July 26, 2012

US corn, soy in deficient supply after Midwest drought

After this most miserable of summers where the corn may be lodged, the grass waterlogged, the potatoes blighted and the strawberries mouldy, but the real weather crisis for large parts of the West-country's farming industry is unfolding thousands of miles away, in the American Mid-West.

As of last week, over 50% of the nine Mid-West states which produce three quarters of the USA's corn and soy was officially declared as being in "severe to exceptional" drought, forcing the USDA to cut its crop production forecast by 12%. The knock-on effects on world prices for feed grains have been inevitable and dramatic, with corn climbing 50% in little more than a month, soy up 60% in six months, and wheat prices breaking through the GBP200 (US$310) per tonne barrier.

Why does this matter to the Westcountry's farmers? Because feed is the single biggest factor in the cost of producing milk, pigs, poultry and eggs, and the US drought has sent feed costs soaring.

Ironically, while it has been the situation in the dairy industry which has been making all the headlines, it has actually been pig producers who have taken the biggest hit. According to the British Pig Executive, rising feed prices have pushed the total cost of producing a kilogramme of pig meat to around GBP1.75 (US$2.71). Against a pig price of GBP1.50 (US$2.3) per kilogramme, that leaves the farmer losing GBP18 (US$28) on every pig produced.

And this is no flash in the plan. Pig prices have failed to cover costs for most of the last two years, producing a cumulative loss of over GBP200 million (US$310 million) for the UK's already embattled pig sector.

Poultry farmers have also been hit hard, with feed accounting for well over half of the cost of producing both chicken and eggs. Last week, the chairman of the British Poultry Council, Peter Bradnock, warned that: "cost increases of this size will inevitably mean higher prices", but they may prove hard to extract from a retail sector acutely conscious of consumer concerns over food price inflation.

The Mid-West is by no means the only key crop producing area to have been devastated by drought. Soy production in Brazil and Argentina, where the UK normally sources most of its requirements, has also been badly affected. Last week, that prompted a British company to place the biggest ever order for US soy - 112,000 tonnes - on the very day that prices hit an all-time high; the implication being that sky-high feed prices are here to stay. Of course, it is not all bad news. The South West's cereal growers can look forward to near-record prices, not just for wheat and barley, but for oilseed rape as well. If the improvement in the weather continues, that could make it a very profitable harvest indeed.

We ought also to remember that West Country farming's key competitive advantage lies in producing milk and livestock from grass, and that high cereal prices play to that strength. But that's not much of a consolation if you're a small poultry producer, faced with a 20% increase in your feed bill, or a pig farmer who's been making losses for the last two years, or a dairy farmer who has just had to take a second price cut in three months.

For the time being at least, the world's weather patterns really do seem to be prone to getting stuck in damaging ruts. Some say it's down to the switch from La Nina to El Nino in the South Atlantic; others that what we are seeing is the first fruits of man-made climate change. Either way, it's not making farming any easier, and putting an even greater premium on achieving food security, not just in Britain but across the world.