Don’t Blame the Farmer Mark Nelson

Sept. 08

This past winter I got a call from Darrell Kuhn, a Hay and Forage Advisory Committee member from Lakin Kansas.  He said, (and I’m paraphrasing) “There’s another way of looking at this food vs. fuel debate.  We ought to look at how much we as a nation are consuming and then add in the impact of higher prices.”  We visited for about twenty minutes and you know what, Darrell makes a lot of sense.  His point is this, yes, prices have risen; and for some commodities prices have risen fairly sharply but if you look at how much we as individuals consume of each of these commodities and multiply that by the price changes we’ve seen, folks may be a bit less likely to blame a farmer. 

 Let’s start with corn.  If we look at the 2006 and 2007 crop years, the US consumed an average of 12.015 billion bushels each year.  That’s total consumption including that used for feed, seed, food, export and ethanol.  Then, if we divide that by the 304 million people that live in the US, you get 39.52 bushels per person.  I followed that same thought process to calculate per capita consumption for several other grains/oilseeds (rice though, is on a per hundred weight basis). 

For livestock (non-storable commodities), I used annual production over the years 2006 and 2007, which in the case of beef, was 26.2865 billion pounds.  Dividing this by 304 million people results in .86469 Cwt. (rounded to .86 for the table below), or a little over 86 pounds per person; for broilers, it came to 118 pounds per person and pork was at 71 pounds. 

In the case of crude oil, I used domestic production plus imports for 2006 and 2007, since like livestock, there’s not a lot of oil stored from year to year.  Thus, average crude oil usage in the US is roughly 5.5328 billion barrels (about 1/3 produced domestically), dividing that by 304 million people results in 18.2 barrels of oil used per person.  Oil used not just for driving but for growing crops and livestock, transporting crops and livestock, processing food and delivering food products to your local store. 

Now let’s bring back the price changes we’ve seen.  In my calculations I’m comparing 2006 prices versus what we’re experiencing in 2008 and use US government sources (USDA or the Energy Information Administration {EIA}).   

So again, let’s start with corn.  The average price received for the 2006 crop was $3.04 per bushel and USDA’s latest estimate for the 2008 crop is $5.40.  Holy cow that’s a 77% price increase in just two years, the anti-ag folks would say that, “farmers must be getting rich – no wonder my corn flakes are costing more – it must by ethanol’s fault.”  OK, that’s a $2.36 per bushel increase and when multiplied by average per capita consumption of 39.52 bushels results in the average US citizen paying US farmers $93.27 more per year.  That’s the greatest amount for major crops, with soybeans second at $58.46 and wheat at $21.53.   

Rice, the product taken off store shelves last winter because of “sky-rocketing prices and an ethanol induced shortage,” only has a price impact per capita of $4.09; the average US citizen is paying US farmers only $4.09 more per year for rice.  Why?  Well, while prices paid to farmers went from $9.96 per Cwt. in 2006 to an estimated $15.50 for this year’s crop–a 61% increase, we only consume 74 pounds per year (.74 Cwt.), not a huge dent in the family budget. 

The impact of rising livestock prices is minimal, with broilers leading the way.  According to USDA, the whole-sale, 12-city average broiler price was 64.4 cents per pound ($64.40 per Cwt.) in 2006 and in 2008 is expected to average 81 cents per pound.  A 25% or $16.60 per Cwt. increase in wholesale broiler prices that when multiplied by the 1.18 Cwt. that each person in the US on average consumes, has a per capita impact of $19.57.  Beef and pork impacts were much lower at $7.43 and $0.88 per person.  Again, this means the average US citizen is paying US farmers roughly $7.43 and $0.88 more per year because of rising beef and pork prices. 

Lastly, let’s examine crude oil a little closer.  In 2006, the average “acquisition price paid by refiners,” as reported by the EIA was $60.24 per barrel and the average so far through 2008 has been $110; an 83% increase in price over the last two years.  Multiplying that $49.76 price change per barrel by the 18.2 barrels of oil used by the average US citizen gives us $905.60.  Each and every US citizen is paying $905.60 more in 2008 than they did in 2006 for crude oil, that’s almost $700 more than the eight agricultural commodities we looked at combined! 

Now I understand that this is a simplistic analysis.  I understand that consumers don’t pay farmers directly.  I understand that food prices have risen dramatically.  But the point is this, when we examine the impact of rising commodity prices, and we look closely at how much we’re paying the producers of agricultural commodities versus how much we’re paying the producers of crude oil; I think Darrell Kuhn would say, “Don’t blame the farmer for higher food prices.”  Especially when you consider the fact that a lot of that oil goes toward food production and 2/3 of that $905 per year extra we’re paying producers of crude oil, is going to folks outside the US.

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