Sunday, September 19, 2010

A Concern For Beginning Livestock Farmers, A Commodity Grain Bubble

Maybe you have noticed that the price of food at many grocery stores have gone up. These prices increases are linked to an increase in commodity grain prices. Commodity grain prices (Corn, Soybeans, Wheat, rice, etc.) are increasing for several reasons.

The first is climate change. A massive drought in Russia and wet conditions elsewhere are sending wheat prices soaring. As weather has become more volatile (more persistent droughts and more torrential rainfall), grain supplies have become less consistent and prices have become more volatile. Since grains can often be substituted for other grains, they all become volatile when one becomes volatile.

Demand for commodity grains has also increased as populations in developing counties have become more affluent and can spend more money on foods, like meats. 

Another alarming force driving up commodity prices is speculation. Since the crash in the markets in 2008 and the subsequent fall in oil prices, there has been a considerable amount of investment money sitting out the sidelines. This money has been looking for a place to go make money after sitting in "safe" places like treasury notes. With the upward trends in commodity prices speculative forces have been moving considerable funds in those directions applying further upward pressure on prices and generating a likely bubble in commodity grains. 

Inflated grain prices hurt livestock producers by increasing what they pay for feed and eliminating thin margins. The same is true for us beginning livestock farmers. As an example, I was paying $0.13 per pound of poultry feed a month ago and now it is up to $0.22 per pound, about a 40% increase in a month. 

I am worried about what the future might hold for us beginning livestock farmers. Many of us rely on quick turn around animals like poultry and hogs to cash flow our business. To lessen our reliance on purchased feed, we have been and will continue to expand our lamb business. Our lamb rely on no purchased grains and as such have a much more stable pricing and margin for us to rely on in the future. 

Cattle & Sheep out on Pasture, Low Input Agriculture at its Finest

Now it is time for our shameless plug. We have 4 lambs going to the locker in the middle of October and they will be ready for our November delivery runs. 

Whole Lamb: $235 (approx. 40-50 lbs of meat)
1/2 Lamb: $125 (approx. 20-25 lbs of meat)

Lamb Chops: $10 per pound
Leg Roast: $8.50 per pound (likely 4-5 pounds each)
Rack of Lamb: $12 per pound
Ground Lamb: $5.50 per pound
Stew/Kabob Meat: $6 per pound

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