Feed Prices Whipping up a Perfect Storm

US - All those in hope of some relief on food prices this summer can think again as feed prices continue their relentless increase.
calendar icon 20 March 2008
clock icon 4 minute read

The increase is largely due to rapidly increasing animal feed costs, a result of competition for corn and oilseeds between livestock and poultry feeding and alternative fuels production, the American Feed Industry Association (AFIA) board of directors was told at its recent meeting.

AFIA President & CEO Joel Newman, in his state of the industry report to the AFIA board, said Congress and the Bush Administration must recognize that $5 a bushel corn – and similar price jumps for soybeans and other food grains -- can no longer be viewed as anomalies or temporary. “$5 corn looks to be closer to the new ‘normal,” Newman said, adding ethanol’s use of corn will hit 27% of the U.S. corn crop during the 2007-2008 crop year.

"The industry’s cost of production escalation has only just started to work its way through the system"
AFIA President & CEO Joel Newman

The AFIA Board was told the average 5% increase in consumer food prices experienced last year is just the beginning, with food prices likely jumping another 10-12% this year.

“The industry’s cost of production escalation has only just started to work its way through the system. Feed price increases will be pushed through the food chain over the next six months,” Newman said, “Consumers can expect to see even higher prices for meat, poultry and dairy products.”

Newman laid out the “perfect storm” of factors forcing food prices higher, starting with crude oil prices topping $100 a barrel and increasing demand for alternative fuels. Couple that demand surge with the effect of global livestock liquidation, particularly in the swine industry, increasing export demand for U.S. grains and oilseeds to meet stronger global demand for animal protein, an 11% increase in world feed production – which has led to record low U.S. stocks-to-use ratios – combined with a weak U.S. dollar and significant increase in ag commodity speculators, and you have the inevitable pressure on U.S. food prices, Newman said.

Supporting the AFIA internal analysis is a report released this week by the Coalition for Balanced Food & Fuel, of which AFIA is a member. In his report, presented at the Annual Meat Conference this week in Nashville, TN, Dr. Tom Elam, president of Farm Econ, an analysis firm, said he estimates the cumulative costs to the food industry of the federal renewable fuel program will be about $100 billion for 2005-2010.

Elam said broiler industry input costs this year are up $3.4 billion (53 cents per bird); turkey input costs are up $646 million ($3.40 per turkey); swine input costs are up $2.9 billion ($38 per hog); cattle input costs are up $2.24 billion ($117 per fed beef animal) and dairy input cost are up $2.7 billion.

AFIA is the world’s largest organization devoted exclusively to representing the business, legislative and regulatory interests of the animal feed industry and its suppliers. Membership includes over 500 domestic and international companies; state, national and regional associations. Firms are feed and pet food manufacturers, integrators, pharmaceutical companies, ingredient suppliers, equipment manufacturers and companies which supply other products, services and supplies to feed manufacturers.

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