food vs. fuel...meat price spreads have expanded significantly over time 7 beef price spreads pork...
TRANSCRIPT
![Page 1: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/1.jpg)
FOOD vs. FUEL: “FIGHTING YESTERDAY’S WAR”
June 20, 2014
Presented to:
The Congressional Black Caucus
Scott Richman
Senior Vice President
![Page 2: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/2.jpg)
©
Debating the Effect of Ethanol on Food Prices Is “Fighting Yesterday’s War”
2
Ethanol Production Capacity:
The Construction Boom Ended a Few Years Ago
Average Annual Change in
Corn Usage for Ethanol
![Page 3: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/3.jpg)
©
THE REARVIEW MIRROR: What Caused Increases in Food Prices?
3
![Page 4: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/4.jpg)
©
Quick Perspective: Year-to-Year Change in the Food CPI Compared to the Core CPI
4
![Page 5: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/5.jpg)
©
Little Long-Term Relationship Between Corn Prices and Consumer Food Prices
5
Crop Marketing Years 1985/86-2012/13
![Page 6: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/6.jpg)
©
Components of the Consumer Food Dollar: Farm Share vs. “Marketing Bill”
6
![Page 7: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/7.jpg)
©
Meat Price Spreads Have Expanded Significantly Over Time
7
Beef Price Spreads Pork Price Spreads
Margin compression within the livestock/poultry/meat value chain – including at the
producer level – has limited the impact on consumer food prices from higher feed costs
and drought-reduced cattle inventories.
![Page 8: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/8.jpg)
©
Do Changes in Energy Prices “Lead” Changes in Food Prices?
8
Energy costs affect all levels of the food supply chain, including
inputs, farming, processing and transportation and distribution.
![Page 9: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/9.jpg)
©
Ethanol Has Not Even Been the Sole Driver Of Corn Prices, Much Less Food Prices
Drivers of corn prices at various times
since 2006:
◊ Ethanol production growth;
◊ Reduced corn acreage (2006);
◊ Below-trend yields;
◊ Severe domestic drought;
◊ Foreign drought (record U.S. exports);
◊ Delayed planting;
◊ Record corn crop;
◊ Skyrocketing crude oil prices;
◊ Falling crude oil prices; and
◊ Livestock/poultry developments (tend
to occur more slowly).
9
![Page 10: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/10.jpg)
©
THE ROAD AHEAD
10
![Page 11: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/11.jpg)
©
Good Start to the 2014 Corn Crop Provides Further Downside Potential for Corn Prices
11
Corn Planted Acreage Corn Crop Condition Index
![Page 12: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/12.jpg)
©
Livestock and Poultry Numbers, Expressed as Grain Consuming Animal Units
The PED virus remains a risk to the hog sector.
12
![Page 13: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/13.jpg)
©
Despite EPA Proposal, Ethanol Production Strong. Low Prices vs. Gasoline Save Consumers Money.
13
Weekly Ethanol Production Ethanol Price vs. Gasoline
Source: OPIS Source: EIA
![Page 14: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/14.jpg)
©
CONCLUSIONS
14
![Page 15: FOOD vs. FUEL...Meat Price Spreads Have Expanded Significantly Over Time 7 Beef Price Spreads Pork Price Spreads Margin compression within the livestock/poultry/meat value chain –](https://reader036.vdocuments.us/reader036/viewer/2022071107/5fe1114293a0c22255036305/html5/thumbnails/15.jpg)
©
Conclusions
Ethanol is a convenient target but has not been the sole driver of:
◊ Corn price changes;
◊ Recent livestock sector difficulties; or
◊ Especially consumer food price increases.
Not saying that ethanol has had absolutely zero impact.
Corn inventories have been replenished.
Meat prices will take time to subside:
◊ Beef:
Cattle inventories already reduced due to high feed prices and Southern Plains drought.
Biological lag – will take time for cattle numbers to recover and beef prices to subside.
◊ Pork: Rebound in hog production affected by PED virus. Uncertain future impact.
It’s time for the ag, livestock/poultry, food and energy sectors to look ahead.
◊ Build-out of corn-based ethanol production capacity is essentially done.
◊ The portion of RFS2 for which corn-based ethanol is eligible is capped after next year.
◊ Good prospects for a large 2014 corn crop.
15