combined effects of widespread drought conditions, and
ill-advised government interference in the free market,
have created the potential for a perfect inflationary
storm for domestic food prices.
Over the past quarter century, the United States has
averaged an annual increase of just less than 3% per
year in the cost of food. Last year, our rate of
food-price inflation spiked upward to nearly 5%. This
nearly 50% increase in the rate of food-price inflation
occurred even though the acreage planted into corn was
at, or near, an all-time high, and crop production was
well above average.
At the same time, our national stockpiles of staple
crops like corn and soybeans have been depleted to near
historic lows. This sharp reduction in the level of
stored commodities held in reserve is the direct result
of the huge quantities of corn being diverted to the
production of ethanol. The federal mandate for ethanol
blended fuel, as well as significant federal subsidies
to produce ethanol, has created a huge competitive
market for corn and its surrogate commodities wheat and
The United States produced a record corn crop in 2011
grown on a record number of acres planted to corn. As
much as 40% of that record corn crop was shipped to
distilleries to produce ethanol for use in motor fuels.
Unfortunately, very little of that record crop was added
to our country’s food storage reserves.
This summer much of the U.S. bread belt is suffering
through its worst and most widespread drought in more
than 50 years. The prolonged lack of precipitation is
having a significant negative effect on the production
of corn, wheat, soybean and other staple crops. In fact,
the Secretary of Agriculture has already declared all or
parts of ten states as drought disaster areas.
The price of corn and soybeans is at an all-time high
and wheat prices are currently at their highest level
since 2008. Each of these staple crops is used
extensively in the production of beef, pork, poultry,
and dairy food products. These record commodity prices
will also drive the cost of producing meat and dairy
products sharply higher.
believe that this upward pressure on the price of food
will continue for a number of reasons.
The combined effects of the severe, widespread drought
and the nearly depleted reserves have created a
significant shortage of supply. Additionally, drought
conditions in parts of Europe and Asia will undoubtedly
create more pressure on the demand for U.S. production.
The ongoing federal government subsidies to market corn
to distill ethanol will continue to artificially
increase that demand. This government created demand is
not likely to abate until the ongoing government mandate
requiring ethanol blended fuels is ended.
Higher energy costs to plant, irrigate and harvest crops
will continue to drive the cost of farm production
higher. These higher energy costs are largely the result
of ongoing government mandates to produce uncompetitive
alternative renewable energy such as wind and solar
power as well as biodiesel.
Crop production on the more marginal lands will
decrease, or be discontinued as escalating energy costs
exceed the value of the crops that farmers are able to
Irrigated lands are often among the most productive
farmlands. However, these lands are also located in the
more arid climates where they are often incapable of
growing crops without irrigation. They are among the
most vulnerable to be caught in the squeeze between
production costs and the value of the crops produced.
These producers have limited control over the energy
costs required to provide water to their crops.
As we travel around the Pacific Coast states we see
increasing evidence that escalating energy costs for
irrigation are already forcing many producers out of
business.The loss of production from these lands will
further reduce the supply of food commodities.
The amount of food price inflation at the retail level
will depend on a number of factors.
Currently there is a great deal of speculation in
commodity food prices. The futures trading on corn,
wheat and soybeans is driving prices to record levels as
dealers anticipate severe shortages in commodity
These record commodity prices are in turn driving cattle
prices sharply downward as cattle producers factor in
the rapidly increasing costs of feeding their livestock.
Drought conditions and widespread western wildfires have
also depleted traditional summer feed supplies forcing
many cattlemen to reduce their herd numbers. While those
factors have reduced cattle prices in the short term,
the longer term forecast is for higher retail beef
prices due to short supplies and the high cost of
Pricing for dairy, hog and poultry products are
intimately tied to the costs of commodity feeds and have
already experienced significant increases at the retail
level. These increased retail prices are not likely to
fall until either the commodity feed prices decrease or
consumers reduce their demand due to the higher pricing.
Our nation has certainly experienced drought conditions
and poor crop production in the past. So what is
significantly different this time? Our historic food
commodity reserves are at near all-time lows and federal
government energy policies are creating unprecedented
demands on supplies as well as creating huge artificial
increases in energy costs that are driving retail food
prices ever higher.
From my perspective, the only outcome is sharply higher
retail food prices in the foreseeable future.
remember, if we do not stand up for rural Oregon no one