Commodity prices, not weather, affecting markets so far

The livestock markets, including cattle, hogs and poultry, are affected more so far this growing season by high grain prices, particularly corn, than drought, floods or pestilence.

USDA revised its corn acreage report to show much less loss than expected from the Mississippi River flooding, levelling out grain prices, but certainly not bringing them down. Corn prices are much more a function of the dual demand from ethanol and livestock consumption, than the weather.

The primary effect on livestock is that numbers are being cut. Cattle, hog and poultry numbers are down already, and will come down further, because grain is too pricey to profitably feed to livestock. This will, in turn, put less meat on the retail market and it will be more expensive in the supermarket. This effect is already reflected to some extent in food prices, but it will get more pronounced through the rest of this year and early next year, analysts say.

With this election over in the fall, and more scientific consensus that ethanol from corn is not an efficient way to produce gasoline, there will be a shakeout in the ethanol business, and Congress might even drop subsidies, and tariffs on foreign ethanol. This will lessen the competition for corn, as ethanol makes no sense without the federal subsidy, and bring corn prices down to where the livestock industry can afford to feed it again.

Everybody has to eat, and high food prices will catch the attention of politicians. One sure way to bring prices down is to get corn prices in line. It not only affects meat, but any product like soft drinks and baked goods, that use corn sweeteners. This reality will sink in quickly, and bring action.