Associated Press
11-27-06
High corn prices tough on livestock farmers
WORTHINGTON, Minn. (AP) — 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.