The U.S. Department of Agriculture’s first crops supply report of the new year surprised some analysts Thursday, because it didn’t lower the estimate for corn in storage. Predictably, that led to a drop in corn prices by about 50 cents a bushel.
That price drop doesn’t just affect corn farmers. It has ramifications for the entire food system, from corn farmers to cattle ranchers to grocery store shoppers.
Spend some time driving around southwest Kansas and you’re bound to run into both fields of corn and livestock feed yards. On the surface, those are two different industries, but as far as consumers are concerned they go hand in hand.
Corn can make up anywhere from 1/3 to 2/3 of total feed cost for cattle producers. Because of that, Glynn Tonsor, an agriculture economist at Kansas State University, said a big drop in corn prices eventually makes its way to the grocery aisle.
“Even a 50 cent change in corn price will result in a change in meat price simply because most meat industries are what we would consider rather competitive,” Tonsor said.
Despite the 846 million bushels of corn in storage, Dan O’Brien, also an agricultural economist at Kansas State, said that questions remain.
“Although the overall production number was up, the bottom line is still that we’ve got very, very tight U.S. corn stocks and have major questions to have to deal with through the planting and production season,” O’Brien said.
The new USDA crop numbers, coupled with uncertain weather, O’Brien said, will make for an interesting spring.
“It probably ups the ante on strong corn acreage this year in the U.S., probably weakens the case for soybeans and will just add to the uncertainty and questions that wheat farmers have,” O’Brien said.
After the USDA reports came out last week, Steve Freed, vice president of research for the investor services branch of food production company Archer Daniels Midland, offered his analysis in a teleconference with investors.
“In general, as we look ahead into 2012, the corn situation is still snug and we’re going to have to rely on good plantings and good weather or prices will snap right back to not only where we are today, but maybe even higher,” Freed said.
With corn supplies still tight, it’s likely that lots and lots of corn will be planted in the spring.
Farm Futures Magazine released its most recent planting intentions survey a week before the USDA report. It projected a whopping 93.6 million acres of corn, an acreage that would be the largest in more than half a century.
High prices last year helped ethanol barely eclipse livestock feed for the first time as the top consumer of corn. More than 40 percent of the crop went to fuel.
After reaching an all-time high of almost $8 a bushel, corn prices have retreated since the summer to around $6.
Tonsor said the dip in prices makes corn a more viable option for feed.
“In many ways the corn price change, or the expectations of change that came out with the USDA report, influences beef prices, pork prices, poultry prices for a few months from now – more than what you see on the retail shelf today,” Tonsor said.
In a November report from the USDA, a pound of beef cost the average shopper just over $5. That’s a more than 50 cent increase from the previous year.
It’s difficult to predict if and when consumers will see lower foods prices tied to corn, Tonsor said.
“While you and I are on the phone, there’s more information coming into the world, weather in other parts of the world and so forth,” Tonsor said. “We’re constantly getting more information… that might either confirm or contradict what was in that report.”
The USDA releases its next World Agricultural Supply and Demand Estimates report on Feb. 9.
Harvest Public Media, based at KCUR, is a collaborative public media project that reports on important agriculture issues in the Midwest. Funded by a grant from the Corporation for Public Broadcasting, Harvest Public Media has reporters at six NPR member stations in the region. To learn more, visit www.harvestpublicmedia.org, like Harvest Public Media on Facebook or follow @HarvestPM on Twitter.