Sorting out higher food prices

Are you surprised to learn that farmers receive only 20 cents from every retail food dollar you spend? That’s right, the USDA National Agriculture Statistics Service “Agriculture Prices” for 2008 figures show that to be the take of farmers and ranchers.

This means the other 80 cents goes to the distributors, both retail and wholesale. Without them, we would have trouble moving food from the “farm gate to your dinner plate.” To be fair to them, let’s pause for a moment to consider their huge investments critical to the delivery of the food tonnage we, as a society, eat each day. 

Just think about the fleets of trucks and the acreage, that’s right, acreage of cooler and freezer space that must be in place to house perishable foods, not to mention the “dry goods” storage in equally massive warehouses.

To help you understand this, I looked into a regional example of a large food distributor, the areas largest cold-storage facility. The Louisa County Extension Agent helped me with some square footage figures that I converted to acres (43,560 square feet per acre).

The grocery storage and distribution center at Zions Crossroad is about 18 acres in size. Not all of this is cold storage, so let’s estimate their cooled space at about 9 acres. You thought your new chest freezer with 18 square feet was big; they could drive a truck inside theirs! 

Now that I given you some perspective on the scale and assumed cost of food distribution, let us return to the main subject, which is a farmer’s share of the retail food dollar. Many readers are familiar with commodity market prices, which have been in the news a lot lately because of the price records they have set.

For example, by the time you read this, the Chicago Board of Trade futures market for corn could have already reached $7 per bushel. Before this year, the highest corn price I can recall was $6 in 1996, which lasted only one day. In 2008, we have blown past $6 corn and are looking ahead to $8 per bushel in this new economy. 

You might be already thinking corn farmers are making a killing if the corn price is at a record high, but a funny thing happens in agriculture. When prices rise, so do costs. Somehow there is a response in the market, so that when farm prices rise,  so do input costs. Land rent is up, fuel is up, equipment costs are up, seed up, chemicals and fertilizer up, crop insurance up, just to name the most common increases. In the end, the corn farmer might make the same or even less at a higher price as costs have taken the difference.

The corn users are also in trouble in this new situation. Most of animal agriculture uses grain concentrates in some form. Hogs and chickens are heavy users, cattle finishing and dairy operations less so, but still depend on energy and protein inputs to balance diets.  Livestock producers have all of the increasing costs as corn farmers, plus they must buy grain at a record price. Most producers are trying to figure out how to remove escalating inputs from their business. For some, this may mean going out of business, possibly cutting supply even more, joining weather as another factor that can change supply. 

Economists describe markets as being driven by reliable supply and demand forces. You grow corn, I buy corn; corn is short, and I pay more. But, there is another factor acknowledged lately by economists, which is the role of the speculator.

So you see, when bacon is $3.99 a pound at the grocery store, the hog farmer only received 41 cents from your purchase; when milk is $4.48 per gallon, the dairy farmer receives only $1.44; when bread is $2.79 per loaf, the grain farmer only receives 21 cents from your retail purchase. Food prices are complex and the farmer’s share is a small part.

Carl Stafford is Culpeper County Extension Agent, Animal Science. He can be reached at .