Has The Whole World Gone Crazy?
To say things are a little unstable in our world right now is a bit of an understatement. While I'm not interested in a political discussion, I am willing to shed a little light on how global and domestic affairs are impacting our business specifically, the entire agriculture world broadly and all of you when you purchase the items the agriculture industry produces.
Why is meat more expensive?
Its complicated! The short answer is that costs have dramatically increased at every step from birth to the freezer. The biggest cost associated with raising animals is feed. This includes both grass and hay forages as well as grains. Either of those start with the same basic input: fertilizer.
Wow! As you can see the current fertilizer cost per ton (red line) has nearly doubled since the same period a year ago (green line). There are several reasons for this and some of them are directly related to the current mess in Eastern Europe.
Belarus is the third largest producer of potash in the world, accounting for 18% of global production. They are currently being sanctioned by much of the rest of the world, which leads to other sources filling that need and, in turn, higher demand and higher prices.
To make matters worse, Russia produces three different types of fertilizer and exports about 50% of their production of ammonium nitrate. While most of this goes to Europe and not the United States, if sanctions dictate that Europeans have to source their fertilizer elsewhere, prices will go even higher for us also.
Fertilizer is only one example of a trend across agriculture of increasing input costs. Fuel, seeds, machinery, chemicals, parts and supplies are all more expensive. We purchased filters and oil to service our tractors this week and the costs were around $1,000!! Fortunately, for farmer growing their crops, commodity prices have risen drastically alongside inputs. While this does not mean those farmers will make more money, it does mean they might make the same profit as previous years while incurring drastically more risk.
As you can see from the chart on the left, corn prices are trending higher. Like fertilizer, corn prices have more than doubled over the previous two years. The end result is that (hopefully for them) the drastic price increase of inputs has been passed from the grower to the next stop in the supply chain.
That next stop is users of corn (and soybeans). This means animal feeders, biofuels and meals. While it is true that we grow corn, we cannot simply capture those prices and pass our increasing input costs to the next user since the next user of our corn is also us!
Lets look at how corn prices impact our farm specifically. On average, we mix 3 tons of feed per week, using around 100 bushels of corn. (This does not include feed for other customers) This means that our cost of feed is $350 per week higher than one year ago!
Another negative impact to our farm specifically is that higher corn prices mean higher feed prices for all of our feed customers also. As we previously discussed, increased prices are being offset by increased input costs. We are not going to make any more net income from our feed being priced higher due to corn and soybean prices, but we may lose customers who cannot afford the higher costs. These customers may be forced out of the industry entirely if they cannot also pass these costs along.
There are also external factors at work pushing meat prices higher. Our own processing costs have increased recently. Our preferred processor announced a price increase last month. This is completely justified, as their costs have increased as well. They are paying more for labor, supplies and trucking on those supplies. I don't fault them for raising their prices, but it necessitates us passing that cost along to our own customers.
Where do we go from here?
Add it all up and you, the consumer, are left to foot the bill. The world has always worked this way, but not usually this fast.
What is going to happen for the remainder of 2022? Frankly, I have no idea, but we are very aware of the concerns of our customers and the economic stresses on our community. We are doing our very best to keep our prices as stable as possible and resist raising our prices as long as possible while still maintaining profitability.
One silver lining of this environment, for us, is that this resistance to price hikes has led to a situation currently where our locally raised non-GMO product is often priced equal or lower than similar cuts in supermarkets. Since prices overall are higher, this is an opportunity for new customers to try our product with little or no premium to the products they would be purchasing anyway.
One final note:
As 2022 chugs along, we will evaluate our costs each month and will likely need to increase prices. While this article is meant as an information piece rather than a sales vehicle, it is my opinion that locking in your meat costs with bulk orders like our stock up bundles, quarter beef packages and half hog packages are the best way to protect yourself against increased food prices for the remainder of this year. As always, we are grateful for the support and loyalty our customers continue to show us. You guys make it possible for us to do what we love doing, even when its tricky!