Thursday, March 13, 2008

Chicken processor, hurt by feed cost hikes, hopes to mobilize consumers against ethanol subsidy

The new CEO of Pilgrim's Pride Corp. "is hoping that consumers, angered over rising food costs, will join meat-industry lobbying efforts to reduce U.S. corn-based ethanol production," reports Richard Gibson of Dow Jones Newswires. "That production has diverted millions of bushels of corn and caused other feed-grain costs for the big poultry producer to more than double in the past two years, CEO Clint Rivers said in an interview."

The company, based in Pittsburg, Tex., recently announced that it would close its plant in Siler City, N.C., and some distribution centers, eliminating 1,100 jobs and 2 percent of its production. "Products are selling below cost, and we have to get some product off the market," Rivers said, adding that he is negotiating with big customers such as KFC and Wendy's. He said consumers are still not feeling the full cost of animal-feed price increases. "Hopefully that will create a groundswell of opposition to what's happening -- using tax dollars to increase the price of our food," he said. "Right now it seems to be an uphill battle." (Read more)

Non-farm labor accounts for 38.5 percent of retail food costs, and farmers get 19.5 percent of the money consumers pay for food, reports Jason Henderson (with the chart at left) in the latest issue of The Main Street Economist, published by the Federal Reserve Bank of Kansas City. "While marketing costs have increased over time, farm commodity prices have remained relatively stable. Thus, the farm commodity share of retail food prices has diminished. Still, farm commodities account for a substantial part of the retail food dollar, and the two continue to move in tandem," writes Henderson, an assistant vice president in the bank's Omaha branch. (Read more)

Farmers' share of the retail food dollar differs by the type of meat, and so does the food-price impact of the demand for ethanol. Pork and poultry are produced "almost entirely on grain and oilseed protein," reports Aimee Nelson of the University of Kentucky College of Agriculture. Oilseed prices have gone up because of the demand for soybeans to produce biodiesel, and other factors.

Lee Meyer, an economist in the college, told Nelson, “I’ve estimated that the farm level production cost for pork is up 75 percent with the total cost up about 25 percent. The chicken-feed index is up 44 percent, so its total cost of production is up to nearly 20 percent. Cattle are a little different; most only depend on grain for the last one-fourth of the production process. As a result, the impacts of higher grain production are reduced, but they are still significant.”

Nelson writes, "The pork, chicken and beef industries may all respond by cutting production, but Meyer said that will depend on how consumers respond. ... Compared to January 2007, beef prices are up by about 5 percent; pork and chicken prices are up 2 percent and 10 percent respectively." Meyer told her, "With a stressed economy, consumers are expected to cut back as a response to higher grocery and restaurant prices." (Read more)

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