Lexington, KY - The summer season is traditionally the most popular time for grilling and cookouts, but the price of doing so is expected to be higher this year, at least according to some reports.
The Kentucky Farm Bureau conducts food price surveys throughout the year. The first quarter of the year in Kentucky did not see drastic increases, at least at the retail end. The survey indicated the total cost of 40 basic grocery items was $103.62 - down by $1.66, or approximately 1.6 percent, from the same list of items reported in the fourth quarter of 2009.
The review also reported that the beef category showed the greatest total decline, with an average price drop of 9.5 percent. However, certain beef items, such as ground beef and chuck roast, showed increases from January to April.
Nationally, the story is a bit different. According to figures from the USDA, the retail price of all meats rose almost five and a half cents from November 2009 to April of this year.
The reasons for higher prices vary, but some industry groups blame, in part, the federal mandate to use much of the nation's corn crop for the production of ethanol. The National Corn Growers Association reports that 2.3 billion bushels of the 2007 corn crop were used to produce 6.5 billion gallons of renewable fuel. Currently, close to a third of the nation's corn goes toward ethanol production.
Kentucky agricultural organizations and experts believe the cause of rising meat prices is likely a combination of reasons.
Corrine Kephart, president of the Kentucky Cattlemen's Association, said she feels the rise in beef prices comes from a couple of summers of bad weather and a down economy.
"I think the reason the cost of beef is going up right now is simple supply and demand," she said. "You look at the fact that two or three years ago we started into a drought. Different parts of the Western United States have been in drought conditions for several years running, and the size of the cowherd has been shrinking. Folks have had to disperse their cows because they can't feed them. It doesn't have as much to do with ethanol as it has to do with a lack of forage resources."
Kephart also said she felt like the situation was more about speculators in the market who are just trading contracts.
"If you look back when corn and beans went through the roof a few years ago, a lot of that was driven up just by the speculators. That was when the talk of ethanol got hot and heavy, and more plants were being built, so they started buying and trading contracts," she said. "That drove the prices up artificially and had nothing to do with the amount of corn on hand or that was expected to be harvested that year."
Bernard Peterson grows corn in south-central Kentucky and said that, while the cost of corn was too high for livestock producers to make money a couple of years ago, ethanol production is not the problem.
"A whole lot of that was corn went up too fast and the meat market lagged behind," he said. "I think we are doing better now as far as the ratio of corn prices to meat prices. The consumer complaining about ethanol making their food high is bull. My opinion on ethanol for a long-term solution to the world's energy crisis is (that) I don't hardly think it's the right answer."
But using corn for ethanol is another matter.
"Do I like it? You're darn right I like it," said Peterson. "It's helping my bottom line. In support of the American farmer, the ethanol industry said how many billions of bushels of corn they wanted, and what did the American farmer do? He produced it. Somebody said you couldn't do it again; he did it again. We are good at what we do. Not to brag, but damn it, we are. We keep finding a way to produce a better crop, a bigger crop, and getting more corn acres in the ground."
Lee Meyer, an extension professor in the Department of Agricultural Economics at the University of Kentucky, said that while increased ethanol production from corn certainly has the ability to contribute to increased meat prices, it isn't the only reason.
"When we started using corn for ethanol and subsidizing that, we really boosted the demand for corn, and so prices went up accordingly," he said. "Now, parallel to that, retail food prices went up back in 2008, and a lot of people associated the two of those with each other. I don't really think there was a strong association. Because they both happened at the same time, people took them as cause and effect, but I don't think that was really true."
Meyer added that since then, however, those very high corn prices really hurt the profitability of the livestock industry.
"You can look at budgets, and the cost of gain on cattle went from under 50 cents per pound of gain to as high as 90 cents for a while," he said. "Feedlots were losing money, hog producers were in terrible shape and chicken producers were losing money too, because all those industries really depend on corn as a major feed ingredient."
Ultimately, production and consumption decreased, said Meyer, down considerably per person from four years ago.
"With a lower supply, prices are starting to go up, and that's what we are going to see into the future over the next year, probably," he said.
Meyer also said things like fuel cost and drought conditions contributed to the situation, as well as other factors like the economy.
"A big chunk of the beef industry is driven by away-from-home food consumption. When people quit eating at nice restaurants and (start) eating at home, that affects prices for beef especially," he said. "As the economy strengthens and people get more optimistic ... people will go back to those away-from-home eating habits, and that is going to increase meat prices as well."
David Ray, vice president of public affairs with the American Meat Institute, said the federal mandate on the production of ethanol has been a major reason meat prices are climbing.
"The government, in essence, at the end of 2007, created a new domestic market for corn, and corn prices responded almost immediately," he said. "In 2008, which would be the first year of the corn-based ethanol mandate, corn prices quadrupled, making it impossible for some livestock and poultry producers to make a profit. Since corn is the major input into the animals we eat, animal agriculture found itself in a real pinch."
Ray added that in response to this increase, livestock herds and poultry flocks were reduced in numbers, which reduced the supply of meat for consumers.
He also pointed out that, while there have been a number of other reasons that helped contribute to the increase in meat prices, government mandates are issues elected officials can address.
"In animal agriculture, we are trying to raise the question of whether or not a government mandate to burn a large component of our feed as fuel is in the best interest of the nation and raises the question as to whether it is sustainable in the long term, because we do not believe it is," Ray said. "In the long run, we want to get to a policy where we are not being forced to burn our food to fuel our cars."
A little history
The issue of using food-based fuel stocks took center stage in 2005 with the implementation of the Renewable Fuel Standard (RFS) program, created under the Energy Policy Act.
According to information from the Environmental Protection Agency (EPA), the program established the "first renewable fuel volume mandate in the United States," requiring 7.5 billion gallons of renewable fuel to be blended into gasoline by 2012.
Under the Energy Independence and Security Act (EISA) of 2007, the RFS program was expanded and "increased the volume of renewable fuel required to be blended into transportation fuel from nine billion gallons in 2008 to 36 billion gallons by 2022."
Last February, the EPA released information concerning a rule with changes to the RFS program as required by the EISA of 2007. In that report, the agency addressed "agriculture sector and other related changes," stating, "In 2022, the increased use of renewable fuels is expected to expand the market for agricultural products such as corn and soybeans and open new markets for advanced biofuels. We estimate that the National Renewable Fuel Standard program (RFS2) would increase net farm income by $13 billion dollars - in 2022. We also expect corn exports to decrease by 8 percent and soybean exports to decrease by 14 percent. The rule is expected to increase the cost of food $10 per person in 2022."
While most experts agree there are multiple reasons for meat price increases, the major causes vary depending on which side of the fence they reside.