REALITY CHECK: FARMERS SAY DROUGHT NOT LIFTING US AG PRICES
By Gary Rosenberger
NEW YORK (MktNews) - While crops wither and animals suffer under a brutal onslaught of drought heat, consumers are not likely to feel much of an impact in their pocketbooks, say farmers and other industry sources.
The main factor siding with consumers is that the drought, however severe in places, is too localized to push most agricultural commodity prices from their current depressed levels, they say.
World inventories of most fruits, grains and vegetables are plentiful, export markets weak, and the drought is unlikely to put much of a dent on overall supply, they add.
Wheat production in the Midwest may actually have been helped by timely hot, dry weather, one agricultural official says.
California's San Joaquin Valley, a center of fruit and vegetable production, reports no production problems resulting from a recent heatwave there in July.
Beef and pork production are also not affected in dramatic enough a fashion to prompt any price spikes one way or the other, industry officials add.
A random survey of other agricultural commodities like beef, pork, wheat, fruits and vegetables indicated no likely price hikes to come as a result of drought conditions.
"The drought will have an impact (on beef production) in some isolated regions, but nationally probably very little impact," said Chuck Lambert, economist for the National Cattlemen's Beef Association.
He noted that there has been no wholesale killing of cattle in response to the heatwave and drought.
"They're just being transported into high rainfall areas out West" rather than be prematurely slaughtered, Lambert said.
That bodes for price stability because there is no rush to market to precipitate a temporary price fall -- that is almost invariably followed by price rise due to shortage, he said.
"If there is any increase in (the slaughter of) dairy cows, it's being absorbed by the market," he said. "Head cattle prices are holding stronger than we would have anticipated."
Lambert also noted that cattle ranchers continue to reap the benefits of low grain prices and interest rates that remain low despite recent increases.
Steven Cohen, a spokesman for the National Pork Council, noted that "environmental controls" have minimized the potential for heatwave-related damage.
Any decreases in pork production would be limited "to small farmers who grow their own feed," he said.
"I wouldn't say the heatwave had a profound impact," he said.
Chris Holdgoreve, of the National Association of Wheat Growers, said drought has not hurt wheat production and may even in some cases have helped improve the quality of the latest wheat harvest.
That means good news for consumers but bad news for farmers who have suffered from a longstanding global inventory glut and ensuing low prices, he said.
Holdgoreve said the wheat harvest was getting underway at the outbreak of the heatwave in the grain belt -- a circumstance that would not likely hurt production.
"In some ways, a drought at the right time can be beneficial because it ups the protein content of wheat," he said. Matt McInerney, senior vice president of the Western Growers Association, noted no drought-related price spikes for fruits and vegetables grown in regionally.
"We haven't seen the drought in the East Coast and Midwest affect the market price or the demand for our product," McInerney said.
"Farmers I've spoken to said it would have been nice if the drought had affected the market price of their crops," he said.
In point of fact, heavy snowfalls in the Sierras this past winter meant no shortfall of water for irrigation, despite the mild taste of heatwave in and around California.
"With respect to availability and access to water, I would say it's business as usual -- there's been no rationing of water for irrigation," he said.
In fact, despite some bouts of unusually hot weather, California has had a milder than average July, McInerney said.
Florida crops also were spared thanks to the timing of the drought, said Ray Gilmer, a spokesman for the Florida Fruit & Vegetable Association.
"Florida crops are not at risk with current weather conditions," Gilmer said.
"There is no vegetable crop currently planted -- vegetable production starts in September, citrus will not begin harvesting until about that time, if not a bit later," Gilmer added.
"Virtually all Florida farms have irrigation to deal with dry weather -- we always appreciate the rain, however," he said.
However, one drought-stricken dairy farmer predicted a possible impact on milk prices stemming from a heat-related lull in production, but no change on any other commodities.
"I don't agricultural commodity prices will change much," said Ronald Wood, a dairy and corn farmer at the Gor-Wood-D farm in Mansfield, Pennsylvania.
"We're seeing such a huge carryover from last year that it hasn't put a dent on the global supply -- while American farmers suffer, Brazil and Argentina are having bumper crops," he said.
Wood said his own corn crop is suffering. "The next two weeks are crucial -- our corn is tasseling, and if it doesn't get rain it ends up immature," he said.
His milk cows are also hurt by heat and drought, but he acknowledged that the problem is spotty and the impact on overall milk production uncertain.
"If you look at western New York, they're having their best year ever -- but if you look North of Albany or Eastern sections of New York, they're burning up," he said.
"For us, it's very, very bad. The cows are suffering terribly," Wood said. "There's no way you can get sustained production in 90 degrees. You read about the (human) deaths related to heat, for animals it's no different." Wood believes the lack of milk production at farms will eventually exact a toll on supply and elevate prices, but it hasn't happened yet.
Currently, the basic price of milk at the producer level is about $12 per hundred pounds, down from last year's price spike at about $17, he said.
"For the past three months the price has been too low," he said, noting that $14 milk is what it would take to keep his farm running profitably.
"I would tend to think milk prices will go up -- it's just common sense that comes from 30 years of farming," he said.
"I can't believe there's enough milk out there to keep processing plants running at full capacity," he said.
"I imagine ice cream sales must be skyrocketing -- eventually processors will start to bid against each other for whatever supply of milk there is and will be passed on to the consumer," Wood said.
He noted that the one saving grace of the worldwide agricultural commodity glut is that his feed grain costs have remained low.
But he said some of his neighbors suffer more than he does because they have overextended their resources.
"Suddenly they get two cuttings of alfalfa and grass when before they got four -- it's a very stressful situation," he said.
Wood also scoughed at the $10.8 billion in farm relief announced Monday, noting that "interest-free loans" won't help most troubled farmers. "Most farmers I know can't absorb any more debt, period," he said.
The Labor Department is scheduled to release July PPI data on Friday, Aug. 13 at 8:30 a.m. EDT. June PPI was down 0.1% after a 0.2% rise in May.
The Labor Department is scheduled to release July CPI data the following Tuesday, Aug. 17 at 8:30 a.m. EDT. June CPI was unchanged after being unchanged in May.
Editor's Note: Reality Check stories survey sentiment among business people and their trade associations. They are intended to complement and anticipate economic data and to provide a sounding into specific sectors of the U.S. economy.
>>>I would tend to agree with you. Perhaps, the prices consumers
>>>pay with little pass-through to farmers as the article above
>>>seems to indicate. |
