Inside the Market

By Todd Hultman, DTN Lead Analyst

We often hear about the glories of American farmers and ranchers feeding the world, usually in commercials trying to sell us something. When I hear this, my first thought is: If feeding the world is so important, maybe somebody should pay farmers and ranchers for their work?

I'm not trying to be crass, but I suspect many don't understand how difficult it is to operate in markets that are stuck in perpetual surplus. Don't get me wrong: I don't hear producers complaining, and they are keenly aware of the risks they face -- weather in its many forms, disease and pests, to name a few.

Financially, there is always a risk of unforeseen events, and 2020 stands out as the poster child thanks to the global pandemic. In 2020, many farmers and ranchers are suffering large financial losses outside the scope of their control.

If we go by USDA's national estimates of production costs and what prices are expected to bring in 2020-21, corn will lose $89 per acre, and soybeans will lose $41 per acre. According to Iowa State University (ISU), those who purchased 560-pound feeder steers to finish at 1,300 pounds lost $144.67 a head in the October 2019 to June 2020 period. Farrow-to-finish hog production lost $23.30 a head in the November 2019 to June 2020 period (see ISU Estimated Livestock Returns at www2.econ.iastate.edu/estimated-returns). In some cases, hogs were euthanized as packing plants were unable to keep up with the normal flow of supplies.

CFAP HELP

In May, USDA announced financial help in the form of the Coronavirus Food Assistance Program (CFAP). The help is welcome, but the aid was small in relation to the losses suffered. Honestly, it is difficult to expect more knowing the government has already taken on a mountain of debt to help many people hurt by the pandemic.

In this particular situation, farmers and ranchers took on a new financial expense that I don't recall having encountered in such a large way before. The Tyson fire, in Holcomb, Kansas, was a small preview; but in 2020, it became clear that it was farmers and ranchers who bore the bulk of the financial burden when packing plants and restaurants closed, and transportation came to a screeching halt.

Retailers saw goods fly off the shelves, and packers watched profit margins soar; but farmers and ranchers, operating with the smallest fraction of the food dollar, suffered disproportionate losses.

I don't know when this pandemic will end or the next one might come along. But, is this how it's going to be? For the few cents that go to a farmer from a loaf of bread, do we really expect him to shoulder the costs of a broken food-supply system?

The solution is uncertain, but I would say those in agriculture know something is deeply wrong. Instead of passing the hat and pretending everything will be fine, maybe it's time we had a larger conversation about the financial participation of others in the food-supply chain.

> Read Todd's blog at about.dtnpf.com/markets.

> You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

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