Ethanol Impacts

SwineCast 0653 Show Notes:

• While ethanol production has turned corn stocks into fuel, the growth curve should begin to flatten in coming years according to Purdue Ag Economist Chris Hurt.  He spoke to producers at the 2011 Boehringer-Ingelheim Carolina Swine Health Seminar.

SwineCast 0613 Show Notes:

• Economist Dr. Steve Meyer shares thoughts on the impact of ethanol policy on grain markets and who eventually pays for the diversion from feed supplies.

Sometimes the simplest expression of gratitude are the most profound. This Thanksgiving season, we encourage you to use social media to show just how thankful you are for the food we enjoy every day. In doing so, we will also be thanking those many people and industries who bring food to our tables.

Ways to share? Facebook, Twitter, and LinkedIn are some starting points.

     Taking a look at the Lean Hog Futures contract prices one really wonders whether we are setting up for the same situation as last year.  Everyone knows that hog prices will get substantially higher over time but the question is a little confused by the seasonal pattern.

     Current prices indicate that packers are making a lot of money since their demand is the sum of both domestic demand and international demand.  The futures today and for the recent past show the December contract above the October for 2008, even though the volume of animals in the fourth quarter of the year almost always is the highest volume of the year.

     Externalities is a concept in economics that I have written about here before but is rapidly becoming the lynchpin argument behind efforts to curb capitalism on a global scale.  It is the primary focus of the attack on modern swine production at the present time at almost every level and across almost any dimension of production (from antibiotic use to shipping products across the ocean).  

Recently I spent a week in London and everywhere I went I noticed how cars were getting smaller and smaller as Londoners faced the skyrocketing cost of fuel. The typical public service worker in London makes about 26k (pound sterling) and the typical private sector worker makes about 35k (pound sterling). They buy their gasoline by the liter and it costs about 4.5 pound sterling a gallon. As I have mentioned, if you are a tourist from the U.S. that's about $9/gallon if you rent a car.

There were a lot of very strange looking conveyances which I suppose classify as cars including the so-called Smart Car. You can check one of these out at www.smartcarpictures.com.

After nearly getting there on June 24 of this year, the June 2009 Lean Hog Futures contract on the CME closed above $100 today.  It opened trading in mid April of this year in the high $80s.  If that price holds, it represents a near doubling of the carcass price for hogs since January of this year.

Don't worry though, we are constantly reminded that such a small percentage of commodity costs roll into the final retail price that you will probably not even notice this impact for the summer barbeque season next year. 

As for me, I'm still on the "buy the biggest freezer you can afford and fill it now" kick but you can wait if you like.  Try to get the cryovac type packaging if you take my strategy, it freezes well for a lot longer than the typical cellophane wrapped cuts. 

One of the consequences of moving to a new equilibrium trading range for commodities is that most of the contracts which define the relationships among cooperative producers have become woefully inadequate and are in need of major revision.

Among others, these contracts include weaned pig purchasing agreements, production contracts where the grower supplies feed, many packer contracts (at least those with a price risk management feature) and contracts which include a "basis" calculation to establish a price.

The typical forms of the weaned pig purchasing contract are 1) a flat fee with a trading range to establish a minimum and maximum and 2) some factor times the deferred lean hog contract. The permanent escalation of feed ingredient costs now make these contracts inadequate to properly compensate the parties.

News comes this week that the Belgium beer brewer, InBev is considering making a move to acquire St. Louis beer maker, Anheuser-Busch. Rapid consolidation in the beer business has been going on world-wide for a long time with many of the local brews with hundreds of years of history in central and western Europe being rolled up into giants like InBev and SABMiller of London. The same has been taking place in Mexico and South America where local beers with brand value are giving way to acquisition as either next generation family members don't want to or can't manage the businesses or the economics of scale make consolidation compelling.