September 18, 2007

USDA: Brace up for higher meat, egg prices until 2010

Escalating animal feed costs will push retail prices of meat, eggs and poultry at a rate exceeding general inflation through at least 2010, the US Department of Agriculture's Economic Research Service (ERS) noted in a recent report.

The ERS report - "US Ethanol Expansion Driving Changes Throughout the Agricultural Sector" - notes that "higher corn prices reduce the profitability of meat production because of corn's importance to the livestock sector as an animal feed. In response, red meat production is projected to decline in the United States and growth in poultry output is likely to slow".

A combination of government mandates and rising oil prices is set to drive ethanol production to exceed 10 billion gallons by 2009, up from 5 billion gallons last year. Since most US ethanol production is corn-based, the report projects that ethanol will consume 30 percent of the total US corn crop by 2009, up from 14 percent in 2006.

The rising cost of corn "will also most likely mean higher food prices for consumers. Retail price increases for red meats, poultry and eggs are projected to exceed the general inflation rate in 2008-10, as the livestock sector adjusts to higher feed costs," the report concludes.

Though feed makers have other options such as soybeans, the ERS said soy production has decreased in almost direct proportion to new corn plantings this year and the USDA predicts that this trend will continue through 2016. The profitability of corn for ethanol has displaced soy plantings, the report adds.

Similarly, distiller's grain, a byproduct of ethanol production, has gained new prominence as an inexpensive feed for cattle, but it can only be used as a small portion of a cow's diet, while non-ruminants, such as hogs and poultry, have difficulty using distiller's grain, even for dietary filler.

Increased demand for both crops is expected to result in lower carryover stocks, making the market "more vulnerable to shocks, such as production shortfalls due to weather, pests or other factors. ¡­ Thus, overall price variability and market volatility in the agricultural sector are likely to increase," according to the report.

This grim assessment, of course, assumes that existing farm and energy legislation, as well as existing federal incentives for ethanol production, will remain in place. And while ethanol still holds promise as a source of renewable energy that could ultimately wean the US from dependence on foreign sources of oil, groups ranging from the Grocery Manufacturers Association (GMA) to the Sierra Club have argued that current production methods are extremely inefficient, and that corn is far from an ideal crop for making fuel.

For example, in response to President Bush's proposal to cut gasoline consumption by 20 percent over the next decade, Cal Dooley, GMA's president and chief executive officer, said earlier this year that "a 35-billion-gallon ethanol mandate will require a substantial increase in the use of fossil fuels for corn and ethanol processing and transportation, as well as an additional 15 million acres devoted to corn crops, which will encroach on agriculturally marginal and environmentally sensitive land."