Corn Crisis Ã¯Â¿Â½ PAGE \* MERGEFORMAT Ã¯Â¿Â½22Ã¯Â¿Â½
The US hog and pig farming industry includes about 65,000 farms with combined annual revenue of $14 billion. The hog market ranks 7th in commodities for the United States. (USDA: Hogs) Major companies include Smithfield Foods, Tyson Foods, JBS Swift, and Cargill. The industry is highly concentrated with over 90% of industry revenue generated by just 10% of farms. Smithfield Foods and Tyson Foods are the largest contributors by farming and processing nearly half of the pork consumed in the US.
Industry demand is driven by domestic and international trends in pork consumption. The profitability of individual companies depends on efficient operations and reducing the spread of disease. Large companies have advantages in vertically integrating operations from birthing to packaging and distribution. Small operations, typically family-owned farms, can compete effectively by specializing in a single stage of hog farming or raising humanely treated animals.
Hog and pig farms compete against other livestock, poultry, and fish operations.
The total national inventory of hogs and pigs (immature hogs weighing less than 125 pounds) is around 60 million head. In 2007, the pork industry produced approximately 22 billion pounds of pork, a number that has remained relatively flat for several years in spite of population gains. There are 694,000 hog farms containing an average of 871 hogs with the majority of farms located in Iowa and North Carolina. The number of US hog farms has fallen about 90% since the 1970s and 1980s due to more efficient industrial operations displacing small, typically family-run farms. Of US hog farms, 70% manage fewer than 100 hogs, yet account for just 1 percent of total industry revenue. The average farm manages 900 pigs and hogs.
Pigs weigh from 10 to 20 pounds at the time they are weaned. Young pigs, called feeders, are gathered into a nursery where they consume a high-energy feed of soybean meal and corn. Pigs typically gain three pounds for every pound of feed. Farmers move feeder pigs out of the nursery when they reach 50 to 60 pounds, usually around two to three months old. The final stage, called growing or finishing, is a four-month process of intense feeding until the hog reaches 240 to 270 pounds, which is considered the ideal slaughter weight. 400,000 hogs are transferred to slaughterhouses daily. 10% of US hogs are kept for breeding and 5 to 10 percent are removed from inventory due to death or disease.
Key inputs for the industry include corn, soybeans, water, whey, and antibiotics. Feed inputs can be in short supply due to weather and competition from other non-feed harvests, such as biotechnology and human consumption. Hog farmers enter into contracts with providers of corn and soybean in an effort to secure plenty of feed for the anticipated number of pigs and hogs.
Technology plays a critical role in the health of the hog farming industry, particularly as large farms have become highly efficient and automated. Genetic standardization of hog semen improves the likelihood of a lean, high-yield marketing hog and can raise the number of pigs per litter. Antibiotics speed growth and limit infectious disease outbreaks. Technical innovations in hog waste management can reduce pollution spills and lower risks of chemical exposure to humans, fish, and other livestock.
Pork is the most widely consumed meat in the world accounting for approximately 50% of the daily meat protein intake worldwide, averaging 51 pounds per person per year. In certain Asian and European countries, pork is even more popular. In Vietnam and Korea, pork accounts for 70% of daily meat protein intake. The United States ranks as the second greatest consumer of pork, the third most consumed meat after beef and chicken. (Davis, Lin) A popular ad campaign touting pork as "The Other White Meat" has tried to lure Americans away from turkey and chicken. Whether through campaigning or less expensive price tags in comparison to beef, pork's popularity has continually increased over the last forty years. (Davis, Lin)
In recent months, the price corn, as well other staples such as rice and wheat, have risen by 50% or more, pushing retail prices to levels unseen before. Experts are pointing fingers and blame in all directions and to a variety of factors. The food crunch is due to poor harvests in Europe since 2005 and Australia's ongoing drought that have, in a sense, created fluctuations in the pipeline of staple grains to world markets. The elevated demand for biofuels in reaction to the $100-per-barrel oil is diverting crops and the rise of China and India is turning them both into market-moving grain hogs. Added to that is climate change and decline in agricultural investment as a gross domestic product worldwide. This crisis is affecting people globally, especially hog farmers.
Due to the massive prices of oil companies, biofuel and ethanol have become fuel alternatives. Projections show that in the next year about 30% of corn will go into biofuel. Because of the strong demand for green fuel, corn prices have gone up, causing substantial financial losses for hog farmers. As the ethanol industry grows, so will the demand for corn. With high prices, the government has considered using ethanol's byproduct as an alternative food source for the hogs.
Hog farmers who rely on corn feed, are facing tough times. This is a very sensitive time in the pork industry, and concerns about the effects of input costs on the price of pork trouble many in the industry. Farmers cannot survive long term with the increasing feed prices. If something is not done soon, ethanol threatens to deplete the corn supply that hog farmers count on to feed their livestock, which, in turn, feed many around the world.
Increases in corn prices affect several stakeholders in the pork production industry. Those with the most legitimacy and urgency are identified below.
Owners - Hog Farmers
In the United States, corn prices are leaving hog farmers with fewer returns. As a result, the industry is struggling to keep from turning belly-up. Corn is a demand-driven market and farmers may not be planting enough acres to supply demand. The worldwide demand for corn to feed livestock and make biofuel is putting enormous pressure on global supply. U.S. farmers are expected to plant less corn in the coming years, which means the supply shortage will only worsen. An 8% drop from last year is expected.
It has been determined through extensive research that a specific combination of corn and soybean meal is the most efficient feed for raising hogs, and feed has always been the greatest input expense, even before the rise in corn prices. Now that corn prices are at record levels, farmers are forced to experiment with alternatives. Since hogs are sold at market for content based on weight less fat percentages, experimenting with the diet of the hogs directly plays into the amount for which farmers will be able to sell their hogs. Although estimating the actual corn used as feed to produce retail meat is a complicated calculation, it takes about 6.5 pounds of corn to produce 1 pound of pork. A healthy pig will generally gain about 1.5 to 1.8 pounds a day and will weigh up to 200-240 pounds when taken to market (Davis, Lin.) Since corn is now at record highs of more than $6 a bushel, feeding hogs corn is quickly becoming a profitless business.
A professor from the University of Missouri's Agricultural Department said, "It looks like the nation's hog producers will operate at a loss for a majority of 2008." He traces the origins of the problem to a long run of profitable corn yields worldwide. In 2005 through early 2007, hog farmers were becoming increasingly profitable, thereby leading to an increase in the amount of hogs, which, in turn, pushed the prices of pork products down. Now, with the higher corn costs, the nation's largest pork company, Smithfield Foods, has hog costs 20% over last year's costs. This increase negatively impacts the company and limits the amount of hogs it can afford to feed.
On April 16, 2008, more than 200 farmers met in Mankato, Minnesota to discuss the financial pain that high corn prices are inflicting on livestock producers. Corn prices rose another 15 cents a bushel in the hours before the hog farmers settled in their seats. The soaring corn prices are increasing the price of feed and, as a result, pork producers are losing $30 to $40 per hog. Even as early as last October, farmers were losing money on every animal they sold. That is a significant development in Minnesota, where the selling of hogs brings in about $2 billion dollars a year. To make matters worse for the hog farmers, high fuel prices have doubled the cost of transporting pigs to the meatpacker.
And the problem does not stop in Minnesota. Canada is affected by rising corn prices also. A representative of hog producers in Canada claimed that, "the Canadian government is paying farmers to slaughter breeding pigs to reduce herd sizes and prevent a complete collapse of the Canadian hog industry." This means Canadian bacon lovers will be affected greatly. As early as January of 2008, hog farmers could see that the rise of corn prices would bare poor returns within their industry.
"Traditionally, the summer markets are a little better," says John Vaubel, a hog farmer from Mapleton, Minnesota. His hogs are not headed to market until summer of next year so he might get a better price for his animals. That is the kind of hope many of the hog farmers are carrying around with them in times like these.
Farmers are now forced to pass on higher animal feed costs and thin their herd size, so consumers can expect to pay more for meat and pork.
On April 4, 2008, it was stated in the Oregonian that, "Corn prices jumped to a record $6 a bushel, driven by an expected shortfall that will only add to Americans' growing grocery bill and further squeeze ethanol producers." (Jacobs) Long gone are the days when going to the grocery store for corn meant paying $1 for 10 ears.
According to a study conducted by the Continuing Survey of Food Intakes by Individuals (CSFII), people of lower incomes, predominantly from the Midwest and South, will be impacted the greatest by the rising cost of corn, the main ingredient in hog feed. In April, pork prices increased an additional 2.5%, the third increase in the last 10 months. (USDA: CPI.)
America, the richest nation in the world, holds staggering numbers of impoverished. In 2007, 37 million Americans were at or below the official poverty level - a total of 12.6 percent of the population. And in a nation that continues to become wealthier and more technologically advanced, this number is rising. There are 5 million more Americans who are now in poverty than there were in the year 2000. Estimates from the U.S. Department of Agriculture show that families in the bottom quartile are spending 32 cents of every dollar on food. ("The Poverty") Because hogs and chickens are being fed corn, and they are two of the most commonly consumed meat products in the nation, skyrocketing corn prices will doubly affect the average American, especially those of lower income. With these constraints, more families will be forced to seek assistance from the government. The health of the average American is predicted to continue to decline as families are forced to buy less expensive and less nutritious meals. ("The Poverty")
Community - Corn Farmers
Corn affects many people, some very positively and some very negatively. As corn prices rise with the demand for ethanol, corn farmers are doing well and pocketing profits. Average income for farmers has increased 10-15% over last year. According to Forbes.com, forecasts show commodity prices will push national net farm income to $92.3 billion in 2008, an increase of 4.1 percent from last year's income of $88.7 billion. The average income over the last ten years is estimated at $61.1 billion. However, predictions indicate farmers will plant 86 million acres of corn this year, a decrease of 8% from last year2007, when corn plantings were the highest since the 1940s.
Government - USDA
With rising corn costs, the federal government has finally taken steps to help the worsening industry. Earlier this month, the USDA announced it would purchase $50 million of pork products to donate to child nutrition and other domestic food assistance programs. This purchase will move sows to market in an effort to move breeding stock off the market and alleviate the $2.1 billion loss the industry has faced over the last seven months.
Possible solutions for hog farmers could be to do nothing; look at alternate sources for feed; petition the federal government to provide emergency aid to provide needed cash flow; increase imports feeder pigs rather than maintain breeder sows; lobby to remove tariffs on imported ethanol; or try to convince ethanol producers to move past corn based ethanol into cellulosic ethanol, produced from plant waste and non-food crops. To determine viability of these solutions, a more in depth analysis is required.
According to USDA Agricultural Baseline Projections on US Livestocks, if nothing is done pork production will decline through 2011 due to increased prices of corn-based feed but then will increase as the market readjusts with higher hog prices. Of course, this projection does not take into account the number of hog farms that will not be able to sustain themselves and will close down before the market readjustment. This projection also does not take into account the affect on the US economy as imports of pork products, currently at near 2.2 billion pounds, or 10% of total pork production in the US. (Marketwatch)
Those farmers that are able to grow their own corn for feed are affected less by the shortage of corn and increased costs of feed. However, not all farmers are able to do so. Therefore, those farmers need to look into alternate food sources. Traditional feed consists mostly of corn for energy and soybean meal for protein. Pigs are versatile omnivores and are able to enjoy a wide diet of items such as pasture grasses and other fibrous materials. Apparently, pigs can adjust rather quickly to changes in diet as well. If a pasture fed pig runs out of grasses to eat, it can quickly be switched over to feed without any negative effects to the digestive system. Even though they are single-stomached animals who typically require some grain in their diet, pigs' digestive systems are durable and flexible. A three-year study conducted by swine nutritionist Terry Prince of Auburn University concluded that up to 2/3 of a pig's diet could be obtained through a well-managed pasture program as long as necessary vitamin and mineral supplements are included.
Economists estimate the industry must reduce pork production by at least 10%, or 600,000 sows, to restore profitability. (AgriNews)
With the reduction of sows in US farms, imports of feeder pigs (weaned young pigs weighing between 10-60 lbs) from Canada may help save the industry. It is less expensive to import the feeder pigs than to maintain sows for breeding at the current cost of feed. However, the Canadian pork industry is experiencing the same crisis as the US pork industry with increased feed prices so this may not be a sustainable long-term option.
US farmers could demand the federal government provide aid packages similar to that of the Canadian government. In February, the Canadian government declared a state of severe economic hardship for hog producers. Emergency advances are available, up to $400,000 per eligible producer, based on anticipated production rather than current inventory. The first $100,000 of aid is interest free. (Marketwire)
Hog farmers could lobby the federal government to reduce the tariffs on imported ethanol. Some farmers feel the ethanol tariff on imports, currently at 54 cents per gallon, limits the amount of imports and helps drive up the cost of corn. The tariff reduces foreign competition and creates a greater demand on the US ethanol industry, using more corn and driving prices higher. However, representatives from the American Coalition of Ethanol feel there is another side to the story. The US imported 700 million gallons of ethanol in 2007, which amounts to approximately 10% of the nation's ethanol consumption. Eliminating the tariff may increase foreign imports and decrease US production by 7% but economists do not feel this would greatly affect the price of corn. In fact, it is estimated the price may only be reduced by a few cents per bushel. (Steil) At over $6 per bushel, this does not look like it would offer much relief to the hog farmers. In addition, environmentalists are also concerned that removing the tariff on foreign imports and opening the US market may encourage deforestation practices in other nations as farmers expand the production of sugar cane and other crops to make ethanol.
A slight twist to the last alternative would be to encourage the ethanol industry to switch from corn-based ethanol to cellulosic ethanol. According to Michael Kanellos, an investigator and advocate for green alternatives, corn is the grain most impacted by biofuels as approximately 30% of the US production of corn goes to ethanol production. Cellulosic ethanol can lessen the demand for grains as the processes uses a variety of materials such as wood chips, weeds and miscanthus (perennial grasses native to Africa and southern Asia), human waste, and even carbon laden garbage such as tires.
the hog industry is integral to the nation's economic and physical health, and a solution or solutions must be uncovered. As corn prices continue to skyrocket, hog farmers must seek out alternative foods which will yield the same healthy pigs they were able to produce with corn and soybean meal.
Recommendations / Implications
Farmers have never had to find alternative food for their livestock. They have always fed their livestock on corn and soybean feed because it has been an inexpensive way to fatten the hogs and force them to grow to market weight as quickly as possible. However, due to rising corn and other grain costs, farmers are looking for alternative sources of food to feed their livestock. Below is a look at the adverse affects and benefits from two different perspectives: their livestock and the consumer.
Coming up with the lowest cost solution is the most difficult factor when considering the use of alternative feeds. The farmer must take into account the amount of nutrients supplied by the replacement feed as well as costs of the replacement feed such as contribution of digestible energy and nutrients to the diet, special processing needs, and storage.
Oat and barley are the two closest grains comparable in performance and price to corn that can be added to pig feed to balance nutrients against cost. Currently, the oat and barley markets are slower than the more fast moving products, making them good buying opportunities for farmers. Barley and oats are high in fiber yet have lower digestibility than corn. Since protein is the most expensive ingredient in pig and hog feed, barley is ideal with its higher crude protein content. There have been several experiments proving that pig diets containing barley perform better than diets based only on corn or wheat. Pigs fed on oats have gained more weight on average than those fed corn.
One problem is that freshly harvested barley must be stored for at least four to six weeks before feeding to livestock. Certain compounds found in newly harvested barley have proven to be toxic to livestock and farmers have incurred losses attributable to this type of feed.
Pasture raised pigs yield meat that is tastier and more nutritious. A study conducted by the U.S. Department of Agriculture found that lean pork has the same amount of fat content as skinless chicken breast and offers good nutrients to the consumer such as protein, B-vitamins, zinc, potassium, and iron. Consuming lean protein food sources can also lead to weight loss.
Types of pasture include oats, alfalfa, and orchardgrass. In addition, turnips, kale, and beets are high in protein, highly digestible, and make an excellent pig pasture. If pastures are not available, feeding feedstuffs high in fiber is another possibility. Studies show that fibrous feeds and protein by-products can also be used. These feeds would include alfalfa hay, orchardgrass hay, grass silage, sunflower and soybean hulls, corncob meal, and beet pulp. Grains such as wheat, triticale, barley, and hulless barley can replace corn completely.
Pasture raised pigs encounter different stress factors and need different traits than confinement raised hogs. These traits include hardiness in extreme climate conditions, resistance to parasites, ability to forage, and good mothering characteristics.
A pig's diet is a major influence in the meat quality. Maintaining the quality of pork meat is important because the amount of soft fat contained in the meat has a major impact on human health. Today, the consumer's desire for healthier food requires farmers to consciously monitor their livestock's diet. Soft fat is extremely oily and becomes rancid more quickly, leading to a less desirable food for consumers. Soft fat content on meat is a major concern for meat processing companies, resulting in lower processing yields and reduced value of the pork. Recently, Tyson Foods, a major pork distributor and marketer, reported it anticipates losses of $600 million in 2008 due to high corn cost. Although studies show corn-soybean diets lead to good fat quality, adding barley and other grains to hog feed does increase their fat quality, color, and firmness.
Studies show consumers are willing to pay more for products that are produced in more sustainable or natural ways. Pasture raised pigs, promoted as "organically" or "naturally" raised may allow for higher prices in niche markets and provide farmers a way to offset feed costs.
While ethanol is driving up the crop prices and affecting the price of meat, cellulosic ethanol would not have this effect on the food market, farmers, or consumers because it does not put pressure on a food source. Pushing for more research and production into cellulosic ethanol will take the pressure off the corn market and avoid the high pork prices passed on to the consumer. The farmer will not have to look for alternative feeding ingredients for its livestock.
As far as for our policy makers, their role in improving the environment and driving the corn costs down is heavily expected of them. The creation of the tax and credits available have many industries wanting to participate in the research and development. Cellulose ethanol has several environmental benefits. Growing energy crops like switchgrass, wood chips, and weeds have important land, habitat, and soil conservation benefits. Producing energy from the residues in the forests, mills, and landfills avoids the release of methane into the atmosphere from decomposition of unused wood and agricultural wastes. Other benefits for all stakeholders include reduction in greenhouse gas emissions and quality of air improvements.
Although the benefits seem too good, there is a time lag that exists. Currently the structure of cellulose makes it difficult for enzymes to break cellulose down into simple sugars, ready for fermentation. Researchers are working on making the new enzyme and manufacturing process faster, easier, and cheaper. The infrastructure is expected to take seven to ten years to build while the government is promising to build the biorefineries without increasing the federal deficit with federal loans.
With ever-increasing corn prices as demand for corn rises, hog farmers must look at alternatives for pig feed if the pork industry is to sustain itself at the same levels it has in the past. Otherwise, lobbyists and political action groups must side with the farmers and against the ethanol industry to encourage other forms a green fuel production, thereby lessening the demand for corn and allowing the price of feed to return to levels more sustainable for the industry.
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