Midwest drought good for local farmers, bad for livestock growers [The Free Press, Kinston, N.C.]

Aug. 05--While the Midwest suffers from lack of rain, North Carolina is getting at least its fair share, which is helping to bring about a bumper crop of corn.

It's good news for farmers in North Carolina.

Arlan Suderman, a market analyst for the Farm Futures publishing firm in St. Charles, Ill., said regional dryness and heat are the major factors for a poor corn crop in the Midwest.

'Unfortunately, throughout history, the reality has been that one farmer benefits from another farmer's problems," he said, "and that certainly is the case here again with the drought."

Weather analysis over more than 700 years has shown that these droughts have never been more than 24 years apart, and this is the 24th year, he said.

The drought is causing the supply of grain to go down, which is bad news for livestock producers and consumers.

Grain is one of the most expensive items in growing livestock.

"Normally, North Carolina is a grain-deficit state," said Mark Keene, Lenoir County agricultural extension agent.

Most of what is seen in the grocery stores is shipped in from the Midwest.

"Sanderson Farms uses a lot of corn and soybean meal in our feed rations," said Mike Cockrell, Sanderson Farm's treasurer and chief financial officer. "We are very dependent on both grains. There are very few substitutes."

Sanderson in Kinston is a supplier of chickens and contracts with local growers.

Corn prices leaped from more than $6 a bushel last year to $8.50 a bushel in June, due to both the Midwestern drought and ethanol production, Cockrell said.

Those prices are a far cry from the typical $2 to $4 per bushel livestock growers are used to paying. Sanderson purchased about 90 million bushels of corn and 750,000 tons of soybean meal.

"And soybean meal last year traded for around $350 a ton and now it's at $500 a ton or more," Cockrell said, "which will also add, obviously, significantly higher cost for the company and the industry. We're faced with these prices all year."

The firm's fiscal year runs from Nov. 1 to Oct. 31, which is about when the soybean harvest will be completed. Early corn is being harvested now, but will increase through mid- to late-September.

Keene is counting on the 3,000 acres of grain sorghum growing in Lenoir County this year to meet the protein needs for livestock feed at a lower cost than corn.

Sanderson can only hope to sell chickens at a higher price, but chickens are sold and grain is purchased at the current market price.

However, if the industry has to pay a higher cost, they will cut production -- which will lower the supply. If demand is stable, the price of chicken will increase to offset the cost, Cockrell said.

"So the consumer will probably ultimately pay more for any protein they use and grain -- which will include chicken, beef and pork," he said.

Sanderson lost money in its first fiscal year in 2011.

"Sanderson Farms cut all of our facilities by 4 percent and reduced the production at all of our plants by 4 percent, including the plant in Kinston," Cockrell said.

Kinston had just gotten going in April, so the plant ran as scheduled until they reached 96 percent production.

They gave less overtime, offered fewer hours, but remained fully staffed without any lay-offs, Cockrell said.

"But instead of making (livestock growers) bear that burden, we increased the price that we paid to them so that their income statement is not affected," he said.

Now they are waiting until fall to see whether they should step up to full production.

With erratic weather patterns, it's not safe to calculate yet how productive the corn crop will end up.

"We won't know what kind of crop we've got until we've got 75 to 85 percent harvested," Keene said.

But Cockrell said one thing is certain.

"I do think there is absolutely no question that the prices are going to be higher," he said. "That we know for sure."

Bio-fuels affect livestock growers

The push to find alternatives to petroleum appears to have caused corn prices to skyrocket.

"Last year, for the first time in the history of the United States, we used more corn to produce fuel than we did to feed livestock animals," Cockrell said. "The ethanol industry took 40 percent of every kernel of corn produced in the United States last year."

Bio-fuel facilities are using nearly 14 million bushels of corn annually because of a government mandate, he said. But with the Midwest's poor crop yield, there may not be enough corn to produce the required amount of ethanol.

That's hit livestock growers hard. Chickens are fed two-thirds corn and the remainder soybean meal. Wheat can be substituted, but not much is grown locally.

Regardless of the price, livestock growers have to pay it to have feed year-round.

Legislation has been introduced to reduce the mandated amount during years when the corn harvest is bleak. Cockrell said that should create some discussion on "whether the country should require a feedstock to produce fuel."

Suderman said ethanol has strengthened the demand for corn and bio-diesel has done the same for soybeans.

"Bio-fuels continue to be a controversy and certainly in North Carolina we have farmers who benefit from bio-fuel production with supporting higher prices and we have livestock producers in North Carolina who feel they've been hurt by these higher prices."

However, a report released Thursday by University of Illinois economists questions whether reducing the renewable fuels mandate would actually make any difference in the price of livestock feed.

One of the reasons it might not is because of a switch from using MTBE -- methyl tert butyl ether -- to increase gasoline octane to using ethanol since the 1990 Clean Air Act was established.

Livestock growers have already seen increased corn prices from a slightly reduced ethanol production, Suderman said. It happened because of a bi-product of the ethanol production process called DDGS, or dried distillers, grains and solubles, which is used as a protein source in feed.

"As ethanol production slowed, the availability of DDGS has also declined, and livestock producers have had to switch back to soybean meal as a protein source," he said.

But even soybean prices are higher because of tight soybean supplies.

"And so the more ethanol production is reduced, the more livestock producers face higher protein prices for their livestock rations," Suderman said.

Cockrell said, "There is no doubt that ethanol has changed the landscape for all of us that are dependent upon corn for our livelihood."

The good news is the mandate for ethanol is spurring on development for alternatives to using feedstock for fuel.

Margaret Fisher can be reached at 252-559-1082 or mdfisher@freedomenc.com.

___

(c)2012 The Free Press (Kinston, N.C.)

Visit The Free Press (Kinston, N.C.) at www.kinston.com

Distributed by MCT Information Services