Editor's note: Ths following article was written by Ching Lee, assistant editor of Ag Alert. Ag Alert is the news source for the California Farm Bureau Federation and can be found here.
Now that much of the nation's corn has been harvested and the impact of this year's drought is clear, analysts say demand rather than supply will drive the feed market, and prices could potentially move lower to gauge where buying interests may be.
Any kind of price relief would be welcomed by California livestock farmers, who saw feed prices soar to record levels this summer as scorching heat and parched conditions withered crops in the Corn Belt.
The state's dairy farmers, particularly, have been hit hard. Many of them were already struggling with financial problems brought on earlier by the recession and the milk price collapse in 2009. Skyrocketing feed costs have added to their plight, with a growing number of producers reportedly closing their doors and filing bankruptcy.
To call attention to their troubles, California dairy farmers staged a rally last week at the state Capitol to ask the California Department of Food and Agriculture to raise milk prices. It was the second such demonstration in the last two months.
Milk producers are not the only ones being squeezed by surging feed prices. Zacky Farms, the second-largest turkey producer in the state, filed for Chapter 11 bankruptcy protection this month, citing rising feed costs for the Fresno company's "extremely difficult liquidity crisis."
Despite U.S. farmers having planted 97 million acres of corn this year—the most since 1937—the drought ravaged yields to their lowest average since 1995. U.S. corn production is now forecast at 10.7 billion bushels, the lowest in six years, according to this month's projections from the U.S. Department of Agriculture.
Joel Karlin, market analyst for Western Milling, a feed company in Tulare County, said high corn prices have definitely hurt livestock producers, and that is now tempering demand for the commodity. He noted that since prices peaked in mid-August, they have come down in the last two months—in part because the market has gotten a good handle on the size of the U.S. crop.
"The high prices have definitely rationed demand," he said. "Whether it's beef cattle, dairy cattle, hogs or poultry, they're all liquidating their herds, feeding less corn. Ethanol margins are very poor, so you've had a lot of plant shutdowns. There's cheaper corn overseas, so exports have been abysmal over the past few months."