With corn prices soaring and increased pressure on this year's corn crop because of flooding in the Midwest, the National Pork Producers Council last week called for the federally-mandated target for corn-based ethanol production to be cut in half. NPPC cites the prospect of significant numbers of hog producers going out of business because of skyrocketing feed costs.
In comments submitted to the federal Environmental Protection Agency, NPPC urged that the state of Texas be granted a waiver of the Renewable Fuels Standard or RFS. NPPC wants the amount of biofuels—ethanol is the most viable biofuel that can be made in large supply—that must be produced in 2008 to be reduced to 4.5 billion gallons from 9 billion gallons. EPA must make a decision on the waiver requested by Texas Gov. Rick Perry by July 24.
Pork producers have been feeling the pinch of higher prices for feed, which accounts for 70% of the cost of raising a hog, say officials of NPPC, which is headquartered in Des Moines, Iowa. Feed grain prices already were increasing starting in the summer of 2006 because of the rapid rise in ethanol production. Since then, increased global demand for grain, drought in parts of the world and the RFS requirement, have fueled even higher grain prices.
Hog producers losing money big time
A bushel of corn for July delivery now is selling for more than $7 compared with about $2.60 in July 2006. From September 2007 to April 2008, corn prices rose 124% and soybean meal prices went up 94%. During that time, pork producers lost an average of $30 on each hog marketed.
"The U.S. government's intervention in grain markets, by mandating the RFS, has created one of the most severe economic crises to ever hit pork producers," says NPPC president Bryan Black, a hog producer from Canal Winchester, Ohio. "The impact on the pork industry and its customers will be devastating as herds are culled, producers go out of business and pork prices skyrocket."
Making matters worse, the recent flooding in the Midwest and delayed plantings because of a cool, wet spring have pushed corn yield forecasts significantly below earlier projections. USDA recently reduced to 149 bushels from 154 bushels its estimated average yield per acre. That expected shortfall along with a mandated 38% increase in ethanol production over last year has hog producers very concerned about having physical access to corn to feed to their livestock.