Here’s a zinger of a news story that most commentators haven’t bothered to take note of…
The CEO of Smithfield Farms, the largest pork producer in the US. Among other things he said:
“Maybe to someone in the upper incomes it doesn’t matter what the price of a pound of bacon is, or what the price of a ham, or the price of a pound of pork chops is,” he says. “But for many of the customers we sell to, it really does matter.” Workers can share cars when the price of oil rises, he quips, but “you can’t share your food.”
Mr. Pope also worries about the impact on farmers, who are leveraging up operations to afford the ever-rising price of land and fertilizer that has resulted from the increased corn demand. “There are record prices for livestock but farmers are exiting the business!” he exclaims. “Why? Farmers know they won’t make money.”
Weather is a factor, too. “We’ve had the luxury for the last three years of extremely good corn crops, with high yields and good growing conditions. We are just one bad weather event away from potentially $10 corn, which once again is another 50% increase in the input cost to our live production.”
…Not all companies will survive this economic whirlwind. Mr. Pope recalls what happened the last time there was a surge in corn prices, in 2008: “The largest chicken processor in the United States, Pilgrim’s Pride, filed for bankruptcy.” They “couldn’t raise prices, so their cost of production went up dramatically.” Could it happen again? “It darn well could!” Mr. Pope exclaims.
…Mr. Pope says the “losers” here “are the consumer, who’s going to have to pay more for the product, and the livestock farmer who’s going to have to buy high-priced grain that he can’t afford because he’s stretching his own lines of credit. The hog farmer . . . is in jeopardy of simply going out of business ’cause he doesn’t have the cash liquidity to even pay for the corn to pay for the input to raise the hog. It’s a dynamic that we can’t sustain.”
So here’s a CEO, someone with actual business experience (not some moron academic who’s never run a business a day in his life) telling us the following:
- Food prices are up a lot and going higher in the future.
- Despite high food prices, farmers are quitting farming (lower supplies are coming).
- Food companies will be going bankrupt (even lower supplies are coming).
In other words, we are rapidly heading into a food crisis. Food prices are NOT going to be coming down. And we’re going to be seeing food shortages in the US in the coming months.
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