With all the talk about corn and energy prices, there’s been a lot of focus on the negatives in the marketplace. To be sure, the structural changes in our industry are the most significant we've seen in more than a century. They will change the industry, and in some cases not for the better.
Still, it’s also good to step back and look through the trees to the forest. Actual numbers, whether in the fed market or on the feeder and calf side, will remain tight. The dollar has shown signs of strengthening; and the commodity explosion that threatened to upend the economy and spiral inflation has wavered.
The impact of the ethanol craze on corn prices was muted to some degree by the largest crop in history last year, and this year’s harvest, which is expected to be the second largest. While numbers are tight, actual production totals are running nearly 2% above last year, indicating beef demand has remained stronger than most expected, what with disposable income falling for most consumers.
In addition, our export markets are returning. Drought conditions have lessened in most areas of the country. And prices are expected to continue to be near or set new historical highs for quite some time.
Certainly, prices don't equal profits. Input costs have outstripped prices, and both the packing and feeding industry have seen periods of record losses recently. But the underlying fundamentals are that our product is getting better, we’re doing a better job of responding to consumer desires, and efficiency is continuing to improve.
Supplies will remain tight, and the shocks of BSE and ethanol subsidies, which, while still having their impact, are being mitigated daily as we adjust to the new realities in the marketplace. Most importantly, the soaring price of food – up 15% in the last two years – has made the average consumer think about how important agriculture is in their daily lives and to their overall well being.
That should mean that government policies that have adverse affects on food production will be looked at more closely by the average American. All in all, this industry is likely to emerge stronger and more vibrant than ever.