Farmers and ranchers are an essential part of the food production process. Without them, we wouldn’t just be without fresh fruits and vegetables, but also our favorite cereals, dairy products and protein-packed cuts of meat. As with all business owners, farmers rely on the market to determine a fair price for their products, depending upon current supply and consumer demand.
Commodity prices have been on the rise in recent months, and some crops have made headlines for historic highs. Global supply is running thin due to environmental factors, such as major wheat losses after a devastating flood in Australia and severe drought in Russia, and rising global demand. Countries like China and India, whose populations are growing at an exponential rate, are importing crops to feed more and more people. As an economic rule, higher prices are designed to reasonably level out demand.
“Cattle prices are up 30-40 percent, and that’s a good thing,” says Lloyd Huggins, a Central Texas cattle rancher who owns and operates Mesa Vista Ranch near Hico. Huggins explains that stronger prices have allowed American beef producers to recover from less profitable years. Smaller profit margins in the past few years have forced some ranchers out of the business altogether.
“The beef cattle herd in the United States has been declining for 12 of the last 14 years, and the reason is economics. So, we need some price improvements,” he says.
Commodity prices, particularly for wheat, corn, soybeans and cotton, have been the focus of several recent media reports. Although it would make sense for rising commodity prices to result in a direct increase in consumer food prices, TFB Director of Public Policy Jim Sartwelle indicates that’s not always the case.
“We saw a similar situation back when we were concerned with this in the summer of 2008. Corn and wheat prices got really high, but they got really high after harvest when folks had already sold their product for a lower price,” Sartwelle says.
However, overall, farmers are earning more revenue for their product than they have in the past few years. But Huggins points out that they aren’t necessarily making more profit. Farmers are paying more to run their businesses—particularly at the pump where most Americans are currently feeling the squeeze—and their margins are shrinking.
“As those prices go up, it costs more and more money just to get the food product to the grocery store shelf. The farmer and rancher’s share of that consumer dollar is very, very small,” Huggins says. “The rest of that cost is going to the people in between who take the raw product and turn it into something consumers really want to eat.”