Corn Belt woes dash optimism about feed prices


Issue Date: July 18, 2012
By Ching Lee

Sweltering temperatures and severely dry conditions in the nation's Corn Belt have withered the hopes of livestock farmers looking for relief from high feed prices.

Their prospects looked positive at the start. Farmers had planted the largest U.S. corn crop since 1937, with 96.4 million acres, according to the U.S. Department of Agriculture. Warm temperatures this spring also allowed them to plant earlier, which would help yields. But those crops are now languishing in what could be the worst drought in the Midwest and Central Plains in nearly 25 years, said Joel Karlin, a market analyst for Western Milling in Goshen.

"We know the optimism earlier in the year has completely faded," he said. "We're now looking at a below-average crop. The question is just how much below."

July is a critical time for corn because the plants are either entering pollination or have passed that stage, Karlin noted, and continued high temperatures and sparse rainfall could cause significant crop losses.

As of July 1, 45 percent of the nation's corn crop was reported in good to excellent condition, according to USDA. That's compared to 72 percent last month and 69 percent from the same time last year. The soybean crop is similarly stressed, with 45 percent in good to excellent condition compared to 65 percent in June and 66 percent from the same period in 2011.

Soybean prices have soared about 75 percent from a year ago, after a drought ravaged South American crops, tightening world supplies dramatically, and now amid fears that U.S. growers will not be able to make up that shortfall, Karlin noted.

"Corn had a little bit more wiggle room because of the huge amount of acreage," he said. "Unfortunately, we're coming into this new season with the second-lowest stocks since 1996. We don't have a lot of carryover to tie us over."

This will continue to put pressure on livestock producers, he said, which could lead to further liquidation of the nation's dairy herd and some producers exiting the business.

San Joaquin County dairy farmer Jack Hamm said he is fortunate that he can grow the bulk of his own forage and will be feeding more of it. He had forward-contracted the majority of his other feed for the summer, which has protected him from the current market spikes.

"It's too late to do much about it at the moment and too early to panic," he said. "We don't know where the corn crop is. Come September, it could be a different story. Then everybody will have a better idea. And somewhere along the way, there may be a price break and you may be able to buy something."

Hamm pointed out that the heat wave will hurt milk production in the Midwest, and that will lighten the U.S. supply, which will help bring prices up.

Doug Dickson, commodities director for Harris Ranch in Coalinga, who oversees grain purchases for the company's feedlot, said some corn-producing states such as Minnesota and North and South Dakota, where much of the additional acreage was planted, are not in as dire a situation as Ohio, Indiana and Illinois, and those fields are faring better.

He also noted that farmers are now planting more drought-tolerant varieties that really have not been put through the test until now, and yields may turn out better than projected.

"One thing my old bosses used to tell me every year: Don't bet against the farmer. When things look the bleakest, the farmer pulls a rabbit out of a hat and he gets a crop when nobody says he could do it," Dickson said.

He's also factoring in what he believes will be a significant drop in demand for corn as prices surge higher. Already, ethanol plants are pulling back, he noted, and dairies are feeding more hay and looking for alternatives.

With the world economy still struggling, Karlin said, economic growth will slow, which will diminish demand for a variety of commodities, including grain and oilseeds.

"As a buyer and user, we kind of have to sit on our hands during these times," Dickson said, noting that he has bought enough corn for the summer and will not be in the market until September. "By that time, if the crop is really tight and it ends up being a complete disaster, we'll have much higher corn prices."

As an egg farmer, Jerry Jenkins, who operates Den Dulk Poultry Farms in San Joaquin County, said he's stuck with paying the current price for corn and soybeans because he doesn't buy too far in advance. To reduce costs, he will try to adjust his formulas, but noted that feed substitutes for layers are very limited.

"There's not a whole lot you can do when corn is 60 percent of the diet," he said. "We can put some fillers in, but there's not a lot available. Plus, everything else is high when all the proteins go up. All of a sudden, what used to be cheaper stuff is really not that much cheaper by the time you get it in the diet."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.