While Kentucky's corn and soybean crops managed to avoid the extensive flooding across the Midwest in June, the forecast hasn't been all sunshine for the state's farms and other grain and livestock-dependent businesses.
The USDA reported on June 30 that, in part because of the flooding damage that swept across key Cornbelt states including Iowa, roughly 9 percent fewer acres of corn are expected to be harvested this year nationwide, although farmers had planted over a million acres more than initially expected in March.
The news slightly eased the pressure that had sent corn prices soaring to record highs in late June, but according to livestock farmers and related local business owners, the flooding has only been the latest in a string of price-escalating factors affecting their businesses.
As feed contracts for many of Kentucky's 1,071 dairies run out in August and September, those farmers face more than 50 percent increases in feed costs over last year, in an industry where feed represents the majority of a farmer's input costs, said Maury Cox, executive director of the Kentucky Dairy Development Council, a non-profit association of dairy producers and allied industries.
The increases will drive some out of business, Cox said, while others transition to using more forage and less grain for their animals, which could mean less milk production.
"This is a new paradigm for markets, and we're not seeing the end of the road here or some adjustment," Cox said.
Rising feed costs also concern Kentucky's cattle industry, coming at a time when the state has done well in increasing its cow herds over the last decade, with former tobacco farmers focusing on cattle, said Dave Maples, executive vice president of the Kentucky Cattlemen's Association.
Kentucky has a high concentration of cow-calf operations, which feed heavily on grass, but they depend on large-scale Midwestern feed lots to buy calves, Maples said. Higher corn prices could potentially cause some of those feed lots to go out of business or consolidate.
While prices have held well for cattle, last year's drought took its toll on herd sizes in the state, Maples said, and as land prices and other costs increase, fewer young farmers have been able to break into the business.
"There's a lot of optimism out there, but there's sure a lot of uneasiness, too," Maple said.
The root of that uneasiness can be traced back to more than the recent flooding disasters, said Larry Jones, professor of agriculture economics at the University of Kentucky, who pointed to poor weather in other parts of the world, a weak U.S. dollar, a growing market for fuel alternatives, and strong demand for higher-value foods in quickly developing countries like China and Brazil as factors.
"Livestock producers are really getting squeezed because their costs are going up very rapidly," Jones said. In the short run, that results in more meat supplies coming to market as farmers liquidate their herds, which has helped to keep meat prices stable.
"In the coming months and the next year or two, those livestock supplies will not be available, and that's when I think you're going to see meat prices, and dairy prices too, really go up dramatically," Jones said.
Meanwhile, Kentucky corn and soybeans may see a boost in price this year, but the state's grain growers are not too quick to celebrate.
Aaron Reding grows corn, soybeans and wheat on a few thousand acres in Nelson, Larue and Marion counties near Bardstown, in addition to raising hogs and cattle. Even if the crop and the high prices hold for grain growers like him, Reding said, there are long-term ramifications to consider if higher feed prices result in fewer pig, cattle and poultry farms to buy their product in coming years. At the same time, expenses for the nation's grain farmers have also been on the rise, reducing the profit they can expect from any high-price windfall. In recent years, Reding's fertilizer and chemical costs have tripled, and seed, fuel and equipment costs have skyrocketed as well.
"It almost scares me to death to think how much more money I'm risking this year, with absolutely no assurance that I'm going to have a crop, than I have in anytime in history," Reding said. "I hope to God we do have a good crop, because we're going to need it to pay the bills."
Though increasing energy prices have pushed up costs for grain farmers, Kentucky agriculture is still looking at a very positive economic picture in the short term, Jones said.
While Jones projects record net farm income this year, businesses that rely on corn and livestock are bracing themselves for the higher input costs predicted for the coming year.
For Louis Hager, owner of the Heavenly Ham store in Lexington Green, the impact of the flooding has been more direct. The company's Columbus, Ind.-based ham and turkey supplier flooded when a broken levee swelled a nearby creek and sent a log crashing into its plant, Hager said.
Hager quickly ran through his available stock and then started scrambling to find more, eventually contacting a second supplier to help his business get by until his regular shipments resumed. The plant was repaired swiftly, but the supply disruption continued into the first week of July, as they awaited the necessary government inspections and approvals, Hager said. At presstime, the store was expected to return to its normal delivery schedule by July 4.
In the meantime, Hager had to turn away some customers, which has been especially difficult for his business in the current economic climate, he said.
When customers come in and want to purchase product, it's hard to tell them we don't have any hams or turkeys," Hager said. "We've been real fortunate in that we've got great customers and they understand the situation."
But Hager and others are still waiting to see what effect the rising feed prices will have during their busy season in November and December.
HoneyBaked Ham was experiencing a spike in raw materials costs, specifically those associated with hog feed, as early as April and May of this year, said Craig Kurz, the company's CEO and a 1984 UK graduate.
The costs can't be passed on dollar-for-dollar to the consumer, Kurz said, and his company is not going to compromise on the quality of its processing by looking for short cuts. Aside from looking to improve efficiencies, Kurz expects the rising costs will ultimately result in lower margins.