are too many problems to work
through without changing production.
Next year, do not look for dollar specials on chicken
breasts. Do not expect the in store
cheese and milk promotions that have peppered this year's grocery shopping.
Certainly, farm prices will not plunge another 8 percent.
Instead, a rebound by 8 percent or more is possible.
Furthermore, much of the price gain will be in meat
products. Processing and
distribution will prevent most of these price pressures from surfacing at the
grocer's. However, some food price
increases are inevitable.
This will be a change from recent experience.
In the past year, food prices paid by consumers rose 1.4 percent, about
the same as the overall consumer price index.
In the past three months, food prices have actually declined slightly.
Further modest changes are likely well into the fall.
Next spring, however, the hog, broiler, and cattle
production will be down. Depending
upon winter kill, meat and dairy prices could rise sharply.
Thus, this especially quiet period of food price changes may soon be
coming to an end.
Perhaps the business pages will discover that the farm economy cannot continue to be ignored.