U. S. farmers are gearing up to harvest huge corn and soybean crops in the Midwest grain belt, but the bumper crops will not bring down the costs of food items made from them.
Traditionally, livestock and dairy producers increase production when feed costs decrease. But banks may be reluctant to fund expansion efforts for companies still hurting from record feed costs last year and poor meat sales during the recession this year.
Demand for meat will improve with the economy, but supplies may not increase fast enough because cattle, hog and poultry producers curbed herds and flocks in 2008 and 2009.
“The lower feed prices that result from this large crop will not have any immediate impact on increasing livestock products,” said Bill Biedermann, senior vice-president at Allendale Inc.
Cheaper feed prices will ease pressure on meat companies but the savings will not be passed along to consumers.
“Livestock is not going to get any cheaper. They are already going bankrupt as it is,” said Michael Swanson, agr icul tural economist at Wells Fargo.
Ethanol makers will benefit from the bumper corn crop, as costs to make the biofuel decline while crude oil prices should rise with the improving economy.
“With lower corn prices coming on, they are going to make piles of money,” Biedermann said. “Ethanol is as strong as it has ever been.”
Many ethanol refineries went bankrupt or offline after corn hit a record $7.65 per bushel on June 27, 2008.
But ethanol refineries can turn a profit with cash prices of corn still hovering around $3 per bushel across the Midwest and possibly declining further during harvest.