Farmers feel bite of war, inflation
Costs soar, while meat prices lag
The world's overlapping economic and security crises are sending shockwaves into the de ning Piedmont enterprises that revolve around meadows abundant with hay bales and livestock.
For farmers and food-related businesses, Russia’s invasion of Ukraine, U.S in ation, and China’s lockdown of 40-some cities hit by COVID-19, have ignited a tsunami of economic woes. What’s surprising is the speed with which the disruptions have pushed up prices for nearly everything farmers need to stay in
business — fertilizer, livestock feed, labor and fuel.
Farmers are nervously studying futures markets and steer prices, and finding that the numbers can be scary: According to the Bureau of Labor Statistics, the average price for gasoline rose to $ 4.37 a gallon in April, up from $2.91 a year earlier – a jump of about 50%.
Cereals fed to livestock leapt 34% in April 2022 from a year earlier, a result of in ation and the war in Ukraine. Adding to these stresses is colder spring weather in much of the U.S. farm belt, which has delayed the planting calendar for soy and corn. Fertilizers vary from one farm to another, but a farmer in Woodstock, Va., reported spending 31 cents a pound for potash in the fall of 2020, and 81 cents a pound 14 months later — all before Russia invaded Ukraine, a major supplier of fertilizer, sending prices up further. Mike Sands, who runs Bean Hollow Farm, says that in the last year the cost of urea, a common form of nitrogen for pastures, has leapt to $920 a ton, from $370 a year earlier.
Ironically, the Federal Reserve Board’s medicine for attacking the in ation virus — higher interest rates — raises the cost of another element in the mix — credit.
WORRIED FARMERS MEET GIANT MEATPACKERS
Steer prices paid to farmers are rising too, but not nearly as much as meat prices in the supermarket, and nowhere close to the increases in fertilizer, feed and fuel. One local farmer said the price he recently paid for nitrogen- based fertilizer jumped more than 100% from a year earlier. The price for his 500-pound steers rose to $1.76 a pound from $1.40 a year earlier — only a 26% increase.
Farmers say four international meatpacking companies dominate 85% of the beef business, leaving little negotiating clout among the farmers raising the calves. The meatpacking giants — Tyson Foods Inc., Cargill Inc., JBS USA Holdings, Inc. and National Beef Packing Company LLC — have grown significantly, acquiring dozens of companies in the U. S. and overseas, resulting in a four- company stronghold that dominates the business that slaughters, cuts and packages meat sold in supermarkets and restaurants.
The Biden Administration signaled its concern with meat-industry concentration earlier this year when it sought more funds for the U. S. Department of Agriculture’s oversight of business practices that may harm livestock farmers and consumers. The White House said that for every dollar consumers spend on beef today, farmers bring in 39 cents, down from 60 cents 50 years ago, while hog farmers see only 19 cents on the dollar. Agriculture Department data show that while farmers’ percentage share of overall revenue from beef has fluctuated, it’s been stuck at levels below those in 2017.
Sands, who previously advised a variety of U. S. agricultural companies, says that “the slaughterhouses and processors are doing well, but I worry that farmers may be looking at a range for net profit levels that run from 10% to minus 20%.” As a small organic farm selling directly to customers, Bean Hollow isn’t as dependent on inputs, particularly livestock feed, as middle- sized, mainstream farms. And it’s less beholden to the giant meat-packing companies.
PRESSURE IN THE FOOD CHAIN
Rappahannock farmer Bill Scoggin offers a glimpse into how the cost pressures kick in. He raises “feeder cows” on Rappahannock grass, and while he doesn’t buy costly livestock feed, he needs fertilizer to assure a healthy yield of hay. The fertilizer his fields require cost $ 500 a ton in 2020, rising to $1000 last fall because of inflation and COVID-related supply chain snags. Then came Russia’s invasion of Ukraine, which sent the per- ton price to $1200. Rising fuel costs compounded the stresses.
One local farmer said the price he recently paid for nitrogen-based fertilizer jumped more than 100% from a year earlier. The price for his 500-pound steers rose to $1.76 a pound from $1.40 a year earlier — only a 26% increase.
When Scoggin’s steers reach about 550 pounds, they’re normally sold to various buyers that fatten the animals with increasingly costly cereals — derived from corn, wheat and soy. Ukraine, battered by Moscow’s sweeping attack, can’t ship much of the grain it has stocked, and will see a much-diminished fall harvest; Russia, also a major grain exporter, is reeling from the international sanctions that followed its invasion. Another blow to cereal markets came last week when India, the world’s second largest wheat supplier, announced it was halting exports to address food pressures at home. The upshot is a diminished and less secure supply of grains — and higher prices.
When the heavier “fed” livestock are ready for sale at 1200 pounds or more, the meatpacking giants step in. If U.S. farmers demand higher prices, there are livestock farms in Mexico and other countries that are likely to offer cheaper steers. That means the farms that fatten the animals for their final sale have little room to pay more further down the chain for the “feeder cows” sold by Rappahannock farmers like Scoggin. “All I’m trying to do is hold on,” he says. “But if it stays like it is now, it’ll drive every beef farmer out.”
ANGER TOWARD POLICYMAKERS
Farmers are accustomed to being whipsawed by weather conditions, commodity prices and animal diseases, few of which they can control. But they boil over when they perceive that mistaken policies, or unnecessary global dependencies, are hurting business conditions.
A long-time farmer near Front Royal said his chief gripe is with gasoline and diesel prices, “because fuel affects everything in farming.” He adds: “This is the worst fuel thing I’ve ever seen.”
Local farmers understand that the government doesn’t set gas prices, but they resent the Biden Administration’s push to replace fossil fuels that contribute to climate change. Farmers argue that the U.S. instead should encourage domestic oil and natural gas production to ease future prices. Of course, climate change also hurts farmers through more frequent droughts and floods, but some view these risks as hypothetical, while costlier feed, fertilizer and fuel all hit farmers’ checkbooks today.
China’s hardline COVID lockdown policies, recently affecting about 40 industrial cities, only add to the frustrations. Machine parts “have been held up because of supply-chain disruption,” Scoggin says.
SHAKING THE RASPBERRY MARKETS
The disruptions have hit food-related enterprises as well as farmers. H.B. Wood, who runs Harris Hollow Foods, a Town of Washington-based broker of industrial fruit, purees and juice concentrates, says costs and uncertainties are mounting. On top of inflation effects, the war has upset raspberry markets, since Ukraine had produced significant supplies of the fruit, selling it into the global market through Poland. The war shut down the Ukrainian raspberries, and deprived Polish fruit farms of Ukrainian guest workers, who returned home to help fend off the Russian attack.
Meanwhile, higher gasoline and diesel prices have pushed up transportation costs, and prices for wooden pallets have jumped. Wood says current stresses “have done away with just-intime deliveries” that efficiency-minded businesses once embraced. But the shift to building up inventories has created a new problem: a shortage in refrigerated storage. Altogether, sighs Wood, “it's pretty chaotic.”