Food prices to rise in California amid drought elsewhere


California might not be dry as a bone, but with the drought throughout most of the rest of the nation, it might as well be.

The drought is pushing up the cost of meat and milk and other dairy products for the state’s consumers. That’s because the cost of feed for California cattle, poultry and hog farmers is soaring as Midwest farms face a shortage of corn and soybean — key feed ingredients.

The higher prices won’t hit the grocery shelves for a few months, but when they do, consumers will be paying 10% to 15% more for milk, beef and poultry, farmers and economists said. But even rising retail prices may not be enough to sustain all California livestock and dairy producers.

“This is going have a huge impact on the industry, on California agriculture and on the public. It’s going to hit people in the pocketbook,” said Jonathon Beckett, a San Diego beef cattle nutritionist and consultant.

California, where the top crops are fruit, vegetables and nuts, doesn’t grow much corn or soybeans or any other products that go into cattle and poultry feed. Nearly all the feed is hauled in from the Midwest.

On Monday, the U.S. Department of Agriculture downgraded the country’s corn crop, saying only 26% of it is in “good” or “excellent” condition. That’s down from 31% the week before.

Corn futures — contracts for commodities to be delivered later — have jumped almost 50% since the beginning of June and are at the highest level in more than a year. December corn now costs almost $8 a bushel, compared with just over $5 a bushel four weeks ago.

“Profitability is either going to be gone or very, very slim,” said Paul Cameron, managing partner of Mesquite Cattle Feeders, an operation that feeds up to 35,000 heads of cattle in Brawley. “The amount of capital to raise those animals is increasing dramatically.”

Cameron, who also heads a California Cattlemen’s Assn. feed committee, said state beef producers probably will buy fewer cattle in the winter because of the higher prices of corn, which makes up about 60% of their feed.

Cameron said his own herd could shrink 15% if the corn crop yield is weak this fall. And smaller herds will translate into less meat at stores, driving up prices for consumers well into next year.

Sweltering heat and little rain throughout much of the nation has prompted the USDA to declare natural disaster conditions in more than 1,400 counties across more than two dozen states, the widest swath since 1956.

On Wednesday, the department estimated in its monthly consumer price index report that beef and poultry prices nationwide will rise as much as 4.5% by the end of the year. The price of dairy products is expected to rise 3%.

But farmers and economists said Californians will face much bigger grocery bills because the state’s livestock industry has to pay higher transportation costs to ship the more expensive feed from the Midwest.

California is one of the nation’s top states for cattle ranches. The state’s industry reported $2.1 billion in sales in 2010, part of the national total of $74 billion. Poultry, which includes egg production, had $721 million in sales in the state that year, and hogs and pigs had $66 million in sales; both industries are much smaller in California compared with operations in other states.

“If the rains don’t come, it could be one of the worst things I face in my lifetime,” said David Pitman, owner of Pitman Family Farms, which raises free-range chickens, turkeys and ducks in Fresno.

“I’ll be very careful about the number of chickens I’ll have,” Pitman said. “I don’t want to overproduce. And with our costs here, we’ll see what we can do to be more efficient.”

Pitman said he expects poultry to be priced 15% higher at grocery stores — and even that might not be enough to buffer the drought’s economic blows.

Other poultry producers fear outright shuttering of operations if feed prices remain high, said Bob Shipley, president of the Squab Producers of California, a cooperative of squab farmers in the San Joaquin Valley.

“We will shrink dramatically,” Shipley said. “By how many, I can’t tell you, but if we’re looking at $10 [a bushel] corn, I can’t envision, at this point, what percentage will drop out. Once you get to a certain point, if growers can’t afford it, growers will slowly wind down.”

And for farmers of squab, young pigeons sold as an exotic dish at high-end restaurants, there are few alternatives for feed. Their broods’ diet consists of almost 90% corn.

“We are a group of 70 independent farmers buying on the spot market from local feed mills,” he said. “We’re vulnerable to the daily spot market.”

The state’s dairy farmers, which have struggled in recent years after a 2009 milk price crisis, also are feeling the pinch.

Ray Souza, a dairyman in Turlock with about 900 cows, said rising feed costs have been eating away at his profit. He said he hopes the price of milk stays high enough to keep farmers’ profit margins strong. But even that may not be enough. Some farmers may be forced to sell cows for beef production.

“Some will want to get out to keep some of their equity,” Souza said. “We’re going to see some farmers exit.”

A persistent drought compounds a problem already besetting farmers, they and agriculture economists said. About a third of the country’s corn is diverted to produce ethanol under federal renewable energy standards. Ethanol production already had driven up the price of corn in recent years.

“The ethanol policy is a bad idea because the impacts of a drought are much more severe than it used to be,” said Colin Carter, a UC Davis agriculture economist.

Livestock producers have lobbied for changes to the ethanol policy, but to no avail. The ethanol issue underscores the severity of the problems in the animal industry, said Bill Mattos, president of the California Poultry Federation.

“When you have the drought adding to the uncertainty of prices, plus ethanol production,” he said. “You have the perfect storm to devastate the livestock industry.”