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Food Price Increases


TheGleaner

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Well this one is quite simple and popular right now, food prices are going up because it costs more to grow/raise so farmers are raising prices right?

Well, no.

Most crops, basically anything except for special cases and some specialty crops, are sold in a way that we do not have any control over. They are sold in a way similar to the stock markets, there are traders and speculators but instead of parts of a business its contracts for commodities at various times of the year, usually each month and usually up to a year or more ahead of time. Most of the time these are called exchanges, such as the Minneapolis Grain Exchange, a major player in spring wheat prices, which is made into flour for bread.

We can sign a contract with a grain marketing company, grain terminal, or grain elevator, all have agents at the exchanges, based on the prices to sell x amount on x contract. We can also(most of the time) just show up with a truck load and sell for whatever the current contract is trading for, minus the basis.

Basis can be thought of as what it costs the grain company to handle and deliver the grain to whoever purchased the contract. It is subtracted from the spot price when we sell. It is possible for the basis to be positive, such as when a terminal or elevator is filling a train or contract and realizes that they don't have enough to fill it and not filling it will result in penalties and extra costs(such as having to buy grain from other grain companies or paying for the rail road to pull an empty car).

As a result, we have basically no say in the price. 

To add insult to injury, we, in the US, are half mandated to fill out surveys by the USDA that say how much of each commodity we have stored on the farm. That information is released to the public approximately monthly. 

Livestock its slightly different. 

Cattle are mostly sold at auction, although some private sales do happen. Buyers for feedlots and packers(meat packing plants, butchers etc) bid on like, presorted groups in the ring. They bid by the hundredweight(CWT). In other words, if they bid $150 on a group of calves that weigh approximately 500 pounds, they are paying approximately $750 a head.(150*5 or 1.5*500) Yes that is a realistic number as we sadly sold some for that price. The groups are usually sorted by the auction yard(Stockyard or ring) and the ring itself is on a scale and they are weighed immediately before they start the bidding, usually with that information going up on screens above the auctioneer. 

Again we have no say in the price there, aside from "no sale" ing them and taking them home or to another ring, which...usually doesn't get you anywhere. 

Poultry and hogs/pigs are different. Most are on contracts only anymore, with very little sold the way that cattle are. One farmer gets contracted by a meat packing company to breed and/or birth the livestock, another to raise them and another to fatten up/finish them. In theory it should be a very efficient and profitable system, but with only 4 meat packing companies in the US, you are stuck with "take it or not have anything to raise". Each contract specifies what to feed them, how much they will pay for feed, how much they will pay for veterinary things, how much per head you will be paid, how much they should weigh and how consistent that should  be, etc. Penalties of course exist.

Again we don't really have a say in the price.

So while the claim that farmers and ranchers are raising their prices may make sense, its simply not true. It is the middleman. For example: the average profit for the meat packing companies for 1 beef carcass is approximately $1500. Profit. That's taking in consideration the cost they bought it from the feedlots, the cost of the workers processing it, the cost of utilities, the cost of materials used to package it, and the cost to ship it to a warehouse and then to a store.

I, as a beef cattle rancher, took a loss this year selling calves.

The above example is also the reason why you may have heard about anti trust suits against meat packing companies and why the agricultural community wants them broken up. There is little competition and little we can do about the prices. 

So to be clear, basically unless you are buying directly from a farmer or rancher or other producer, we have 0 control over the price.

A potential Question that may occur:

Can't you like unionize?

The problem with that is there are about 2 million of us in the US alone, all in very varying conditions. Its about impossible to do, but it was tried in the 1980s to...little success and the other issue is that importing materials is a thing. The world isn't short of livestock or grain. It's not short of boats and planes and facilities capable of moving those things.

Edited by TheGleaner
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But at some point, don't you have to demand more for your product? I understand the costs increasing all down the chain, but you can't keep eating those losses.

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14 hours ago, Thankful Brony 42 said:

But at some point, don't you have to demand more for your product? I understand the costs increasing all down the chain, but you can't keep eating those losses.

You know, I've typed about 7 replies now to this and...I honestly don't know how to answer that as yes eventually we will have to demand more to get close to a profit but how can one do that in our global economy anymore?

I mean...the US was always known for over producing a high quality product...but then, for whatever stupid reason, we taught the world how to do that.  Then places like Europe make our agriculture subsidies look like change on the street.

So we kinda got ourselves into this mess and about the only way we're staying above water is the fact that we have large enough open spaces, compared to elsewhere, that we can scale operations and equipment to a more efficient and profitable size and genetic research/GMOs to again be more efficient...but that size keeps growing and the genetics we make eventually make their way around. We have many organizations that act as salesmen to convince and show importing countries that ours is superior and worth a premium, but so do others, and most importing countries don't exactly care about quality as they can't afford it, as cheap food=a population that is most likely to stay in line.(Japan is a notable exception, they have trade agreements with individual states in some cases, due to quality reasons. Our wheat the last few years has went to a elevator that sells directly to Japan and only to Japan, and as a result there is a slight premium...but as a result more want to sell to that elevator and etc, they have grain coming out of their ears)

So...the second sentence is a hard truth that alot are facing right now, and most of them are simply choosing to retire and sell out. The first part has been the problem that we've been trying to solve since WW2.

I mean...it all comes down to the same problems: how can you get your income higher and your inputs lower when you can't control either?

Edited by TheGleaner
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Free market ideas. But we don't live in a free market. Food production is the most important thing a society can do. You would tell buyers that you simply can't sell for less than a certain amount. If you quit and change jobs, then there is less food. This would raise the price and encourage people to get into farming. Free market supply and demand would find that equilibrium. 

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I can only feel for your hard work and stress @TheGleaner. This is your livelihood and you might be talking or ranting about a system in a place where it might not be fully understood. None of us here would have a clue how to solve this, unless we were farmers too. Maybe a union is required anyways (even if it didn't work the first time). But I definitely believe you over some headline of high prices.

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On 2021-11-24 at 1:50 PM, Thankful Brony 42 said:

Free market ideas. But we don't live in a free market. Food production is the most important thing a society can do. You would tell buyers that you simply can't sell for less than a certain amount. If you quit and change jobs, then there is less food. This would raise the price and encourage people to get into farming. Free market supply and demand would find that equilibrium. 

Well that idea would work if the entire world was on the same level and needed food. 

What I mean by that is if everyone was on the same technology level, all farmable land was being used, and the world actually needed more food. But it's quite the opposite. 

Eastern Europe, Russia, and Asia are still catching up to modern farming methods.

Africa holds a massive amount of usable ground, but its...well always chaos there. When it's not chaos, they do produce a respectable amount. 

China is somewhat successfully trying to irrigate their desert...because they built and flooded their good farmland.

And I'm sure you've heard of South America and the rain forest 

To top it off, technically we are in a grain/food glut...for about the last 10 years. The world has plenty and has been over producing since the fall of the USSR on average.

But if we were in the time and place where we were using every available bit of ground and everyone had modernized and the world was starving for food, yes it would work quite nicely or if some continents were in a drought it would work too.

 

On 2021-11-24 at 5:07 PM, Splashee said:

I can only feel for your hard work and stress @TheGleaner. This is your livelihood and you might be talking or ranting about a system in a place where it might not be fully understood. None of us here would have a clue how to solve this, unless we were farmers too. Maybe a union is required anyways (even if it didn't work the first time). But I definitely believe you over some headline of high prices.

Not really ranting, just making an attempt at informing people " in a place where it might not be fully understood " as I figure it someone gets something out of it, it's worth it, as most people would think(logically in most cases) that higher food prices are because those who make it(logically thinking farmers) are raising their prices either because they have to or because they want to get rich.

I mean it makes sense until you begin looking into it and then it becomes a "what is this mess" type of deal.

On a side note: fertilizer here went from $250/ton to somewhere over $1500/ton last I heard. We usually use about 50-75 tons, but I can definitely say we will be using no where near as much if it's that high, grain would have to be at an insane price for it to even make sense(like at $70 a bushel, currently it's at $8).

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