Thursday, August 16, 2012

Would Obama's order to Pentagon to buy more meat raise prices for producers? Analysts disagree

The Obama administration has ordered the Pentagon to buy more beef, pork and lamb to try and help ranchers through the severe drought, prompting the Defense Department to determine whether it can afford to buy more. The military buys millions of pounds of meat every year to feed troops around the world.

Some analysts say the move would only help Obama politically, but others say it could be an opportunity for the Pentagon to pay less for meat it will eventually need and can freeze. Drought has forced up the price of corn, which livestock producers use as supplemental feed, and since they aren't able to make livestock heavier faster, they are forced to sell sooner than usual, Jennifer Rizzo of CNN reports. This causes more meat to be available, making prices drop, which also reduces the profit that ranchers have available to buy feed. Rizzo reports the mandate to buy more meat is an attempt to raise prices by taking more meat off the market.

Iowa State University economist Bruce Babcock told Rizzo the impact of these purchases is suspect. "The purchase is delaying the day of reckoning because ... it will raise their prices somewhat now and it will allow them to purchase more feed, but that feed cost isn't going to go down for a year," Babcock said. The livestock industry has to shrink by reducing herd sizes in order to afford corn in the future, he said. American Farm Bureau Federation economist Bob Young told Rizzo that even though the purchase would only make a small dent in the market, the move will ultimately help ranchers. (Read more)

No comments: