As we go to press for the last edition of the year, we are justified in looking back on the past year and casting our thoughts forward to 2011. Our feed industry can only be as strong as its customers involved in livestock, milk and egg production. The slow recovery from the recession has impacted the purchasing power of consumers even extending to food. Margins have shrunk due to low demand from restaurants and supermarkets catering to the middle income demographic. This has resulted in concern for pricing and cost control for feed mills supplying non-integrated and independent producers in many areas.
This unfavorable situation has been further complicated by escalation in the prices of commodities, especially corn. As an agricultural industry, we are subject to the vagaries of nature with crop yields influenced by weather. This factor can be compensated by planning, investment in storage and transport from unaffected areas with higher yields. The saving grace is annual carryover stocks.
The emergence of corn-based ethanol production supported by government policy and subsidies during the past five years has imposed a new burden on profitability. A combination of the 4% downward revision of the 2010 harvest by the USDA on October 8 and the announced increase in the proportion of ethanol to be blended in gasoline have added to the concerns of the feed industry. To implement the 15% level for vehicles manufactured since 2007 and to retain the 10% incorporation rate for all others will require multi-blend pumps and new tanks at service stations.
The federal government will naturally oblige by providing loans and subsidies to support an industry which is incapable of competing on its own merits. Fresh from its blend escalation victory, the National Corn Growers Association is pressing its case to retain the Volumetric Ethanol Excise Tax, which ensures the viability of domestic diversion of food to fuel at taxpayer expense. Since ethanol fumes seem to have affected the thinking of the present administration, we can abandon hope of rationalizing the nation’s energy supply.
Concepts such as importation of ethanol based on sugar cane from Brazil and the Caribbean, greater use of natural gas, exploitation of offshore oil, expediting nuclear generation of electrical power and advanced coal technology appear to be subservient to a misplaced commitment to corn-based ethanol. With corn at $5.60 per bushel on October 24 and soybean meal above $300 per ton, the prospects of lower feed and food prices and increased consumption appear remote. The situation is exacerbated by strengthening export demand from Asia and the prospect of a La Niña event, which may disrupt world production of grains.
Feed Management wishes readers and supporters a prosperous 2011 and we hope to see you at the IPE/IFE Expo in January.