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US corn crop expected to set record, but consumers unlikely to reap benefits

Editor's note: About midway through this story, the writer asks and then answers, "So, if consumers aren't benefiting from the historically plentiful crops, who is? ... The answer: dairy and meat farmers, who feed these staples to their animals." Well, what about the agribusiness giants that dominate the market? -- RS

(Friday, Aug. 15, 2003 -- CropChoice news) -- Chicago Tribune, 08/14/03: While this summer's corn and soybean crops are forecast to be among the most plentiful ever, shoppers are unlikely to reap any savings at the grocery shelf.

The U.S. Department of Agriculture reported Tuesday that the 2003 corn harvest is on track to be the largest in U.S. history. The soybean harvest is expected to be the second-most-abundant ever, though wheat production is suffering somewhat from hot weather.

But, in spite of the record forecasts, traders and industry watchers had been counting on crops to be even more bountiful. The reduced crop forecasts propelled corn prices up 5 percent, wheat prices up 0.7 percent and soybean prices up 3 percent.

"Compared to last year, this is good news," said Matt Roberts, an agricultural economist at Ohio State University. "Compared to before the report came out, this is bad news because the market expected better results."

Roberts has a point. By historical standards, farmers are expected to bring in some of the most successful harvests ever. Prices, as a result, are low.

And yet consumers are expected to pay more in grocery bills. This year, some of the country's largest foodmakers -- including Kellogg Co., Kraft Foods Inc., and General Mills Inc. -- announced plans to boost prices by about 2 to 3 percent, citing increased energy costs.

So, if consumers aren't benefiting from the historically plentiful crops, who is?

The answer: dairy and meat farmers, who feed these staples to their animals.

That's because an overwhelming portion of the cost of producing animals is in the feed. In carbohydrate-based foods, by contrast, most of the cost is in processing, not the actual soybeans, corn, wheat and other crops.

Consequently, the prices of most snacks and cereals on the supermarket shelf have almost nothing to do with the costs of the agricultural products from which they're made, said Robert Wisner, an agricultural economist at Iowa State. He said only 2 cents of every dollar of the price is affected by commodity ingredients.

"Most food is so processed that the cost of corn and soybeans has almost nothing to do with what consumers pay," Wisner said.

He explained that marketing, boxing, transporting and processing have a much greater impact on how much shoppers ring up at the register.

Meat and dairy production, however, is another story.

Most meat and dairy farmers dedicate between 65 percent and 75 percent of their overall budget just to feeding the pigs, cows and chickens that Americans eat, economists say.

So when grain costs plummet--as has happened over the last year -- the savings in the dairy and meat industries are substantial.

"I'm encouraged that prices are down since last year," said Jamie Willrett, a cattle farmer in Malta, Ill., about 70 miles west of Chicago. "The cost of corn is a substantial part of my business -- 65 percent of the cost of finishing the cow."

Malta's herd is 2,500 head strong. In the average year, he spends $115 to feed a single cow. These days, he estimates that he is able to shave $10 from that.

And consumers eat the difference.

Wisner estimates that in a pound of pork roast costing about $2.50, $1.60 of that "could be related to the cost of the feed," he said.

"So with meat products, consumers see a much more noticeable impact than they do with cereal or bread, where much more processing goes into the food before it gets to the retail level," he added.

Indeed, the beef industry is enjoying the benefits of the expected crop bounty.

"This year is going to be the first profitable year we're going to have for two to three years," said Gregg Doud, chief economist for the National Cattlemen's Beef Association. "One reason why is we've had very affordable corn."

The USDA report estimated that the U.S. corn crop will surge to 10.06 billion bushels, up 12 percent from last year, and the soybean crop will rise to 2.86 billion bushels, up 5 percent from last year. Total wheat production is forecast to be 2.29 billion bushels, up 42 percent from last year.

The report also noted that farmers fared quite differently depending on where they are based. Those with fields east of the Mississippi benefited from plentiful rainfall, while those west of the river are dealing with persistent drought.