The drought monitor report as of Tuesday, June 21 indicated no real change for our area as we continue in moderate drought. The recent hot temperatures sped up wheat maturity and harvest proceeded rapidly and it appears the area is over half done.
The spotty rains have slowed this down a bit. The six to ten-day outlook (June 28 to July 2) indicates a 40 to 50% chance of above normal temperatures and normal precipitation. The eight to 14-day outlook (June 30 to July 6) indicates a 50 to 60% chance of above normal temperatures and a 33 to 40% chance of above normal precipitation. This should allow wheat harvest to wrap up around the state and normal precipitation for our area will keep dryland crops moving forward.
Last week we discussed some of the major themes of a free market economy. Today, let’s relate this to the inflation of food prices. Please refer to last weeks article for more detail. And we will assume that supply and labor shortages along with transportation issues are part of inflation.
• Two key aspects, numerous buyers and sellers along with access to information, may play a significant role in inflationary pressure, especially regarding meat, poultry, and dairy at the store. And they are connected. Four large packers essentially control the cattle market and while in the past the majority of cattle were sold via bids, think auctions, today a greater and greater percentage are contracted far in advance with some adjustments possible upon delivery.
This concentration does two things in the yes of many. First, they have a great deal of control over the market for producers selling a product they can’t keep for very long when ready. Second, as sellers they have a great amount of control over what buyers will pay. The other factor for cattle is the concern by many of a lack of market transparency which exacerbates the problem. There is bipartisan support in Congress for increased market transparency and just this past week, Fairness and Transparency Bills were approved by the Senate Ag. Committee. Pork and poultry are similarly concentrated with a lack of competition in the opinion of many.
• Also, for many agricultural products, a producer can’t just simply and immediately increase production. It takes time to produce commodities. You have essentially one shot to produce a crop of say corn or soybeans each year. While you can purchase fruits and vegetables year-round, many produced is the U.S. are seasonal. Some production can ramp up more quickly such as chicken and eggs but hogs take more time and cattle even longer. Then you have to add in weather and disease issues in the livestock industry. So, increasing supply in response to higher commodity prices isn’t that easy.
• Finally, just like energy commodities such as oil and natural gas, we are dealing with global markets for inputs and for the finished product. Factors such as the invasion of Ukraine by Russia, the decimation of hog and poultry production across the globe, along with extreme weather events, and production around the world impact our prices. This is essentially true for a state like Kansas where foreign exports and the cost of energy greatly impact producer margins and prices.
• One last side not regarding all of this. Futures markets also play an important factor in prices and over the last 20 or so years, people and companies that used to work in things like gold and oil are now speculating in agriculture which has an effect on prices.
Dr. Victor L. Martin is the agriculture instructor/coordinator for Barton Community College. He can be reached at 620-792-9207, ext. 207, or martinv@bartonccc.edu.
