U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

68–483 PDF 2011

HEARING TO EXAMINE THE ISSUE OF FEED 

AVAILABILITY AND ITS EFFECT 

ON THE LIVESTOCK AND POULTRY 

INDUSTRIES

HEARING

BEFORE THE

SUBCOMMITTEE ON 

LIVESTOCK, DAIRY, AND POULTRY

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

SEPTEMBER 14, 2011

Serial No. 112–23

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

FRANK D. LUCAS, Oklahoma, Chairman 

BOB GOODLATTE, Virginia, 

Vice Chairman 

TIMOTHY V. JOHNSON, Illinois 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

GLENN THOMPSON, Pennsylvania 

THOMAS J. ROONEY, Florida 

MARLIN A. STUTZMAN, Indiana 

BOB GIBBS, Ohio 

AUSTIN SCOTT, Georgia 

SCOTT R. TIPTON, Colorado 

STEVE SOUTHERLAND II, Florida 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

MARTHA ROBY, Alabama 

TIM HUELSKAMP, Kansas 

SCOTT DESJARLAIS, Tennessee 

RENEE L. ELLMERS, North Carolina 

CHRISTOPHER P. GIBSON, New York 

RANDY HULTGREN, Illinois 

VICKY HARTZLER, Missouri 

ROBERT T. SCHILLING, Illinois 

REID J. RIBBLE, Wisconsin 

KRISTI L. NOEM, South Dakota 

COLLIN C. PETERSON, Minnesota, Ranking 

Minority Member 

TIM HOLDEN, Pennsylvania 

MIKE MCINTYRE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

HENRY CUELLAR, Texas 

JIM COSTA, California 

TIMOTHY J. WALZ, Minnesota 

KURT SCHRADER, Oregon 

LARRY KISSELL, North Carolina 

WILLIAM L. OWENS, New York 

CHELLIE PINGREE, Maine 

JOE COURTNEY, Connecticut 

PETER WELCH, Vermont 

MARCIA L. FUDGE, Ohio 

GREGORIO KILILI CAMACHO SABLAN, 

Northern Mariana Islands 

TERRI A. SEWELL, Alabama 

JAMES P. MCGOVERN, Massachusetts 

PROFESSIONAL STAFF

NICOLE SCOTT, Staff Director 

KEVIN J. KRAMP, Chief Counsel 

TAMARA HINTON, Communications Director 

ROBERT L. LAREW, Minority Staff Director 

SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY

THOMAS J. ROONEY, Florida, Chairman 

BOB GOODLATTE, Virginia 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

TIM HUELSKAMP, Kansas 

SCOTT DESJARLAIS, Tennessee 

CHRISTOPHER P. GIBSON, New York 

REID J. RIBBLE, Wisconsin 

KRISTI L. NOEM, South Dakota 

DENNIS A. CARDOZA, California, Ranking 

Minority Member 

DAVID SCOTT, Georgia 

JOE COURTNEY, Connecticut 

TIM HOLDEN, Pennsylvania 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

KURT SCHRADER, Oregon 

WILLIAM L. OWENS, New York 

MICHELLE WEBER, Subcommittee Staff Director 

(II) 

(III)

C O N T E N T S 

Page 

Baca, Hon. Joe, a Representative in Congress from California, prepared statement ...................................................................................................................... 4

Cardoza, Hon. Dennis A., a Representative in Congress from California, opening statement ........................................................................................................ 2

Prepared statement .......................................................................................... 3

Rooney, Hon. Thomas J., a Representative in Congress from Florida, opening 

statement .............................................................................................................. 1

Prepared statement .......................................................................................... 2

Scott, Hon. David, a Representative in Congress from Georgia, submitted 

article .................................................................................................................... 67

WITNESSES

Meyer, Ph.D., Steven Roger, President, Paragon Economics, Inc., Adel, IA; 

on behalf of National Cattlemen’s Beef Association .......................................... 4

Prepared statement .......................................................................................... 6

Greene, Philip, Vice President, Foster Commodities and Foster Poultry 

Farms, Fresno, CA; on behalf of American Feed Industry Association ........... 13

Prepared statement .......................................................................................... 15

Seger, Ted, President, Farbest Foods, Inc., Huntingburg, IN; on behalf of 

National Turkey Federation ................................................................................ 26

Prepared statement .......................................................................................... 28

Welch, Michael A., President and Chief Executive Officer, Harrison Poultry, 

Bethlehem, GA; on behalf of National Chicken Council ................................... 31

Prepared statement .......................................................................................... 32

Erba, Ph.D., Eric, Senior Vice President of Administrative Affairs, California 

Dairies, Inc., Visalia, CA ..................................................................................... 37

Prepared statement .......................................................................................... 39

Spronk, Randy, pork producer and Managing Partner, Spronk Brothers III 

LLP and Ranger Farms LLP; Vice President, National Pork Producers 

Council, Edgerton, MN ........................................................................................ 41

Prepared statement .......................................................................................... 43

SUBMITTED MATERIAL

National Corn Growers Association, submitted statement .................................. 68

(1)

HEARING TO EXAMINE THE ISSUE OF FEED 

AVAILABILITY AND ITS EFFECT 

ON THE LIVESTOCK AND POULTRY 

INDUSTRIES 

WEDNESDAY, SEPTEMBER 14, 2011

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY, 

COMMITTEE ON AGRICULTURE, 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 1:37 p.m., in Room 

1300, Longworth House Office Building, Hon. Thomas J. Rooney 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives Rooney, King, Neugebauer, 

Huelskamp, DesJarlais, Gibson, Ribble, Cardoza, Scott, Courtney, 

Holden, Boswell, Baca, Schrader, Peterson (ex officio), and Costa. 

Staff present: Tamara Hinton, Josh Maxwell, Debbie Smith, Patricia Straughn, Lauren Sturgeon, Pete Thomson, Heather 

Vaughan, Suzanne Watson, Michelle Weber, Liz Friedlander, Mary 

Knigge, Anne Simmons, John Konya, and Jamie Mitchell. 

OPENING STATEMENT OF HON. THOMAS J. ROONEY, A 

REPRESENTATIVE IN CONGRESS FROM FLORIDA 

The CHAIRMAN. This hearing of the Subcommittee on Livestock, 

Dairy, and Poultry for the purpose of examining the issue of feed 

availability and its effect on the livestock and poultry industries, 

will come to order. 

Good afternoon, and welcome to today’s hearing to examine the 

issue of feed availability and its impact on livestock, dairy and 

poultry producers. I would like to begin by welcoming our witnesses and thanking them for taking the time out of their busy 

schedules to participate in this process and share their expertise. 

I would also like to thank Ranking Member Cardoza for his assistance in preparing today’s hearing. We each represent a district 

that boasts substantial animal agricultural production, but that is 

far from the area that produces the bulk of the crops that are fed 

to those animals. As such, the issue we are examining today is of 

great important to the constituents we each represent. 

Our Subcommittee began this Congress with a series of overview 

hearings that gave us some perspective about the production practices and public policy challenges of the animal agriculture community. At each of these hearings, we heard a good bit about the issue 

of feed availability, and I am pleased that we have the opportunity 

today to examine that issue in greater detail. 

2

The U.S. livestock, dairy and poultry industries are confronting 

incredibly tight feed supply prospects. Because of the widespread 

drought throughout the Southwest and the Southeast, this problem 

is even more pronounced. Earlier this week USDA lowered its corn 

production estimates for the year even further, putting increased 

pressure on the growing demand for grain. For the animal agricultural sector, where feed costs account for the lion’s share of their 

operating expenses, this presents significant difficulty. We are fortunate to have an experienced panel assembled here today to provide testimony about those challenges. 

Our witnesses today include representatives of each of the affected sectors, beef, pork, turkey, chicken and dairy, as well as a 

representative of the animal feed industry community. They have 

been asked to describe the feed situation from their perspective and 

discuss its implications for their industry. 

As the session proceeds, we will explore more topics in greater 

detail. I appreciate the interest and involvement of my colleagues 

regarding these matters and welcome everybody’s input as we 

move forward. 

[The prepared statement of Mr. Rooney follows:]

PREPARED STATEMENT OF HON. THOMAS J. ROONEY, A REPRESENTATIVE IN

CONGRESS FROM FLORIDA

Good afternoon, and welcome to today’s hearing to examine the issue of feed availability and its impact on livestock, dairy, and poultry producers. I would like to 

begin by welcoming our witnesses and thanking them for taking time out of their 

busy schedules to participate in this process and share their expertise. I would also 

like to thank Ranking Member Cardoza for his assistance in preparing for today’s 

hearing. We each represent a district that boasts substantial animal agriculture production but that is far from the area that produces the bulk of the crops that are 

fed to those animals. As such, the issue we are examining today is of great importance to the constituents we each represent. 

Our Subcommittee began this Congress with a series of overview hearings that 

gave us some perspective about the production practices and public policy challenges 

of the animal agriculture community. At each of these hearings, we heard a good 

bit about the issue of feed availability, and I am pleased we have the opportunity 

today to examine that issue in greater detail. 

The U.S. livestock, dairy, and poultry industries are confronting incredibly tight 

feed supply prospects. Because of the widespread drought throughout the Southwest 

and Southeast, this problem is even more pronounced. Earlier this week, USDA lowered its corn production estimates for the year even further, putting increased pressure on the growing demand for grain. For the animal agriculture sector—where 

feed costs account for the lion’s share of their operating expenses—this presents significant difficulty, and we are fortunate to have an experienced panel assembled 

here today to provide testimony about these challenges. 

Our witnesses today include representatives of each of the effected sectors—beef, 

pork, turkey, chicken, and dairy—as well as a representative of the animal feed industry community. They have been asked to describe the feed situation from their 

perspective and discuss its implications for their industry. 

As the session proceeds, we will explore more topics in greater detail. I appreciate 

the interest and involvement of my colleagues regarding these matters and welcome 

everyone’s input as we move forward.

The CHAIRMAN. I would now like to recognize Ranking Member 

Cardoza for his opening statement. 

OPENING STATEMENT OF HON. DENNIS A. CARDOZA, A 

REPRESENTATIVE IN CONGRESS FROM CALIFORNIA 

Mr. CARDOZA. Thank you, Mr. Chairman. I want to thank all our 

witnesses for traveling here today. And I want to give a special 

3

thank you to you, Mr. Chairman, for the gracious way that you 

have worked with us in conducting these hearings that we have 

participated in today. If all of Congress worked together as well as 

our two staffs and our Committee does, it would be a better Congress and a better place to work. 

In California, our producers are extremely vulnerable to increases in feed prices and overall feed availability. The West Coast 

model dictates that the majority of feed grain is shipped to California from other areas of the country where it is cheaper to grow. 

This leaves producers extremely susceptible to price fluctuations 

with few avenues available to control these input costs. 

Since 2007, producers have been questioning the very business 

model they have relied upon for years as they watched their costs 

skyrocket. I expect that we will hear today from these witnesses 

about the various causes of these price increases. But I also hope 

to hear about specific steps the Congress and this Committee 

should take to mitigate the crisis. This input is vital to crafting 

practical policies, moving forward, and I look forward to the hearing today. 

Now, every day when I go home, I pass cornfields in southern 

Maryland, and I know that hurricanes that have come through in 

the last few weeks have devastated a lot of those fields and are just 

going to cause that much more significant pressure on an already 

overtaxed industry back in my real home, which is California. I am 

very concerned about this. I heard from my poultry producers earlier this year that they thought that they might actually have to 

reallocate grain in order to keep their livestock alive for 2 to 3 

weeks until the new harvest started coming in. 

These are big challenges, these are real issues, and I am grateful 

that you are having this hearing, and that we are going to try and 

get to the bottom of anything that we can possibly do about it. 

Thanks again for all of you attending. I look forward to your testimony. 

[The prepared statement of Mr. Cardoza follows:]

PREPARED STATEMENT OF HON. DENNIS A. CARDOZA, A REPRESENTATIVE IN

CONGRESS FROM CALIFORNIA

Thank you Mr. Chairman, and thank you to our witnesses for discussing the topic 

of feed availability. I especially appreciate our witnesses who traveled all the way 

from California to be here today. Thank you. 

In California, our producers are extremely vulnerable to increases in feed prices 

and overall feed availability. The West Coast model dictates that the majority of 

feed grain is shipped to California from other areas of the country where it is cheaper to grow. 

This leaves producers extremely susceptible to price fluctuations with few avenues 

available to control these input costs. 

Since 2007, producers have been questioning the very business model they have 

relied upon for years as they’ve watched their costs skyrocket. 

I expect that we will hear today from our witnesses about the various causes of 

these price increases. But I also hope to hear about specific steps that Congress and 

this Committee should take to mitigate this crisis. 

This input is vital to crafting practical policies, moving forward, and I look forward to hearing from you today. Thank you.

The CHAIRMAN. Thank you, Ranking Member Cardoza. 

The chair would request that other Members submit their opening statements for the record so the witnesses may begin their testimony and ensure there is ample time for questions. We are exVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 I:\DOCS\112-23\68483.TXT BRIAN
4

pecting a series of votes here within the next hour, so please keep 

that in mind as well. 

[The prepared statement of Mr. Baca follows:]

PREPARED STATEMENT OF HON. JOE BACA, A REPRESENTATIVE IN CONGRESS FROM

CALIFORNIA

Chairman Rooney and Ranking Member Cardoza:

I am pleased to be here today to review important issues surrounding the cost 

and availability of feed—and to discuss how this negatively impacts the livestock, 

poultry, and dairy industries. 

I thank the Chairman and Ranking Member for convening this hearing and hope 

we will be able to gain valuable insight into this critical issue. 

I also want to thank our witnesses for coming here today—and taking time from 

their schedule to help us in Congress better understand this issue of critical importance. 

An affordable, reliable, and safe feed supply is absolutely essential to the well 

being of animal agriculture in America. 

Everyone on this Subcommittee is well aware of the impact that record-feed prices 

have had on production costs for our producers, and market prices for consumers. 

In my own Congressional District—in California’s Inland Empire—dairy is a significant agricultural and economic product. 

The dairy industry has been hit harder than most by the recent economic downturn—and continues to see production costs that are far too high. 

We must have a frank discussion about the continued use of ethanol subsidies and 

fuel mandates in America’s energy policy. 

As Members of the Subcommittee on Livestock, Dairy, and Poultry, we owe it not 

only to our agriculture producers—but also to the American public at large, to ensure we always maintain a strong safety net for agricultural production. 

America’s livestock, dairy, and poultry industries must remain strong and secure. 

I look forward to hearing from our witnesses today and again thank the Chairman 

and Ranking Member for their leadership. 

Thank you.

The CHAIRMAN. I would like now to welcome our panel of witnesses at the table: Dr. Steven Roger Meyer, President of Paragon 

Economics, Adel, Iowa; Mr. Philip Greene, Vice President of Foster 

Farms, Incorporated, Fresno, California; Mr. Ted Seger, President 

of Farbest Foods, Huntingburg, Indiana; Mr. Michael Welch, President and Chief Executive Officer of Harrison Poultry in Bethlehem, 

Georgia; Dr. Eric Erba, Senior Vice President for Administrative 

Affairs, California Dairies, Visalia, California; and Mr. Randy 

Spronk, pork producer, Spronk Brothers, Edgerton, Minnesota. 

Dr. Meyer, please begin when you are ready. 

STATEMENT OF STEVEN ROGER MEYER, PH.D., PRESIDENT, 

PARAGON ECONOMICS, ADEL, IA; ON BEHALF OF NATIONAL 

CATTLEMEN’S BEEF ASSOCIATION 

Dr. MEYER. Mr. Chairman, Members of the Subcommittee, my 

name is Steve Meyer. I am President of Paragon Economics, Incorporated, a livestock and grain market analysis firm based in Adel, 

Iowa. I am here today on behalf of the National Cattlemen’s Beef 

Association. 

I would like to tell you about the declining amount of grains 

available to livestock and poultry producers and the impact it is 

having on cattlemen in particular, and more general on livestock 

and poultry producers. 

Since 2000, the amount of corn used for ethanol has increased 

eightfold, with 3⁄4 of that increase occurring since 2005. Since 2005, 

the use of corn for feed has fallen by 20 percent. 

5

Let me be clear that I am not opposed to ethanol. I believe it to 

be a reasonable alternative to expensive and dwindling oil supplies, 

especially when those supplies are in many cases held by countries 

that, at best, are unsupportive to America’s best interests, and at 

worst are enemies of our great nation. 

Further I realize that we cannot ‘‘unring’’ the bell on ethanol 

subsidies and tariffs. They have achieved their intended purpose of 

establishing a significant U.S. corn-based ethanol industry. But 

when you hear that the government should not be deciding on winners and losers, please realize that the government has already 

done so, with livestock and poultry producers being the primary 

losers. 

From 2007 to 2010, 30,510 cattle operations and 24,350 beef cow 

operations exited the industry. Most of them were small. During 

that same 5 years, 6,350 hog operations exited the industry, and 

84 percent of them held 500 or fewer pigs in inventory. 

The amount of corn used for ethanol has increased at a much 

faster pace than has the output of corn, leaving less corn available 

for other needs. In my written testimony, Figure 2 shows the 

amount of U.S. corn and other grains used for feed and residual 

usage for 2000 through 2012. That has declined 20.7 percent since 

2004 and 13.7 percent since 2007, when corn prices first reached 

this new higher plateau. 

The availability of dried distillers grains with solubles has indeed 

mitigated some of this decline, but it has not fully done so. Figure 

3 in my testimony shows that the addition of DDGs to feed availability slows the downward trend, but it is still falling and this 

year will fall to 166.8 million metric tons, 5.4 percent lower than 

just 4 years ago. 

U.S. livestock producers have met this challenge by becoming 

more efficient, but lower feed availability will eventually mean still 

lower meat and poultry output and still higher meat and poultry 

prices. 

The big question remains, though, what happens when the 

United States faces a year of widespread drought in major cornproducing areas? As can be seen in Figure 4 of my testimony, the 

last major drought in the Midwest occurred in 1988. The national 

average corn yield that year was 26 percent below the long-term 

trend. The 1988 shortfall did not cause major disruptions in U.S. 

livestock and poultry operations because U.S. farmers and the Federal Government held huge stocks of corn at that time. What would 

happen now if yields fell 26 percent below trend, and we only have 

a 5.4 percent projected stocks-to-use ratio at the end of the coming 

crop year? 

Most agree that yields will not fall as much as they did in the 

1980s because of improved varieties that we use in today’s corn 

production. But even if the impact is half as large as the 1988 decline, the resulting corn crop will be less than 12 billion bushels in 

a world that needs 13 billion or 14 billion bushels. 

A completely free market would push prices to effectively ration 

the short supply, but today’s corn market is not free. The Renewable Fuel Standard says that thou shalt use X gallons of ethanol 

and thus produce X gallons of ethanol, and thus use X divided by 

6

2.8 billion bushels of corn. They cannot participate in that rationing. 

The brunt of rationing will fall on livestock and poultry producers, but they cannot shut down a production system quickly. 

Animals must be fed or destroyed. Feeding pigs and poultry means 

using grain. The cattle sector has more flexibility, but even there 

a forced reduction of corn usage would be very difficult to implement. 

If oil and gas prices happen to be high at that time, we would 

be using corn in the right way, but if they are low, the market 

would say that we should divert corn away from ethanol and toward livestock. 

I urge you to quickly adopt a plan that provides an automatic 

temporary reduction or waiver of the Renewable Fuel Standard 

when we face a pending crop failure and see relatively low oil and 

gas prices. I don’t have a specific plan for you today, but I know 

there are members of the agricultural economics profession who 

would quickly devise alternatives for Congress should it show interest. 

I hope that all of this is just an exercise in futility, but I know 

that we are living on borrowed time from a sometimes fickle Mother Nature. We should honestly recognize that fact and prepare now 

for the day when calamity comes. 

[The prepared statement of Dr. Meyer follows:]

PREPARED STATEMENT OF STEVEN ROGER MEYER, PH.D., PRESIDENT, PARAGON

ECONOMICS, INC., ADEL, IA; ON BEHALF OF NATIONAL CATTLEMEN’S BEEF

ASSOCIATION

Mr. Chairman and Members of the Committee, my name is Steve Meyer. I am 

President of Paragon Economics, Inc., a livestock and grain marketing and economic 

advisory company based in Adel, Iowa. I have analyzed and advised clients in the 

livestock and, by extension, poultry industries for the past 24 years since receiving 

my doctoral degree in agricultural economics from Iowa State University. 

I address you today with grave concerns regarding the ability of U.S. livestock 

and poultry industries to continue to provide affordable, high quality protein in the 

form of meat, poultry, eggs and dairy products to U.S. consumers as well as customers around the world. My concerns are ongoing but primarily center on what 

will happen to U.S. producers and their animals in the event of a significantly 

smaller-than-usual U.S. corn crop any year in the next decade. 

My comments today will be confined to the livestock and poultry meat segments 

since those are the ones with which I am most familiar. They apply equally, though, 

to the dairy and egg sectors which are also major users of corn. 

Though some make some interesting claims about the non-culpability of cornbased ethanol in the current record-high prices, I believe Figure 1 speaks for itself. 

While U.S. corn exports and food and industrial usage other than ethanol have remained relatively constant since 2000, the amount of corn used for ethanol has increased eight-fold with 3⁄4 of that increase occurring since 2005. Since 2005, the use 

of corn for feed has fallen by 20 percent. 

First, allow me to point out that I am not opposed to ethanol. I have often joked 

that I prefer ethanol to be aged in oaken casks or cooled in long-neck bottles. But 

I am not even opposed to fuel ethanol made from corn. I believe it to be a reasonable 

reaction to expensive and dwindling oil supplies, especially when those supplies are, 

in many cases, held by countries that we view as, at best, unsupportive of America’s 

best interests and, at worst, enemies of our great nation. 

My difficulties with U.S. fuel ethanol policy arise from the provision of subsidies 

for the product’s usage, protection against imports which have, until recently, been 

lower-cost that U.S.-produced ethanol, and, most of all a mandate that forces ethanol to be used regardless of the economic circumstances, especially those that pertain to competing users of corn. 

7

We Cannot Go Back To Where We Were 

I realize that we cannot ‘‘un-ring the bell’’ on ethanol subsidies and tariffs. In 

combination with the promise of an ever-growing market through the Renewable 

Fuel Standard (RFS), these policy instruments drove the rapid construction of an 

ethanol production segment that has for several years been large enough to meet 

the ultimate 15 billion gallons of forced ethanol usage in 2015 contained in the RFS. 

The policies have achieved their intended purpose of establishing a significant U.S. 

corn-based ethanol industry. 

But there is no such thing as a free lunch. Subsidized ethanol has meant recordhigh corn prices, record-high costs of production for meat and poultry, resulting 

lower per capita meat and poultry output and, finally, record-high meat prices. The 

U.S. pork industry lost $6 billion in equity from 2007 through 2009 but improved 

profitability did not stop the exodus of pork producers in 2010. From 2007 through 

2010, 6,350 hog operations exited the industry and 84% of them held 500 of fewer 

hogs in inventory. During that same 5 year, 30,510 cattle and calf operations and 

24,350 beef cow operations exited the industry. The vast majority of these closures, 

too, was among small operations. 

And if you hear from anyone that ‘‘The government should not be deciding on winners and losers,’’ please realize that you have already done so. These policies have 

created a stream of winners who eventually lost the advantage that was handed to 

them. Ethanol plants were big winners early on when Methyl tert-butyl ether 

(MTBE) was banned as an oxygenate in gasoline. Plant builders were next as they 

reaped huge rewards during the pell-mell expansion. Corn farmers saw large profits 

next as corn prices rose in 2007 and 2008 but even those profits were short-lived 

as cash rents and input costs rose to take away the extraordinary profits or ‘‘rents’’ 

as we economists call them. Corn producer profits have returned in 2011 but they, 

too will be short-lived as cash rents, land prices in input costs rise. 

David Ricardo taught us in 1817 that rents, or super-normal returns on capital, 

accrue to the holders of the scarce resources—those that cannot be duplicated. This 

chapter in American agriculture will be used for decades as an example of Ricardo’s 

theory as the profits created by these policies accrue to landowners and to owners 

of non-duplicable technology such as patents and trade secrets. That does not mean 

that no one between these parties and the producers of ethanol made a profit. It 

only means that those profits were transitory while the rents accruing to landowners and patent holders will be relatively permanent. 

The damage has been done to other users of corn while the benefits from here 

forward will accrue almost solely to landowners and companies that have patents 

on various products and processes to provide inputs to corn farmers. Has that been 

a good deal for American society in general? Perhaps, but it has not been a good 

deal for those thousands of operations that have ceased producing cattle and hogs—

and milk and chickens and turkeys and eggs. One principal of a fair society is that 

winners compensate losers when policies create winners and losers. There has been 

no fairness for livestock and poultry producers. 

How Have These Policies Impacted Feed Availability 

Since 2004, corn used for ethanol production increased from 1.378 billion bushels 

to an estimated 5.05 billion bushels in 2010–2011. That is a total increase of 382% 

or an average of 65% per year. During that same period, total corn usage has increased by 24.8% or 6.1% per year. But corn production has increased by only 5.4% 

or 0.9% per year. To be fair, the 2004 corn crop was record large so it may not be 

the best base year to use for production growth. But comparing the average crops 

for 2008–2010 to the average for 2003–2005 still shows that corn production has increased by only 16.5% or an average of 2.7% per year. 

These differing rates of growth, which I argue were caused primarily by subsidies 

and a guaranteed market for ethanol which spurred a buildup far too fast to be supported, has caused carryout stocks to fall to unprecedented lows and forced the pricing system to ration potentially scarce corn supplies very early in crop years. 

They have also resulted in less and less corn and other feed grains being used 

(i.e., available) for feed. Figure 2 shows the amount, in million metric tons, of U.S. 

corn, wheat, barley, sorghum and oats used for feed and residual for 2000 through 

2011–12 as estimated in August by USDA’s World Agricultural Outlook Board. 

From 2000 through 2004–2005, feed/residual usage was relatively stable. But everything changes in 2005–2006 and feed/residual usage has declined in every year but 

one since then. Projected feed/residual usage in the coming crop year is 20.7% lower 

than in 2004–2005 and 13.7% lower than in 2007–2008 when corn prices first moved 

to this much higher plateau. 

The availability of DDGS from ethanol plants has indeed mitigated this decline 

but it has not done so fully by any means. Figure 3 shows the same data as did 

8

Figure 2 but has domestic DDGS availability (DDGS production less DDGS exports) 

added to the columns. The downtrend is slower but it is still a downtrend. Total 

grains plus net DDGS availability is projected to be 166.8 million metric tons in 

2011–2012, 5.4% lower than in 2007–2008. 

U.S. livestock and poultry producers have met this challenge thus far by becoming 

more and more efficient. While total feed/residual usage has declined 5.4% since 

2007–2008, U.S. beef production declined only 0.4% from 2007 to 2010 while pork 

and chicken production INCREASED 2.2% and 2.1%, respectively. But how long can 

such efficiency improvements continue? Lower feed availability will eventually mean 

lower meat and poultry output and still higher meat prices. 

There is a concern, however, that is much more immediate: What happens when 

the United States faces a year of widespread drought in major corn producing states?

The United States has enjoyed an almost unprecedented run of good corn growing 

seasons. As can be seen in Figure 4, the last major drought in the Midwest occurred 

in 1988. That came closely on the heels of a major drought and heat induced crop 

failure in 1983. The national average yield in those years was 84.6 bushels per acre 

and 81.1 bushels per acre, respectively. Those yields were 26% and 22% below the 

1960–2010 trend yield for those years. 

But neither caused major disruptions in the U.S. livestock and poultry industries 

because U.S. farmers and the Federal Government had HUGE stocks of corn on 

hand (see Figure 5). Having 49% and 55% of an entire year’s usage in grain bins 

around the land provided ample supplies and resulted in only slightly higher prices 

than were considered the norm for the time. 

What would happen if we had a national yield 22% or 26% below the trend yield 

now? Frankly, I would rather not contemplate the possibility. An 11% shortfall in 

1995 pushed 1996 carryout stocks to only 4.9% of total usage and drove corn to 

then-record highs of just over $5.00 per bushel. A projected 5.2% yield shortfall this 

year (USDA’s August estimate of 153 bushels/acre) has pushed projected year-end 

stocks to 5.4% of total usage and resulted in corn futures well over $7.50/bushel. 

It is clear from Figure 4 that we have enjoyed an extraordinary stretch of good 

growing weather. Logically, that stretch must someday be punctuated by another 

drought. According to Dr. Elwyn Taylor of Iowa State University, the longest period 

between Iowa droughts in over 400 years of tree ring data is 23 years. 2011 marks 

23 years since the 1988 drought and, while growing conditions were not perfect in 

Iowa this year, 2011 will certainly not be classified as a drought year. So, we are 

still counting and are now well overdue. 

2011–2012 will mark the third straight year in which total corn usage has exceeded 13 billion bushels. The 600 million gallon annual increases in ethanol blending 

prescribed by the RFS for each of the next 4 years will add 215 million bushels to 

the ethanol line for corn usage each year. If all other uses were to stay the same, 

it would mean we would need 14 billion bushels of corn in 2015. If harvested acres 

remain near 85 million, that crop would require a yield of 165 bushels per acre, a 

figure that can be reached if yield progress continues at the past trend and the 

weather is good. 

But what happens when a drought hits? That depends on many, many factors. 

Most agree that the yield reduction will not be as great as in the past due to the 

drought tolerance characteristics built into today’s hybrids. But even if it was 12%, 

roughly half as large as the 1980s declines, it would mean a corn crop of less than 

12 billion bushels in a world that needs well over 13 billion bushels and may need 

as much as 14 billion bushels. How would the industry ration the demand for 1 to 

2 billion bushels of corn? 

A completely free market would push prices high enough that the lowest value 

users would cease buying, reducing pressure on supplies and allowing the short crop 

to be used in its highest-value uses. But the corn market today is not free. The RFS 

decrees that ‘‘Thou shalt blend XXX billion gallons of ethanol into gasoline or we 

will fine you.’’ By extension that means that ethanol plants must produce XXX billion gallons of ethanol and use XXX/2.8 billion bushels of corn to do it. The ethanol 

sector is not free to participate in any rationing that must be done. 

Logically, exports would be next in line since corn should have a higher value before transportation than afterward. But in a world with a near-record low U.S. dollar and growing demand for meat and poultry in Asian markets, I don’t believe this 

will be true. We witnessed record large exports in 2007 and have seen relatively 

strong—considering the price is over $7 in the U.S.!—exports in 2011. 

A similar argument can be made for corn usage in high fructose corn syrup. 

Should a shortfall happen when sugar is expensive, as it is now, HFCS output 

would not fall by much, if any. 

9

That leaves feed/residual and feed users have a huge problem: They cannot shut 

down a production system quickly. Most animals—and this especially applies to pigs 

and chickens—are worth far less if they have to be sold prior to reaching market 

weight, if they can be sold at all. The hitch is that someone else has to have a place 

for them and the broiler and pork industries simply do not have a lot of empty facilities sitting idle. The cattle sector has more flexibility given the bovine’s wondrous 

ability to utilize forages but even there, a forced reduction of corn usage would be 

very difficult to implement. 

The only way to effective short-circuit hog and chicken production systems to 

quickly reduce feed usages is to destroy the animals. This happened in the summer 

of 2008 when weaned pig values went to zero due to high feed prices, low hog prices 

and a strong Canadian dollar. There were rumors that it happened on a few occasions in the U.S. in the summer of 2009. Destroying chicks or poults is not an unusual occurrence in the broiler and turkey industries but the scale would be multiplied many times in the case of a drought-driven crop failure under these circumstances. 

Destroying animals runs against every fiber in a producer’s being! It is wasteful 

and psychologically draining. Most would do about anything to avoid it but economic 

realities may force them to do it. 

What Can Be Done? 

If oil and gasoline are expensive, there is nothing anyone can do without ordering 

the shutdown of ethanol plants. The market would tell us that corn is needed more 

for fuel than for other uses. The reason, of course, is that all of those subsidy-driven 

ethanol plants exist so this ‘‘market driven’’ situation is still a consequence of our 

past policies. But those cannot be undone so we must deal with facts: High oil prices 

would mean corn will be used for ethanol and livestock and poultry growers will 

have to either pay the price or destroy animals to reduce usage quickly. 

If oil and gasoline prices are low, however, there will be a conflict between what 

the market may say should be done and what current law says must be done. Low 

oil and gasoline prices would mean that corn has a lower value in use for ethanol 

and that less should be used there and more diverted to livestock feed. But the law 

does not allow that and the current waiver features put that decision in the hands 

of the Administrator of the Environmental Protection Agency. Will he/she want to 

reduce ethanol use and its alleged environmental benefits when gasoline is cheap 

and the incentive is there for motorists to burn more and thus add to carbon emissions? I think the answer is obvious. 

I urge your Committee and the House Agriculture Committee as a whole to quickly adopt a plan to provide an automatic waiver of the RFS in the circumstance of 

a pending crop failure in major corn growing areas and relatively low oil and gasoline prices. I would envision this ‘‘trigger’’ to be a function primarily of supply indicators such as grain stocks, acreages and crop conditions which, when met, would 

allow the Secretary of Agriculture to take action regarding the RFS. I believe it is 

imperative to give the Secretary of Agriculture some authority in this matter since 

it is so important to our meat and poultry supply. 

I may be wrong, but ethanol blenders and, perhaps, manufacturers should support 

this idea. Do they really want to make and blend ethanol made from $8 or $9 or 

$10 corn when gasoline prices are cheap? Maybe they believe they will just pass the 

higher costs along. In that case, U.S. gasoline consumer should be VERY supportive 

of this idea. 

I do not have a specific proposal for you at this time. I know that several agricultural economists have worked on potential trigger mechanisms. I can assure you 

that some of the best minds in our profession can be assembled quite quickly to devise a plan or a few alternatives that will work. 

I sincerely hope that this is all an exercise in futility and that we never have another short corn crop. But I have studied statistics and probability and know that 

we are living on time borrowed from a sometimes-fickle Mother Nature. We should 

honestly recognize that fact and prepare for the day when that calamity comes.

10

CHARTS

Figure 1

U.S. Corn Usage by Category

Figure 2

Grain Feed & Residual Usage, United States


11222001.eps 11222002.eps
11

Figure 3

Grain Feed & Residual Usage + Net DDGS Supply, United States

Figure 4

U.S. Corn Yield


11222003.eps 11222004.eps
12

Figure 5

U.S. Corn Price & Stocks/Use Ratio


11222005.eps
13

The CHAIRMAN. Thank you, Dr. Meyer. 

Mr. Greene. 

STATEMENT OF PHILIP GREENE, VICE PRESIDENT, FOSTER 

COMMODITIES AND FOSTER POULTRY FARMS, FRESNO, CA; 

ON BEHALF OF AMERICAN FEED INDUSTRY ASSOCIATION 

Mr. GREENE. Chairman Rooney, Ranking Member Cardoza, 

Members of the Subcommittee, I am Phil Greene, Vice President of 

Foster Commodities, Fresno, California. Thank you for the opportunity to appear here today on behalf of the American Feed Industry Association, representing their interest of the U.S. animal feed 

industry and its suppliers. 

AFIA companies produce over 75 percent of the feed manufactured in the U.S. each year. Feed represents more than 70 percent 

of the cost of producing meat, poultry, dairy and eggs. So, anything 

affecting the cost of feed directly impacts the costs of animals to 

the processor, retailer and ultimately to the cost of the food for the 

consumer. 

Foster Poultry Farms is a family-run poultry company employing 

about 12,000 people throughout the country. Foster Commodities, 

the division that I manage, is one of the largest feed companies in 

the western United States, with over 500 livestock customers. We 

move over 4 million tons of feed production per year through our 

facilities. 

Today the feed industry, large or small, integrator or feedlot, 

faces a perfect storm of historically high supply/demand price pressures. We are in a real crisis. Its consequences are both domestic 

and global, and it is worsening on a daily basis. The U.S. livestock 

and poultry industries are beginning massive consolidations as producers faced with record high prices and near record low feed availability liquidate herds and flocks. 

At the same time, the U.S. inflation rate is on the cusp of another upward explosion. Just this week the Census Bureau reported the following: The Consumer Price Index for all food stood 

at 5.4 percent in July, higher than last year. For meat, poultry, fish 

and eggs, CPI is 7.4 percent higher. All this is happening at a time 

when those living in poverty has reached the highest level in 46 

years. Why? We fool ourselves that using corn for ethanol production doesn’t drive up commodity prices, and we Congressionally 

mandate annual increases while protecting ethanol against imports. We stimulate demand through ethanol and export programs 

while we shrink farmable acres and keep in place an antiquated 

Conservation Reserve Program. 

Contrary to what we have been led to believe for 8 years, the 

U.S. annual production yield curves for corn and soybeans are flat, 

not increasing, and surplus grains are disappearing. We don’t define and regulate position limits for institutional speculation or ag 

futures markets, preventing the bona fide hedgers the price protection they need on input purchases. And we do not put enough resources and emphasis on the development of more farmland, better 

yielding crops, and improved water resource conservation, along 

with irrigation development. We must increase our investment in 

ag research to find solutions to meet these production challenges. 

14

All of this is baffling. With the exception of growing global population and food demand, we can control every one of the challenges 

I have listed. Tyson Foods recently commented that corn at $7 a 

bushel reflects the doubling of the cost of slaughter-ready chickens 

to 45¢ per pound over the last decade. 

Smithfield Foods sees, and I paraphrase, looming problems for 

hog farmers, whose grain costs continue to eat away at an already 

thin profit margin. Eight dollar corn has scared people. Smaller 

producers are saying, ‘‘I am not going do this anymore.’’ The biggest culprit in these markets is Federal energy policy, or lack of a 

comprehensive Federal energy policy mandating the use of ethanol 

at annually higher levels while paying oil companies over $6 billion 

a year to comply with the Federal mandate. It makes no sense. Look beyond the $6 billion subsidy. If you consider the shift the industry has made from $2 corn to $7 corn, 

then you understand the industry has absorbed $65 billion per year 

in additional production costs since 2006, or approximately this 

amount this year. 

You factor in the bean crop, and you can see that ethanol and 

institutional market speculation has created huge inflation. To date 

most of this inflation has been absorbed by the feed companies, 

livestock producers and export customers. The U.S. consumer has 

only begun to see the beginning of food inflation. Combining government-subsidized fuel production with the 2011 corn crop that 

will seriously miss earlier predictions, and you get this week’s 

USDA supply and demand estimate setting 2011 ending stocks at 

just five percent, the equivalent of roughly 21⁄2 weeks’ supply of 

corn. A five percent ending stock signals to the market that USDA 

believes there isn’t enough corn to meet demand, and price rationing must occur to keep the level at this minimum supply. The Department assumes price pressures will cut demand. 

How high will prices go? How much demand will we destroy? 

How many businesses will we close? How many jobs will be lost? 

How many people will move to the poverty level or join the ranks 

of the truly hungry? 

In the past 2 months, USDA has reduced the demand estimates 

from 13.5 billion bushels of corn on July 2nd to 12.76 billion bushels this week. A 750 million bushel reduction represents enough 

corn to sustain almost 20 poultry companies the size of Foster 

Farms. This number represents an amount equal to 16 times the 

amount of China’s anticipated import demand for this next year. 

The point is, this is a huge reduction in market-desired supply that 

must be rationed to everyone except the ethanol user. 

The AFIA urges Congress to develop and require the Secretary 

of Agriculture to use a mechanism that recognizes in time of reduced production and ending stocks, the RFS mandates must be 

waived to ensure needed livestock/poultry feeds at reasonable 

prices. The AFIA urges the full House Agriculture Committee, as 

it writes the 2012 Farm Bill, to adopt policies that put arable farmland back into production, starting with a reinvented CRP that provides enrolled producers with the flexibility to opt out of the program without financial penalty when the U.S. faces yield reductions and stocks drop to the kind of levels predicted by the USDA 

this week. 

15

AFIA proposes the CFTC begin with position limit parity between the physically settled contacts and cash-settled ‘‘look alike’’ 

contracts. This meets the four objectives set forth in the DoddFrank Act for speculative position limits. 

In summary, here is what we believe Congress must do to sustain U.S. feed manufacturing and livestock and poultry production. 

We must ensure feed ingredient markets are driven by market demand, reworking Federal energy policy to remove the mandated 

use of food commodities from the list of eligible feedstocks for Federal tax credits in some biofuel production. 

Create a mechanism requiring the Secretary of Agriculture to 

waive the RFS in the event of stocks-to-use ratios falling below a 

certain amount or prices hit a specified level. 

Reinvent the CRP and other acreage-idling programs to get arable acres back into production and ensure these programs don’t 

provide an economic incentive to idle arable acres. Farmers must 

be allowed an early opt-out option without an economic penalty. 

And hold the CFTC to the intent of the Dodd-Frank Act by defining and enforcing Federal speculative position limits for institutional speculators, including derivatives and over-the-counter products. True hedgers must be protected from institutional speculators. 

Thank you, Mr. Chairman. I look forward to any questions. 

[The prepared statement of Mr. Greene follows:]

PREPARED STATEMENT OF PHILIP GREENE, VICE PRESIDENT, FOSTER COMMODITIES

AND FOSTER POULTRY FARMS, FRESNO, CA; ON BEHALF OF AMERICAN FEED

INDUSTRY ASSOCIATION

Chairman Rooney, Ranking Member Cardoza, Members of the Subcommittee, I 

am Philip Greene, Vice President of Foster Commodities, Foster Poultry Farms, 

Fresno, California. 

I thank the Subcommittee for the opportunity to appear today on behalf of the 

American Feed Industry Association (AFIA), Arlington, Virginia, the world’s largest 

organization devoted exclusively to representing the business, legislative and regulatory interests of the U.S. animal feed industry and its suppliers. 

AFIA companies today produce over 75% of the commercial feed and pet food 

manufactured in the U.S. each year. AFIA members include more than 500 domestic 

and international companies, as well as state, regional and national associations. 

Member companies are livestock feed and pet food manufacturers—including complete feeds, premixes and supplements—integrated livestock and poultry producers, 

pharmaceutical companies, ingredient suppliers, equipment manufacturers and companies supplying products, services and supplies to the animal feed industry. 

The feed industry is also the single largest purchaser and user of all major classes 

of U.S. agricultural production, including feed grains, oilseeds and processed meals 

and coproducts. These commodities are critical inputs in the high-quality feeds 

American farmers and ranchers rely on to raise the safe, wholesome and affordable 

meat, poultry, eggs, milk and fish American consumers enjoy every day. 

Feed is the most critical component of livestock, poultry, dairy and egg production 

in the U.S. and around the world, both to insure animal health and well being, as 

well as contributing to growth and product quality. 

As this Subcommittee is well aware, feed as a component of production, represents more than 70% of the cost of producing U.S. meat, poultry, dairy and eggs. 

Anything—I repeat, anything—that affects the cost of producing feed for livestock 

and poultry, directly impacts the cost of animals to the processor, meat, dairy and 

eggs to the retailer, and ultimately, the cost of food to the consumer. 

This testimony identifies three primary factors negatively impacting the availability and hence the cost of feed to U.S. livestock and poultry producers, with its 

resultant negative impact on this nation’s commercial feed industry. These are factors, other than the increasing global demand for food, that are all within our control. These challenges are as follows:

16

• A Federal bioenergy policy that continues to mandate that food crops be used 

as feedstocks for biofuels at annually increasing levels;

• Arbitrary and outdated acreage reduction programs that must be reinvented to 

meet their original purpose, namely to maximize U.S. feedstuffs production and 

minimize supply impacts on feed-deficit areas of the country, and

• The need for the Federal Government to ensure commodity futures markets are 

regulated in such a way as to ensure the traditional ability of true hedgers to 

identify prices absent institutional speculation distortion.

AFIA also wishes to stress the current feed availability and cost challenges in the 

U.S.—reduced production and stocks exacerbated by biofuel and export competition, 

with futures market institutional speculation adding insult to injury—is not unique 

to the U.S. Our domestic situation has global ramifications for both food costs and 

availability. 

Corn, Soybean Supply/Demand and the Commercial Feed Industry 

As stated, the U.S. livestock and poultry industry is the single largest domestic 

user of corn and soybeans, as well as their byproducts, through purchases of commercial feeds, through on-farm feed mixing and the use or supplements and premixes. 

Feed also represents one of the biggest on-farm costs to U.S. farmers and ranchers. U.S. total farm production expenditures were $289 billion in 2010, up from 

$287.4 billion in 2009, according to the U.S. Department of Agriculture’s (USDA) 

August, 2011, report from the National Agricultural Statistics Service (NASS). The 

four largest U.S. on-farm expenditures cumulatively totaled $134.4 billion and accounted for 46.5 percent of total expenditures in 2010. These percentages of total 

expenditure were feed, 15.7% percent, farm services at 12.4%, labor at 12.4%, and 

rent at 9%, all increases from the year before. 

Today—and for the foreseeable future if Federal policies do not change—the feed 

industry faces the ‘‘perfect storm’’ of influences that will weigh heavily on ingredient 

availability, with the cost of ingredients ratcheting higher due to artificial inflation 

of feedgrain and oilseed prices based on competition with U.S. biofuel production, 

record export demand, adverse growing/harvesting conditions, and commodity futures markets which continue to be plagued by speculation. 

More than 55% of corn produced in the U.S. historically has gone to animal feed 

uses for livestock and poultry—in 2012 USDA estimates this will drop to 37%—with 

less than 10% of the U.S. field corn crop used for direct domestic human consumption in corn-based foods such as corn meal, corn starch, and corn flakes, USDA reports. Beef production has the greatest feed use of corn, followed by poultry and 

swine. However, current USDA estimates show ethanol use of corn is now taking 

nearly 40% of the domestic corn crop, and this increase in ethanol use shows no 

signs of abating. The other competitors are exports at 13.8% of use, forecast by 

USDA to drop to 12.9% in 2012, as well as seed, and other industrial uses. 

About 85% of the world’s soybeans are processed annually into soybean meal and 

oil. Approximately 98% of the soybean meal that is crushed is further processed into 

animal feed, with the balance used to make soy flour and proteins. Of all soybean 

meal use for feed, the poultry industry demands 40–45% of available supplies, the 

swine industry takes another 26%, with beef and other feed uses—including pet 

food—making up the remainder of demand. Of the oil fraction, 95% is consumed as 

edible oil; the rest is used for industrial products including biodiesel, fatty acids, 

and consumer products. 

The convergence of these factors skews both cash and futures prices, and as feed 

prices are jammed upwards, our farmer/rancher customers in beef, dairy, poultry 

and swine production are forced to liquidate herds and flocks because they cannot 

afford to feed their animals based on the price processors are willing to pay. 

Tight domestic supplies of corn and soybeans—even given outstanding crop production last year—are pushing markets above the previously highest levels for corn 

seen since June 2008, and within a couple of dollars of the all-time high for soybeans. A number of factors, including a rapidly expanding world population, 

drought, flooding and other natural disasters and higher energy costs are all components of 2011 corn price spikes. But far and away the biggest impact on both corn 

availability and price is the use of corn as the feedstock of choice for ethanol, or 

as the industry views it, food has become fuel. 

The cost of feed to livestock and poultry producers doubled from 2006 to 2008, 

retreated slightly in 2009, but resumed its upward march in 2009–2010 and through 

2011 to date. While the Administration continues to assert only 4% of current corn 

price increases can be attributed to competition between feed/food use and ethanol 

17

use, independent studies show 30–40% of the spike in corn prices can be attributed 

to corn demand for ethanol. 

Last week’s market rally saw corn move above $7 a bushel again, and reflected 

a doubling of the cost of slaughter-ready chicken to 45¢ per pound over the last decade, according to Tyson Foods Chief Executive Officer Donnie Smith’s address to a 

Barclay Capital investor’s conference. Smith called this a ‘‘huge structural shift.’’ In 

an interview last week with Bloomberg Businessweek, Larry Pope, chief executive 

of Smithfield Foods, said he sees ‘‘looming problems for hog farmers as grain costs 

continue to eat away at already thin profit margins.’’ Said Pope, ‘‘We’re seeing contraction . . . in terms of the published data that you can see, you can see the sow 

slaughter . . . has turned dramatically here, and then this $8 corn I think has 

scared people pretty substantially . . . there are smaller producers who are just 

saying ‘I’m not going to do this anymore.’ ’’

The following chart illustrates the trend in corn demand likely will not shift without policy changes given the cost of production of ethanol and its world market price 

as a competitive fuel with petroleum. 

USDA’s Baseline Projections suggest that corn use by ethanol producers 

will grow much faster than corn use by other industries

Note: Feed and residual corn use is calculated by subtracting the other 

three categories plus ending stocks from total supply. Thus the term ‘‘residual’’ refers to a statistical residual. 

Source: USDA Agricultural Baseline Projections to 2015.

Given the feed/food competitors for corn—and their respective percentage of demand—will likely not shift dramatically over the near term, absent a sea change 

in the economics of ethanol production and marketing, ethanol corn demand will increase. 

However, the Subcommittee should also be aware that from a corn production 

standpoint, yield trends are misleading. 


11222006.eps
18

20 year corn and soybean yield trends look good . . .

While 8 year yield trends tell a different story 

Corn Yield Last 8 Years


11222007.eps 11222008.eps
19

Soybean Yield Last 8 Years

Energy Policy 

Through creation of the Renewable Fuel Standard (RFS) in 2005, Congress mandated oil companies use set amounts of ethanol in gasoline blending, with those 

mandates increasing on an annual basis. Congress also decided to provide a cash 

subsidy to oil companies to actually do what they’re mandated to do. And, if such 

incentives and mandates were not enough, Congress imposed an import tariff to 

block import of foreign ethanol into the U.S. These actions—along with record world 

demand for U.S. commodities—have conspired to shove corn prices to levels never 

seen in the U.S. 

The RFS mandate, the blenders’ credit and the import tariff have created an ethanol industry which now requires almost 40% of the overall corn crop to meet production mandates and to be profitable. Ten years ago, ethanol demand for corn was 

less than 5%. As these mandates increase, corn and soybean production capacity are 

unable to keep up with the rapid growth demanded by these government actions.

Despite the Administration’s continued assertion only 4–5% of current livestock/

poultry production cost increases—and resulting consumer food price inflation—are 

due to ethanol competing with the feed/food industries for corn, it cannot be denied 

the significant increase in corn demand, driven in large part by this biofuel mandate 

and a prospective crop that will miss previous predictions and bring ending stocks 

to lows not seen since the mid-1990s, means the corn prices will inevitably continue 

to rise throughout 2012 and beyond. 

It should be noted a 5% ending stock signals the market that USDA believes there 

is not enough corn or soybeans to meet demand, and that price rationing must occur 

to keep the level at this minimum supply. USDA will adjust demand in its estimates 

to ensure 5% is maintained; to do otherwise would be to admit that we have a critical food shortage. In the past 2 months USDA has reduced its demand estimate 

from 13.5 billion bushels in its July 12, 2011 report to 12.76 billion bushels in the 

Sept.12, 2011 report—a precipitous fall of 5.5% in demand is required to keep us 


11222009.eps 11222010.eps
20

from running out of corn this year. Demand has not been reduced in a significant 

way yet, and this may signal the market may test all time price highs as it works 

to rationalize the declining availability of corn and other feedstocks. 

AFIA supports a comprehensive Federal energy policy, including energy research 

to find alternative non-food crop biofuel feedstocks, as well as legislative initiatives 

to end the blenders’ tax credit and import tariff protections for corn-based ethanol. 

However, until these actions are taken, AFIA remains concerned about the impact 

of the Administration’s corn-ethanol policy and the potential additional adverse effects any expansion or extension of policy, e.g., increasing the 10% ethanol blend 

limit for gasoline to 15%, will have on the domestic livestock and poultry industries. 

U.S. Annual Ethanol Production

Corn prices have doubled in the last year, now bouncing around $6–$8 a bushel—

‘‘the new normal,’’ as some call it. The overall concern over this fall’s grain supply 

has some speculating corn prices could reach $10–$12 a bushel. PorkNetwork re- ported last week that more than 4,500 call options in the CME Group’s corn market 

at a strike price of $11 and $12 a bushel were held by traders, 15% higher than 

a month ago. More conservative analysts don’t deny $9–$10 corn is possible this fall 

if yields continue to shrink and fewer acres are harvested. The impact of $10 a bushel corn on livestock and poultry producers would be disastrous; herds and flocks would be further liquidated to avoid losses, cutting both 

producer income and seriously—and negatively—impacting feed companies, farmerowned cooperatives, exporters and consumer food prices. This market has only one 

certainty: Ethanol refiners and speculators will continue to be the two interests 

moving to buy massive ownership positions in corn. 

What the poultry and livestock industry predicted in 2005, is now coming to pass. 

When the RFS was debated and ultimately enacted, poultry and livestock interests 

warned lawmakers all it would take to create market price chaos, herd/flock liquidations and serious consumer food price inflation going through the roof would be ‘‘one 

bad crop year, one drought, one major disaster.’’ 

In a Sept. 9, 2011, Feed Grain Market Report, Bloomberg News reported the consensus estimate of 30 private analysts surveyed was that ‘‘difficult growing conditions this spring and summer and the hottest summer since 1955 in parts of the 

Midwest, have significantly eroded corn yields.’’ Bloomberg’s survey now sees a crop 

of about 12.554 billion bushels, down almost 3% from USDA’s August prediction of 

12.914 billion bushels, and nearly 1% less than produced last year. 

This leads to the lowest ending corn stocks since 1996 at likely just over 5.2%, 

according to the latest World Supply & Demand Estimate issued Sept. 12, 2011, by 

USDA. Analysts say the crop could get smaller, putting even more pressure on 

prices to move higher, and predicted supplies will be tight for at least another year, 

putting a premium on adding acreage to produce a crop sufficient to replace inventories. 

The University of Illinois reported last week it expects to see greater use of lowerquality wheat and other less-than-preferred commodities to replace corn in livestock 

rations. Corn prices are not expected to drop—again because of incentives needed 

to get farmers to shift acres to corn production in the face of increasing ethanol and 

export demand. Unfortunately, as the industry seeks alternative feed ingredients, 

we’re confronted with the fact U.S. production of feed crops has declined for the past 

several years 

AFIA supports letting the free market determine where our corn and soybean supplies are utilized, and urges Congress to take action to remove mandated biofuel 

competition from the market for corn for feed use. Absent that resolve, AFIA urges 

Congress to develop and implement a mechanism that recognizes in times of reVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 I:\DOCS\112-23\68483.TXT BRIAN

11222011.eps
21

duced production and ending stocks, RFS mandates are to be waived to ensure 

needed commodities at reasonable prices for livestock and poultry feeds. 

Modernize Conservation Programs 

One Federal program in need of significant reinvention is the Conservation Reserve Program (CRP) and programs related to it which take arable acreage out of 

production. CRP was intended to take truly environmentally fragile land out of production to preserve that land. However, CRP has morphed into what it was never 

intended to be, namely a program by which farmers can collect checks for simply 

idling land—any land—and for some, the program is actually little more than a government-paid annuity. 

For more than a decade, AFIA has joined with other like-minded commodity organizations and companies to prevail upon USDA to allow farmers enrolled in CRP 

to take an early-out option without the prescribed penalty if they wished to move 

enrolled acres back into production. For more than a decade, USDA has turned either a deaf ear or flatly refused to exercise this administrative option open to the 

Secretary. 

As recently as spring of this year, AFIA joined several national, state and regional 

organizations in providing to USDA yet another private study supporting the Secretary taking action to allow CRP-enrolled producers an early-out option without 

penalty. 

The most recent study concludes the world may be short of grain supplies going 

forward, must take action now, and plan for the long-term impact of multiple graindeficit years. The study recognizes the U.S. hasn’t competed to produce additional 

supplies of grains and oilseeds for several years, keeping millions of acres of land 

idled in the CRP. This has left the U.S. unable to respond to market conditions that 

would normally direct more plantings to fill grain and oilseed needs for feed companies, processors, livestock and poultry producers and others. The major conclusions 

of the study include the following:

• Over the last 10 years, the price index for energy commodities has tripled;

• Global trade is strong; China imports soybeans equal to production on 48 million acres or one row in every four planted in the U.S.;

• Acreage expansion, including that envisioned in CRP changes, could be an effective hedge against risks of climate change variability;

• A 5% reduction in yields would force prices to further ration demand, and

• In the last 140 years, there’s been a 25% chance of a yield decline of at least 

5% in any given year.

AFIA urges the full House Agriculture Committee as it moves through its process 

of identifying program and policy priorities affordable under the 2012 Farm Bill, to 

actively consider and adopt a revamped CRP that provides enrolled producers with 

non-environmentally sensitive acres in the program, with the flexibility to opt out 

of the program without financial penalty when the U.S. faces yield reductions and 

stocks drop.

22

Foster Commodities’ Experience 

I’d like to use my company’s experience to illustrate the current feed availability 

situation. 

The Subcommittee knows not all regions of the country produce all the corn and 

soybeans they need to feed local livestock and poultry, nor do they enjoy and abundance of these feed ingredients from which finished feeds can be manufactured. Socalled feed deficit regions of the U.S. include the Southeast and Deep South, New 

England, and states west of the Rocky Mountains to the Pacific Ocean and into the 

Pacific Northwest. Commodities—either raw or processed—must be moved by truck 

or train into these regions for feeding. 

Due to our unique customer combination, the Foster Commodities division is one 

of the largest feed companies in the western U.S. We have over 500 livestock customers, and move over 4 million tons of feed production per year through our facilities. The business breaks into two different areas of responsibilities: (1) The largest 

customer is Foster Poultry Farms, and (2) 500 feed customers, including dairies, 

farmers and livestock producers. Our merchandising and purchasing teams also procure ingredients and manage the logistics for Foster Farms chicken and turkey feed 

mills throughout the country. Our feed plants manufacture, transload and sell livestock feed, feed ingredients, liquid feeds, and feed supplements to our 500+ dairy 

and other livestock customers in California and the western U.S. 

California has about 1,800,000 milking cows and a significant beef cattle herd. We estimate cattle in California consume over $3 billion worth of feed in annually. For 

us to service these producers, we rely upon strategic rail access to 100 car unit 

trains. With the combined demand of our internal requirements and our external 

sales we better utilize the numerous assets we have constructed to facilitate rail and 

truck traffic. We regularly receive and store corn, soybean meal, dried distillers 

grains (DDGs), canola, wheat and other primary livestock feed ingredients. 

We seasonally purchase, when available, locally grown corn and wheat at all of 

our feed mill locations. We also bring in numerous other rail and truck-load products. Seven days a week Foster Commodities ships about 170 truckloads of products 

to customers throughout the western U.S. 

On average my company has approximately 1,600 cars (100 tons each) of corn and 

soybean meal moving to its California operations monthly from sources across the 

country. Our biggest volumes are in train loads of corn, soybean meal, canola, soy 

pellets, DDGs and other bulk rail commodities we buy for our own use and sell to 

outside accounts. These trains come from as far away as Nebraska, Iowa and Minnesota. In some cases we receive products, such as canola, from Canada. Wheat genVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 I:\DOCS\112-23\68483.TXT BRIAN

11222012.eps
23

erally comes from local sources, but can be quoted from Canada and/or cargo ships. 

The Subcommittee should be aware soybean meal from South America is being offered at the port of Stockton, California. With current crop shortages and higher 

grain prices, we are beginning to get inquiries as to Foster’s ability to take container 

ships of imported grains into West Coast. To my knowledge, these are offerings only 

at this time. 

Grain Procurement Challenges 

Like most commercial feed companies and cooperatives in the U.S., Foster Commodities has grain merchandisers trading in futures markets. 

The conventional practice of the industry used to be to buy according to nearby 

needs, generally using the futures market as the price discovery mechanism. Quotes 

contrasting futures and cash prices would allow a company to decide on a supplier, 

give the supplier the futures contract and convert the transaction to a cash sales 

contract. The markets don’t operate that way anymore. 

Today a buyer must consider the cost of waiting for/hoping for price drops, a game 

that can be expensive. We saw corn prices last year on Sept. 14, 2010, at $4.66, only 

to watch them skyrocket to $7.99 on June 10, 2011. Some decided to buy ahead, 

but were hit with margin calls, as some experienced during the March market collapse. At that time prices went from a high of $7.34 on March 4, 2011, to a low 

of $6.08 on March 16, 2011. What I’m illustrating is that while commodity markets 

have always been volatile, we have never seen the type of volatility we are seeing 

today. 

Often dairy customers want a contract that gives them what we call a ‘‘clock,’’ an 

annual contract for feed generally signed in the fall. However, if hedged sales are 

used for a customer, there is the risk the customer will default on the agreement 

if the market price falls. If a hedged ingredient purchase is put on with a farmer, 

the risk is he or she will be unable or unwilling to deliver against the account. Then 

there is the risk of increased margin calls. A market position may be perfectly 

hedged, but find you find yourself in an unsustainable cash flow drain that ultimately causes liquidation and default. 

These situations are occurring with greater frequency, creating significant stress 

on our feed business, and we know we are not alone as this is a national problem 

faced by the broad feed industry, as well as those integrators attempting to lock in 

prices for their own ingredient needs. 

In the past few years speculators have entered the agricultural commodities markets creating another significant challenge. Feed companies and others seeking to 

hedge real inventory needs must now compete for commodity purchases against institutional investors who offset our trades and extract their profits. These speculators have no interest in owning the commodity; their goal is to get in front of commercial traders like us by bidding up the price of a contract, taking the profit out 

of our losses. This environment has created weekly price moves that used to take 

a year to achieve. 

This unregulated speculation is exacerbating the impact of ethanol competition for 

corn. 

AFIA and Market Speculation 

AFIA is well aware the House Agriculture Committee has confronted the impact 

of unregulated speculation on legitimate users of futures markets. We applaud this 

Committee’s leadership in this area, but want to restate for the record the U.S. feed 

industry’s position on pending rulemakings which impact the cost of our ingredients 

and the profitability of our businesses. 

The commercial feed industry, as I’ve illustrated, is a major user of agriculturebased derivatives markets, including both exchange-traded futures contracts as well 

as over-the-counter products. AFIA has been an active participant in efforts to convince the CFTC of the need to revisit its position limit regulations, as well as its 

definitions of speculator activity. 

Participation in the agriculture-based derivatives markets allows our member 

companies not only to hedge their exposure to price fluctuation in these commodities, but also to determine the prices of inputs and goods produced. When input 

prices, as reflected in futures markets, either (a) become distorted and fail to accurately reflect true supply and demand, or (b) become unduly volatile, the pain is felt 

not only by AFIA members, but throughout the supply chain to the consumer. 

Futures contracts on agriculture commodities were established to provide commercial producers and bona fide end-users of critical goods with an efficient mechanism 

to manage risks and determine fair prices. Our industry is very concerned with the 

current Commodity Futures Trading Commission (CFTC) proposal to permit speculators in financial contracts, who hold no positions in the core agricultural commodVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 I:\DOCS\112-23\68483.TXT BRIAN
24

ities futures contracts, to hold up to five times a core contract’s spot month limit, 

while also holding up to 25% of the core agricultural commodity futures contract’s 

deliverable supplies. 

This CFTC proposal is contrary to the guidance set forth in the Dodd-Frank ‘‘Wall 

Street Reform and Consumer Protection Act’’ for setting position limits, in that it 

will not accomplish the following:

• Diminish, eliminate or prevent excessive speculation;

• Deter and prevent market manipulation, squeezes and corners;

• Ensure sufficient market liquidity for bona fide hedgers, and/or

• Ensure the price discovery function of the underlying market is not disrupted.

Spot market position limits are the most important tool in maintaining the utility 

and integrity of commodity futures contracts as essential financial instruments for 

bona fide users of agricultural commodities. For bona fide end-users, the spot month 

is an important time for rolling, liquidating or making/taking delivery of contracts. 

The proposed expansion of spot month limits for speculators in financial contracts 

would negatively impact the conditional spot month limits by increasing volatility, 

potentially reducing liquidity, possibly increasing costs and reducing the options 

available to bona fide end-users during these critical spot month periods. 

Further, the CFTC offers no data, qualified information or analysis in support of 

this proposal to significantly increase financial speculative position limits, which 

could increase the volatility, encourage price manipulation and interfere with the 

critical price discovery function that bona fide end-users depend on. The Commodity 

Exchange Act (CEA) made this purpose explicit, stating the goal of this law is to 

serve the ‘‘national public interest’’ in these markets ‘‘as a means for managing and 

assuming price risks, discovering prices, or disseminating price information through 

trading in liquid, fair and financially secure trading facilities,’’ and included the specific mission ‘‘to deter and prevent price manipulation or any other disruptions to 

market integrity.’’ 

AFIA proposes the CFTC begin with position limit parity between the physically 

settled contract and the cash-settled ‘‘look alike’’ contract. This would meet the purpose of the CEA and the four objectives set forth in Dodd-Frank for speculative position limits. 

Absent this type of adult supervision of speculators, the legitimate hedger will 

continue to suffer by not being able to analyze market trends and make informed 

market moves. During the past 3 years we have seen numerous accounts go broke, 

downsize and or suffer greatly. 

Global Food Implications 

In 2009, the Food & Agriculture Organization (FAO) of the United Nations, 

warned that by 2050, the world will need to produce 70% more food than it does 

today in order to feed an expected 2.3 billion additional people worldwide. This is 

a 33.3% increase in the world’s population. The biggest challenges are more efficient 

use of scarce natural resources (acreage) and adapting to climate changes. 

Population estimates and projections 1950–2050, world regions according to 

development level (millions).

Source: United Nations 2008


11222013.eps
25

On Aug. 8, 2011, FAO reported world cereal grain production in 2011—even 

though expanded from 2010—is insufficient to halt the continuing precipitous drop 

in global stocks. Said FAO, ‘‘Among the major cereals, the maize (corn) supply situation is a cause for concern, and is a factor already reflected in high international 

maize prices . . . 36% higher than in August, 2010.’’ Of all global cereal inventories, 

only rice stocks are expected to rise significantly, with corn inventories dropping to 

their lowest levels since 2007. 

The U.S. feed industry is highly competitive—with no one company dominating 

the industry—and it’s broadly accepted the only expansion of feed production in the 

U.S. is predicated upon expansion in livestock and poultry numbers, notably 

through export market expansion. Simply stated, increased livestock and poultry 

product exports translates to larger domestic herds and flocks, which translates to 

greater feed purchases, which translates to a profitable U.S. feed industry. 

Given shifting and increasing food demand by developing economies is generally 

characterized by an increased demand for animal protein, this should bode well for 

the global livestock and poultry sector, including the feed industry. However, as feed 

price and availability impacts hit foreign producers of livestock and poultry—arguably less able to withstand such economic pressures over the long term—will there 

be an affordable U.S. supply to take advantage of these markets? 

If cost of production increases in the U.S. lead to expected herd and flock liquidations, the livestock and poultry producer is hit with a double whammy—lost domestic sales AND lost export markets. The feed industry suffers along with its customers. 

Conclusion 

The current economics of the commercial feed industry and its livestock and poultry producer customers are driven by three primary challenges: The lack of an overall comprehensive Federal energy policy, but a current Federal bioenergy policy that 

continues to allow the use of food crops for biofuel feedstocks. Exacerbating this 

competition between feed/food use of corn and biofuel demand, the government 

maintains archaic land-idling programs Congressionally authorized to enhance conservation of environmentally fragile lands, but which, in reality, take desperately 

needed arable, environmentally non-sensitive acres out of production, compounding 

supply challenges during times of low yield, high demand and dwindling end stocks. 

Further, continued unfettered speculation in futures markets by institutional investors robs futures markets of their purpose of providing true hedgers an ability to 

minimize price risk on necessary agricultural inventories. 

AFIA urges Congress to take bold steps to help the feed industry and its farmer/

rancher customers to mitigate these challenges. Actions to be actively and seriously 

considered include the following:

• Return agricultural commodity markets to operations driven by market demand 

by reworking Federal energy policy to remove the mandated use of food commodities from the list of eligible feedstocks for Federal assistance in bioenergy 

development. Absent that, ensure there is a mechanism in place which requires 

the Secretary of Agriculture to waive the RFS in the event stocks-to-use ratios 

fall below a prescribed amount or prices hit specified levels;

• Reinvent the CRP and related government acreage-idling programs to ensure 

such programs do not provide an economic incentive take much-need non-environmentally sensitive arable acres out of production, while allowing idled acres 

to be planted without an economic penalty to the producer, and

• Hold CFTC to the true intent of the Dodd-Frank Act by defining and enforcing 

Federal speculative position limits on ag commodities futures markets, including derivatives and over-the-counter products. At the same time, true hedgers 

should be protected from the price impact of institutional speculators.

These policy decisions must be made in the context of both domestic and global 

industry economic health. Such actions not only help to preserve independent farming and ranching in the U.S., they will mitigate what’s now estimated to be annual 

consumer food cost inflation of 4–6% for the next several years. 

Given the increasing demand across the planet for animal protein, it’s only common sense we would act to assist our domestic industries in remaining competitive 

both at home and abroad by removing from the production equation arbitrary and 

controllable negative cost-of-production influences. 

Thank you for consideration of our views.

The CHAIRMAN. Thank you. 

26

The chair would ask the witnesses to try to keep their testimonies within 5 minutes as we are going to be called to vote here 

shortly. I want to try to get as much done before we recess. 

Mr. Seger. 

STATEMENT OF TED SEGER, PRESIDENT, FARBEST FOODS, 

INC., HUNTINGBURG, IN; ON BEHALF OF NATIONAL TURKEY 

FEDERATION 

Mr. SEGER. Good afternoon, Chairman Rooney, Ranking Member 

Cardoza and Members of the Subcommittee. I want to thank you 

for the opportunity to testify today. My name is Ted Seger, and I 

am President and part owner of Farbest Foods, Incorporated, in 

Huntingburg, Indiana. I am also past Chairman of the National 

Turkey Federation. 

Farbest is a vertically integrated turkey company that raises 

more than 9.3 million turkeys from about 150 contract growers, 

and we employ more than 850 employees. Nationally the turkey industry produces more than 5 billion pounds of ready-to-cook turkey 

meat from 244 million turkeys annually, with an estimated wholesale value of more than $16 billion. 

For the turkey industry this hearing could not have come at a 

more important time. We have serious, immediate concerns about 

the availability and cost of feed ingredients caused by the mandated use of corn-based ethanol. Feed accounts for 70 percent of 

the cost of raising a turkey, and corn is the major ingredient in 

most turkey feed rations. 

I testified before this Committee in 2007 that the corn stocks-touse ratio for 2007 and 2008 would fall to levels last seen in 1995 

and 1996, when weather problems increased corn prices and forced 

cutbacks in turkey production. Those predictions were accurate, as 

2007 and 2008 corn prices reached a record of $8 per bushel, and 

turkey production dropped 11 percent. Until 1995/1996, 2007 and 

2008 was a record crop year, and the massive diversion of corn 

from food and feed to ethanol was to blame. 

When Congress created the Renewable Fuel Standard in 2005, 

corn traded for about $2 per bushel, and the turkey industry raised 

around 249 million turkeys that produced 5.5 billion pounds of turkey meat. Corn prices began increasing in late 2006, but favorable 

overall economic conditions and strong turkey meat prices spurred 

an expansion of industry production that continued through the 

end of 2007. For a time the industry was able to use the futures 

market as a hedge, but by 2008 corn prices were flirting with $8 

per bushel. Agriculture economist Tom Elam calculated the RFS already had cost the industry more than $1 billion in additional feed 

costs. 

In 2008, three turkey plants either closed their doors or temporarily suspended operation, and more than 3,000 people in the industry lost their jobs. High export demand driven by the low value 

of the dollar was the only bright spot during that time of record 

high grain prices. The turkey industry was forced to cut back production roughly 11 percent between mid-2008 and 2010. Effectively 

the industry wiped out 3 years of production increases in an 18 

month period and reduced production to the lowest levels in more 

than 20 years. 

27

The current situation remains highly volatile. A tight corn supply 

and elevated prices are the new normal. Any weather event could 

put someone out of business. 

Our company this year has purchased a large quantity of wheat 

because we were worried there may not be enough corn. We are actually doing that as we speak today because of the late planting 

season and the fear of this late harvest. As we speak, in Indiana 

our harvest is coming in about 10 to 20 percent less than what 

they had been projecting. 

The ethanol policy caused grain and other commodity prices to 

increase by reducing the supply of grains available for food production. Even including DDGs, that ethanol production added back to 

U.S. feed supply, the net U.S. feed grains available to non-ethanol 

producers has declined precipitously since 2007. 

Since ethanol production is protected by the RFS, feed and food 

users have been forced to adjust to lower net grain supplies. Absent 

alterations in the U.S. biofuels policy, U.S. food production costs 

will likely continue to increase, and production will decline further. 

This means job loss in rural America. 

Congress should reevaluate the corn-based RFS schedule for 

2012 through 2015. A balanced approached would give increased 

weight to food production cost and food security and less to biofuel 

production. The VEETC, or blender’s credit, is no longer needed to 

support ethanol and should expire this year. Farbest Foods, the 

National Turkey Federation strongly support reducing dependence 

on foreign oil, but hopes to do so through ever-increasing corn 

yields is short-sighted and does not fix the problem. The turkey industry is seeking ethanol policy reform through the creation of a 

safety net that ensures corn availability and that prices will be less 

volatile. 

Finally, we have grave concerns about any new Federal investment in infrastructure for ethanol. Moving from one Federal support structure to another only exacerbates financial problems, and 

after 30 years of Federal support, the ethanol industry should 

stand on its own. 

Fixing the low cornstocks problem is a complex challenge, but 

Congress must do something to protect livestock and poultry producers from the excessively high corn prices and volatile availability. Requiring an ethanol policy that takes half of the current 

supply away from food and feed is a good place to start. Corn prices 

today are 200 percent higher than the average costs from when the 

mandate was created in 2005. More poultry companies will go 

bankrupt, more jobs will be lost, and more industry consolidation 

will occur if high prices persist. When a company goes bankrupt, 

more than the company and its employees lose; the community 

churches, the hardware stores, and even the grocery stores all are 

impacted. 

In closing, I would like to thank the Committee for allowing me 

to testify today on the most important issue to the turkey industry, 

and I look forward to answering questions as we wrap it up. Thank 

you. 

[The prepared statement of Mr. Seger follows:]

28

PREPARED STATEMENT OF TED SEGER, PRESIDENT, FARBEST FOODS, INC., 

HUNTINGBURG, IN; ON BEHALF OF NATIONAL TURKEY FEDERATION

Good afternoon, Chairman Rooney, Ranking Member Cardoza and Members of the 

Subcommittee, I want to thank you for the opportunity to testify today. My name 

is Ted Seger and I am President and part owner of Farbest Foods, Inc., located in 

Huntingburg, Indiana. I am also past Chairman of the National Turkey Federation 

(NTF) and currently sit on the association’s Executive Committee. For nearly 30 

years I have served in various capacities at Farbest, from sales manager to President. Farbest, the fourth largest U.S. turkey producer in the United States, is an 

integrated turkey company involved in grain procurement, feed manufacturing, 

growing, processing and marketing of turkey meat around the world. Our company 

raises more than 9.3 million turkeys from about 150 contract growers, which produces 374 million pounds of processed turkey meat in our plant, and we employ 

more than 850 people. 

The National Turkey Federation represents the interests of all segments of the 

U.S. turkey industry, including producers, processors, breeders, hatchery owners, 

contract turkey growers and allied companies. The turkey industry raises 244 million turkeys annually, which produces 7.2 billion pounds of live weight per year, 

with an estimated wholesale value of more than $16 billion annually. 

On behalf of the U.S. turkey industry, Mr. Chairman, this hearing could not have 

come at a more important time as we have real problems, and immediate and legitimate concerns about the availability and cost of feed ingredients due to the mandated use of corn-based ethanol. 

I first testified before this Committee in 2007 about this very subject, and unfortunately wish I could report that everything we predicted that day had not come 

to pass. For example, I mentioned in my testimony that the corn stock ratio for 

2007–2008 would fall to levels last seen in 1995–1996 when corn prices reached a 

record $5 per bushel and turkey production fell by more than ten percent. In 2007–

2008, predictions came true, corn prices reached a new record of $8 and turkey production fell by 11 percent. In 1995–1996 the feed price increase was caused by 

weather, but in 2007–2008, in a record crop year, it was because of the Federal ethanol mandate. It has been clear, from the minute the government chose to subsidize 

corn as an energy source, livestock and poultry interests have taken a back seat to 

an ethanol industry. Until recently, was steadily gaining favor with the Federal 

Government as it promoted American corn-based ethanol as a way to have less reliance on foreign oil. The interesting thing is we are no less dependent on that oil 

today and we are now jeopardizing our food supply in the process. 

It is my hope that these comments can paint a more complete picture since I last 

testified in 2007 of the impact the Renewable Fuels Standard (RFS) and other renewable fuel programs have had on our poultry production and the livelihoods of 

thousands of farm families and processing employees involved in turkey production 

in rural America. 

The Role of Corn in the Turkey Industry 

Before fully analyzing the effect of the U.S. biofuels policy on the turkey industry, 

it is important to understand the vital role corn plays in turkey production. Feed 

accounts for 70 percent of the cost of raising a turkey, and corn is the major ingredient in most turkey feed rations. For the average turkey, it takes about 2.5 pounds 

of feed to produce 1 pound of turkey live weight. Therefore, increases in the price 

of corn have a significant impact on the price of raising a turkey. It also is important to understand that a change in the price of one commodity used in feed rations 

tends to affect the price of other commodities used in a ration. So, when corn prices 

rise, so does the price of soybean meal, the second-largest ingredient in turkey rations. 

Prior to the creation of the original RFS and its expansion, elected leaders from 

NTF, including myself, warned Congress of the potential severe impact this could 

have on the turkey industry. In July 2005, Jim Mason of the Virginia Poultry Growers’ Cooperative told the House Agriculture Committee during a hearing that creating a RFS would begin tightening the corn supply and forcing feed prices up. By 

March of 2007, when I testified before the same Committee, corn prices already 

were more than 20 percent higher than their pre-RFS level. And, early this year 

Paul Hill of West Liberty Foods told this Committee that corn prices had increased 

to more than $7 per bushel with record low carry over stocks. Since earlier this 

year, corn prices have continued to skyrocket, ultimately topping out at $8 per bushel, while corn stock levels plummeted to record lows, below five percent carry over. 

This spring, farmers planted the second-largest crop since World War II, but high 

temperatures have significant deteriorated the harvest projections. This troubling 

29

news can be seen in the latest corn report released 2 days ago. USDA cut its corn 

yield estimates almost 5 bushels per acre from August. Additionally, cutting corn 

use by 400 million bushels and reporting ending stocks down 42 million bushels 

from last month. 

Impact on the Turkey Industry 

Many factors play a role in corn pricing, however the only one that the Federal 

Government can ultimately control is the one that it put in place back in 2005 and 

expanded in 2007. While hindering profitability almost from it’s inception, the RFS’ 

did not begin crippling the turkey industry until 2008. That year was a perfect example of what happens when you have a tight corn supply based in large part on 

a Federal mandate. It led to a downsizing of turkey production to a level that is 

not likely to change significantly for several years—roughly 11 percent. 

In 2005, the turkey industry produced 249.6 million turkeys that produced 5.5 billion pounds of ready to eat turkey meat. Favorable economic conditions and strong 

prices for turkey meat spurred an expansion of industry production that continued 

through the end of 2007. As earlier stated, corn and feed prices began to rise during 

this period, but most turkey companies—like all livestock and poultry companies—

use the commodity markets and other instruments to lock-in long-term corn supplies and to hedge against market volatility. This insulated most companies from 

the full impact of feed-price increases, but not all. By 2008, as corn prices flirted 

briefly with $8 per bushel, Dr. Tom Elam, an agricultural economist, calculated that 

the industry had paid more than $1 billion in additional feed costs. Regardless of 

what anyone says, these increased costs cannot be passed along easily and that was 

reflected in the largest chicken company going bankrupt that year. Also, in 2008, 

three turkey plants either closed their doors or temporarily suspended operations, 

and more than 3,000 people involved in the industry had lost their jobs. The industry no longer could sustain production at levels originally planned for the year. Cutbacks began in mid-year and continued throughout 2009. High domestic product demand and export demand, driven by the low value of the dollar, is really the only 

thing that has helped the industry survive during these record high grain prices 

Turkey production cannot be turned off with the flick of a switch or the shutting 

of a valve. Once a poult—baby turkey—is placed in a growout facility, it takes as 

long as 20 weeks to bring it to market weight. Factoring the time it takes to incubate the eggs and the lead time necessary to place orders for eggs, it generally takes 

6 months or longer for a company to implement a major cutback in production. So 

while production overall increased by about 2.5 percent from 2007 to 2008, original 

economic indicators had been for a larger expansion. Meanwhile, 2008 saw consumer purchasing of meat and poultry plummet and significant losses ensued in the 

turkey business as a result of the higher corn prices. Since then turkey production 

has declined by 11 percent to about 244 million turkeys raised in 2010. Effectively, 

the industry wiped out 3 years of production increases in an 18 month period and 

reduced production to the lowest levels in more than 20 years. Initial forecasts indicate turkey production will remain largely unchanged in 2011. This means the turkey industry will likely not increase production or ultimately be able to create new 

jobs. 

The general economic recession obviously exacerbated the situation. Softening 

consumer demand depressed prices for the most valuable cuts of turkey (as it did 

for all other meat proteins), and that made it even more difficult to sustain production during a period of extremely high feed prices. But, just as use of various hedging tools slowed the impact of higher feed costs, those same tools delayed the inevitable of lower demand. Most turkey companies did not enjoy any benefits of lower 

feed prices until well into 2009. More importantly, since 2005, when the RFS was 

created, corn prices are 64 percent higher than the average cost from when the 

mandate was created. 

The facts of the impact to turkey production costs are as follows:

(1.) Industry Turkey Live Weight Slaughter for 2010 was approximately 7.2 billion pounds:

At average feed conversion of 2.5 pounds of feed per pound live weight, industry consumption of feed is approximately 18 billion pounds of feed or 9 million 

tons annually.

Corn is approximately 52 percent of the ration, or 4.68 million tons, which 

equates to 167 million bushels of corn

• 2010 Average Price of Production: $901.8 million at $5.40/bu

• 2011 Projected Price of Production: $1.085 billion at $6.50/bu

Soybean Meal is approximately 20 percent of the ration, or 1.8 million tons

30

• 2010 Average Price of Production: $621 million at $345.00/tn

• 2011 Projected Average Price of Production: $666 million at $370.00/tn

The current situation for corn is unlike any other in the history of this commodity. 

Usually high prices are a result of a poor weather that limits production for just 

1 year and the next year production rebounds. However, the current dilemma is 

that the demand side of the equation for corn is far outstripping the supply side, 

and the demand side is continuing to grow at a rapid pace. Meanwhile, there is limited opportunity for continued growth in supply and no one knows what Mother Nature might do to the potential crop. The reality for my company and many other 

turkey companies is that there is no economically feasible substitute for a grainbased diet. Feeding more wheat, barley, sorghum, milo or soybean meal is no advantage because wheat and soybeans trade at energy equivalent values similar to corn. 

All the commodities eventually find their economic value based on the strongest 

commodity, which is corn. This has placed a premium on improved feed conversion 

with companies continuing to try new feed improvements such as the use of enzymes in feed rations to help cut down on waste. But it is unlikely that these relatively new innovations can do enough to offset the corn-based ethanol factor. In 

fact, just a couple of months ago, our company purchased a large quantity of wheat 

to replace corn, simply because we were worried that the local supply of corn may 

not even be enough to sustain us until this year’s later than usual harvest. 

Ethanol Policy and its Impact on the Food Sector 

I would like to discuss further the impact of ethanol on the food sector. How did 

ethanol policy cause grain and other commodity prices to increase? The policy has 

reduced the supply of grains available for food production. Including the tonnage of 

distiller’s grains (DDGs) production added back to the U.S. feed supply, net U.S. 

feedgrain production available to users other than ethanol plants, has declined precipitously since 2007. From the 2007 total U.S. feedgrain crop there was a net of 

298 million metric tons (mmt) of grain and DDGS left after ethanol use. From the 

2010 crop alone there was only 250 mmt left for all users after ethanol production. 

The United States is covering a portion of that 48 million tons of loss volume by 

drawing down the feedgrain stocks from 48 million tons last year to only 21 million 

on Sept. 1, 2011. That 21 million ton figure is barely enough to keep the grain supply system running, and is the basic reason that corn prices are more than $7 per 

bushel, and extremely volatile. At these prices it is likely that more poultry companies will struggle with potential plant closures and layoffs are highly possible. 

Since the use and production of ethanol enjoys the protection of the RFS, feed and 

food users have been forced to make the entire adjustment to lower net grain supplies. USDA is forecasting that 2011–2012 U.S. feedgrain and soybean supplies will 

remain very tight, and prices high and volatile. Absent alterations in the U.S. 

biofuels policy, U.S. food production costs will likely continue to increase and production is likely to decline further. Once again, this means job loss in rural America. 

We have actually reached a point where any significant weather issues that would 

affect the 2011 U.S. grain crops will only dig deeper into the projected poor harvest 

this fall. The U.S. reserve stocks are depleted with stocks-to-use ratio being in the 

3–4 percent range, new record low, which is dangerous, uncharted territory. The 

United States cannot fall back on reserves this year and projections for next year 

are just as bad or worse. Meanwhile for 2012, there is another increase in the cornbased ethanol RFS, which can be summed up very easily by saying everything better go right and Mother Nature better not mess with next year’s corn harvest or 

we’re in a world of trouble. 

Limited acreage expansion capability for corn production together with the expanded RFS has driven net feed supplies and stocks available for uses other than 

ethanol to critically low levels. In light of the realities of grain supply and demand, 

Congress should reevaluate the corn-based RFS schedule for 2012 through 2015. A 

fair and balanced approach for the overall good of the U.S. economy would give increased weight to food production costs and food security, and less weight to biofuel 

production. The Volumetric Ethanol Excise Tax Credit (VEETC), or blender’s credit, 

is not required to support ethanol production and it should simply go away at the 

end of the year. It was nice to see that Congress is now moving in the right direction and it would be our hope that Congress finally do away with the VEETC once 

and for all. It will help with corn prices but is also just good government. 

Farbest Foods and the National Turkey Federation strongly support the reduction 

of dependence on foreign oil. However, we believe the goal of achieving less reliance 

on foreign sources simply through increased corn yields is short sighted and in reality does not fix the problem alone. If we as a country are truly interested in reducing our dependence on foreign oil, then please tell me why the ethanol industry will 

31

be allowed to export nearly 1.0 billion gallons of ethanol. Why are the U.S. taxpayers subsidizing another country’s dependence on oil? What the turkey industry 

is looking for is reform of the existing ethanol policy by providing a safety net that 

ensures that corn prices and availability will be less volatile in the future. 

Finally, we have grave concerns about any new Federal investment in ‘‘infrastructure’’ for ethanol. It is hard to believe that the Federal Government would entertain 

such a venture when it is having trouble paying its bills and would put another taxpayer funded program on the books. To move from one Federal support structure 

to another only goes to exacerbate financial problems and it is time for Federal Government to stop supporting this more than 30 year old industry. With a guaranteed 

market for their product, it would seem reasonable that the ethanol industry should 

be profitable enough to begin developing its own infrastructure. 

While no one item is a silver bullet to fixing the low corn stocks problem, we must 

do something to protect livestock and poultry producers from the excessively high 

corn prices due to the fact that the government has mandated the use of half of the 

corn supply in the nations fuel supply. Within just the last 3 years, 22% of the broiler chicken industry volume was sold to foreign owned companies because the United 

States companies went bankrupt. More poultry companies will go bankrupt, more 

jobs will be lost, and more consolidation will happen if these high prices persist. 

Once a company goes bankrupt it is not just them that are the losers, so are the 

community churches, the hardware stores and even the grocery stores all get impacted. 

In closing, I would like to thank the Committee for allowing me to testify today 

on this most important issue to the turkey industry, and I hope that I have been 

able to enumerate the impact on feed and food prices for you. I look forward to answering any questions.

The CHAIRMAN. Thank you, Mr. Seger. 

Mr. Welch. 

STATEMENT OF MICHAEL A. WELCH, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, HARRISON POULTRY, BETHLEHEM, 

GA; ON BEHALF OF NATIONAL CHICKEN COUNCIL 

Mr. WELCH. Good afternoon, Chairman Rooney, Congressman 

Cardoza and Members of the Subcommittee. Thank you, Chairman 

Rooney, for the opportunity to participate in this critically important and very timely hearing on the issues of feed availability. Permit me to suggest that a more appropriate title of this hearing 

would be ‘‘Feed Unavailability.’’

My name is Michael Welch, and I am the President and Chief 

Executive Officer of Harrison Poultry in Bethlehem, Georgia. Harrison Poultry is a small, privately held company operating one 

slaughter plant producing a variety of products. More than 1,000 

outstanding, dedicated employees work diligently every day to 

make Harrison Poultry successful. Also, over 125 family farmers 

contract to grow broilers, and an additional 40 family farmers contract to produce hatching eggs for the company-owned hatchery. 

You have heard the statistics from the witnesses, and I can assure you they are true. Broiler companies have increasingly been 

squeezed throughout the past corn crop year between rising feed 

costs and declining prices for chicken products. This cost/price 

squeeze continues and may get worse before it gets better. A number of companies have already succumbed to the severe cost/price 

squeeze by ceasing operations or having to sell their assets at fire 

sale values. 

Broiler companies can no longer withstand the storm of high feed 

costs and low chicken prices. Companies are trimming their production plans, which means family farms who grow broilers will receive fewer chicks to grow market-ready broilers, and processing 

plant work shifts are being reduced or even eliminated. With less 

32

work time, more and more workers are being laid off. As a result, 

not only will hundreds or thousands of workers lose their jobs, but 

more and more contract broiler growers are losing their poultry 

farming income, which they use to repay mortgages on their growout houses. Banks and other lending institutions are moving to 

foreclose on these farms. 

Family farms who have contracted to grow broilers for decades 

now find it very difficult, if not impossible, to sign on with another 

company since essentially all companies are in a retrenching mode. 

During 2011, it is estimated that over 1 billion gallons of cornbased ethanol will be exported by the United States to a number 

of foreign companies. This 1 billion gallons is the equivalent of over 

350 million bushels of corn. The National Chicken Council questions whether it was the intent of Congress, when it passed the Energy Independence and Security Act of 2007, to annually have 350 

million bushels of corn indirectly exported in the form of ethanol. 

If this is the law intent for the United States to move toward greater energy independence, why is energy being exported? 

Picking one market as the winner at the expense of the loser 

should not be the function of government. Mandating the use of 

ethanol, subsidizing its cost, and protecting ethanol from competition is triple overkill. Greater energy independence is a worthy goal 

for the United States, but the negative and unintended consequences of moving too far too fast with corn-based ethanol have 

become abundantly clear. 

I have outlined several problems in my written statement. It is 

now time for the United States to shift from a policy of abundance 

in agriculture to a policy of shortage. None of these issues, however, is more paramount than the very unfortunate situation being 

forced on family farmers who have or will be losing their contracts 

to grow broilers. Disrupting or ceasing financial flow generated by 

the contract payments results in not just broiler operations being 

jeopardized, but in many cases results in the entire family farm 

being put in jeopardy. I suggest that if you would ask these family 

farmers if current ethanol policy is good policy, you would not be 

able to find a supporter of the program. 

Equally and critically important are the tremendous number of 

good people that the chicken industry employs. We have all been 

hearing that the upcoming national elections are themed all about 

jobs, job, jobs. If the intent is to create more jobs, why then is our 

government continuing policies and programs that are causing 

Americans to lose their jobs? 

Thank you, Chairman Rooney, Congressman Cardoza, Members 

of the Subcommittee, for the opportunity to share thoughts, comments and recommendations of the National Chicken Council. 

[The prepared statement of Mr. Welch follows:]

PREPARED STATEMENT OF MICHAEL A. WELCH, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, HARRISON POULTRY, BETHLEHEM, GA; ON BEHALF OF NATIONAL CHICKEN

COUNCIL

Good afternoon, Chairman Rooney, Congressman Cardoza, and Members of the 

Subcommittee. Thank you, Chairman Rooney, for the opportunity to participate in 

this critically important and very timely hearing on the issues of feed availability. 

Permit me to suggest that a more appropriate title of the hearing would be ‘‘Feed 

Unavailability.’’

33

On behalf of the National Chicken Council, I appreciate your invitation to provide 

comments and recommendations regarding the precarious position of feed supplies 

confronting the chicken industry. Chicken producer/processors will certainly need 

the Subcommittee’s strong support and wisdom if the industry is to successfully 

overcome the increasingly difficult issues and challenges that I will outline in my 

statement. As a point of clarification, I will use the word ‘‘broiler’’ and ‘‘chicken’’ 

interchangeably in my statement. 

My name is Michael Welch and I am President and Chief Executive Officer of 

Harrison Poultry in Bethlehem, Georgia. I have been President of Harrison Poultry 

since 1992. Harrison Poultry is a small, privately held company operating one 

slaughter plant producing a variety of products that are carefully and specifically 

tailored to our end-customer requirements. More than 1,000 dedicated employees 

work diligently every day to make Harrison Poultry successful. Also, over 125 family 

farmers contract to grow broilers and an additional 40 family farmers contract to 

produce hatching eggs for the company-owned hatchery. Each week Harrison Poultry processes more than 6 million pounds of broilers on a liveweight basis. Some 

of Harrison Poultry growers have been growing broilers since Harrison Poultry became vertically-integrated more than 40 years ago, even though the company contract is considered a flock-to-flock arrangement. Harrison Poultry and other companies in the chicken industry provide good, steady income for family farmers across 

the United States where broilers are produced. 

Harrison Poultry is a proud member of the National Chicken Council; and I, as 

a former Chairman of the organization, am pleased to present this statement on behalf of the National Chicken Council. More than 95 percent of the young meat chicken (broilers) produced and processed in the United States come from the Council’s 

members. 

Mr. Chairman, it is becoming much more difficult to secure an adequate and dependable supply of feed ingredients that can be procured at a cost that is both manageable and predictable. The more than 40 vertically-integrated chicken companies 

that comprise the broiler industry have financially struggled for the past four calendar quarters. Broiler companies have increasingly been squeezed throughout the 

past corn crop year between rising feed costs and declining prices for chicken products. A number of companies have succumbed to the severe cost/price squeeze by 

ceasing operations or having to sell their assets at fire-sale values. 

National Chicken Council’s Feed Security Priorities 

Shortly after USDA reported in October last year that there would be a significant shortfall in the corn crop, the National Chicken Council formed a ‘‘Feed Security Task Force’’. This group of top broiler executives identified actionable policy and 

program changes to better address the precarious situation for feed. Needed actions 

identified by the Task Force are as follows:

• Elimination of the Volumetric Ethanol Excise Tax Credit (VEETC) and import 

duty on ethanol.

• Have a partial or full waiver of the Renewable Fuels Standard (RFS) by filing 

a legal challenge with the Environmental Protection Agency or have legislation 

passed to permit individual states to opt-out of the Federal ethanol mandate 

and/or legislation mandating a stocks-to-use trigger mechanism for the RFS.

• Minimize or prohibit further government subsidies and Federal grants funding 

the building and expansion of infrastructure that encourages the manufacturing, distribution, and selling of corn-based ethanol.

• Remove without penalty non-environmentally sensitive cropland from USDA’s 

Conservation Reserve Program (CRP).

As you will note, the actions or priorities include efforts impacting the demand 

and supply for corn. To achieve success for the Task Force’s plan it will be necessary 

to convince USDA, other appropriate Departments of the Administration, and Congress that current policies and programs must now be thoroughly re-evaluated and 

significantly changed. Continuing to pursue these outdated policies and programs 

are devastating the poultry, livestock, and other sectors of animal agriculture. The 

facts evidenced by the situation since 2006 should be enough to convince policy-makers that it is time to change the policies and programs. We are not naive, however. 

We understand and realize that the facts and hard evidence are not enough to elicit 

change. Putting additional, artificial demand on corn at a time when there is not 

an adequate and assured supply of corn is simply the wrong policy, especially when 

there is no viable relief valve available for the artificial demand. At the same time, 

new policies and programs are needed that recognize there is not an over-abundance 

of basic agricultural commodities, but rather there will be an ongoing continued 

34

tight supply of grain and oilseeds, not just in the United States but also globally. 

Encouraging productive American agriculture to produce to its capacity must be one 

of the primary threads that weave the new fabric of policies and programs. 

‘‘What’s Driving Food Prices In 2011?’’ Report 

The National Chicken Council was most pleased to see that a recent, well-done 

and well-documented study supports our call for change. This issue report, ‘‘What’s 

Driving Food Prices in 2011?’’, was conducted by the Farm Foundation and confirms 

the National Chicken Council Task Force’s thinking and plans. 

Permit me to quote from the report, ‘‘U.S. agricultural policy has primarily been 

a ‘policy of abundance’, designed to reduce supply, restrict land use and increase demand to help increase and stabilize farm incomes. That policy was developed because the United States has generally been blessed with the ability to produce more 

than could be consumed at profitable prices for producers. A shift to a ’’policy of 

shortage‘‘ would emphasize programs that stimulate supply and do not subsidize demand with taxpayer funds or political mandates.’’ I ask this Committee to support 

this well-reasoned conclusion of the report. 

Economic Difficulties Confront the Broiler Industry 

Broiler companies, since last October when the sudden, unexpectedly run-up in 

corn and other feed ingredient costs occurred, have tried to weather the storm of 

very high, very volatile corn prices. Companies, however, can no longer withstand 

the storm. Companies are trimming their production plans, which means growers 

will receive fewer chicks to grow to market-ready broilers and processing plant work 

shifts are being reduced or even eliminated. With less work time, more and more 

workers are being laid-off. A broiler company in Georgia this summer announced 

300 workers will no longer be needed. Also, this summer, a fourth-generation family 

broiler company in Delaware filed for bankruptcy and in assets has been purchased 

by a foreign company. Further, another company in Arkansas has consolidated two 

processing plant operations into one location and similarly has combined two hatcheries into a single facility. This consolidation will result in 223 jobs being eliminated. The company in its announcement indicated that eliminating these jobs will 

give it a better chance to survive. Earlier in 2011 this same company eliminated 

about 300 jobs in an attempt to stay in operation. In May this year, a third-generation broiler company with a complex in North Carolina and another complex in Arkansas succumbed to the financial stress of high feed costs. The result in this case 

is that its complex in North Carolina is now owned by a foreign company and the 

Arkansas complex is now owned by another broiler company that not only had the 

borrowing capacity to purchase the assets but the reserves that will undoubtedly be 

necessary to carry financial loses until the broiler market improves to at least a 

breakeven position. Ironically, the foreign company that purchased the North Carolina is ceasing operations at the end of this month with apparently no opportunity 

to allow for alternative ownership. As a result, not only will hundreds of workers 

lose their jobs, contract growers are in jeopardy of losing their poultry farming income which they use to repay mortgages on their growout houses. Undoubtedly, 

banks and other lending institutions will move to foreclose on these farms. A thirdgeneration company in Mississippi closed its doors earlier this year as the corn cost/

chicken price squeeze became intolerable. Jobs have been and are being lost. Family 

farms who have contracted to grow broilers for decades now find it very difficult, 

if not impossible, to sign-on with another company, since essentially all companies 

are in a re-trenching mode. 

I would like to tell this Committee that the above noted situations are the end 

of the broiler industry’s financial problems. I cannot tell you that conclusion because 

there are a number of other companies on the financial bubble. Banks and other 

lending institutions are telling these companies, ‘‘enough is enough,’’ meaning sell 

your assets and repay your outstanding debt. What some analysts say about the 

broiler industry survivors being only ‘‘ten companies in 10 years’’ may become a reality, and perhaps, sooner than in a decade. 

Track Record of Increasing Production Is History 

Over the past 5 decades broiler production has only decreased on an annual basis 

only three times: 2 years in the mid-1970s and again in 2009. With this very steady 

track-record of ever-increasing production, the industry’s growth has offered increased opportunities for growers to expand their operations and build the incomes 

and net worth of their family farms. That strong track record of growth is in very 

serious jeopardy because an over-abundance of corn is being diverted to fuel production and thus squeezing-out corn that should be available for feed. 

In 2010 almost 50 billion pounds, liveweight, of chickens were produced using 

more than 55 million tons of feed for broilers and the broiler breeder flocks that proVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00038 Fmt 6633 Sfmt 6621 I:\DOCS\112-23\68483.TXT BRIAN
35

vide the fertile eggs for hatching. Of the 55 million tons of feed, over 36 million tons 

or about 1.3 billion bushels of corn or corn products were mixed into the finished 

feed. The average cost of chicken feed before the corn price began to rapidly escalate 

in mid-October, 2006 was $139.20 per ton. This month (September 2011) the same 

ton of feed is costing over $325 per ton, a more than doubling of cost since the second Renewable Fuels Standard became mandatory. The vast majority of the runup in feed costs was the result of corn more than tripling in price since 2006. Last 

year (2010) the chicken industry’s feed bill was almost $13.0 billion compared with 

total feed costs in 2006 of less than $7.0 billion. On a cumulative basis with the 

higher feed costs, the chicken industry has had to pay about $$22.5 billion more for 

feed since October 2006. 

Cumulative additional cost to the broiler industry in broiler feed ingredient 

expense since October 2006: 

Total over the last 253 weeks $22,481,473,423

Do DDGs Help? 

Some supporters of ethanol point to dried distillers grains with solubles (DDGs) 

as a feed ingredient that can provide relief from high corn prices. The facts are, 

however, that the majority of the feed energy has been removed by the ethanol manufacturing process. The co-product (DDGs) is low in energy and high in fiber. It does 

have reasonable protein value and competes in the feed ration more with soybean 

meal than with corn. The broiler industry does use some DDGs but it is not a preferred ingredient due to the nature of its composition. Inclusion of DDGs in a broiler 

feed ration is usually limited to five percent of the total ration. 

USDA in its World Agricultural Supply and Demand Estimate report does footnote in the corn supply and use data table that the Department’s World Agricultural 

Outlook Board’s estimate for corn allocated for ethanol also includes ethanol’s byproducts. Statistically, such a footnote is correct, but at the same time, provides little, if any, solace to traditional uses of corn who find DDGs prices essentially the 

same as corn when adjusted for the feed value while adding to the complications 

of running a feed mill. 

Corn-Based Ethanol Exports: Why? 

During 2011 it is estimated that over 1 billion gallons of corn-based ethanol will 

be exported by the United States to a number of foreign countries, including such 

markets as Brazil, European Union, and other destinations. The 1 billion gallon is 

the equivalent of over 350 million bushels of corn. The National Chicken Council 

questions whether it was the intent of Congress when it passed The Energy Independence and Security Act of 2007 to annually have 350 million bushels of corn indirectly exported in the form of ethanol. If this law’s intent is for the United States 

to move toward greater energy independence, why is energy being exported? 

Just Cope: We Have Been Here Before 

In the 1970s it took more than 2.25 pounds of feed to produce a pound of 

liveweight chicken. Today the feed conversion is better than 1.9 to 1.0, with many 

companies having conversion ratios of better than 1.8 to 1.0. Even very efficient feed 

conversion rates cannot mitigate the high corn prices and the significant impact on 


11222014.eps
36

the cost of producing chicken. Based on commodity futures prices that reflect essentially only, at best, a pipeline quantity of corn available as carryover stocks at the 

end of this current crop year, it appears there will be further escalation in corn 

prices. Higher feed costs are most likely for the rest of this year and the year beyond. Also, not only will corn prices most likely be higher, the volatility in corn 

prices will be much greater. 

If corn prices increase to double digit dollars per bushel, as a number of agricultural commodity analysts have predicted, and if other companion feed ingredient 

cost escalate in tandem with corn, the cost to produce chicken will increase more 

than 25 percent. This higher cost will have to be passed on to consumers at some 

point so that broiler companies can stop losing money and begin to at least break 

even. 

Certain analysts have suggested that ‘‘we have been here before.’’ That is, animal 

agriculture, including the broiler industry, has weathered high prices for feedgrains/

oilseeds in years past and, for the most part, has survived. It is true that there have 

been high feed costs before now and, at certain times, the quick run-up in prices 

have come upon the market unexpectedly. In the past, the problem has been a 1 

year or so supply problem. But now, however, the situation is not only supply-driven 

but also demand driven. U.S. animal agriculture has not been here before. Government policy for corn-based ethanol that subsidizes, mandates, and protects it from 

competition has significantly changed how the demand for corn for ethanol reacts 

to normal market forces and how it is put to the head of the line when competing 

for corn. Corn used for ethanol for the 2005/06 crop year was 1.6 billion bushels or 

14 percent of total usage. For 2011/12 USDA is estimating 5 billion bushels or a 

share approaching 40 percent of total corn usage and, for the first time in history, 

the ethanol usage will exceed that quantity used for feed. The increase in the usage 

of corn for ethanol over these 6 years has more than tripled. 

Also, the international demand for U.S. agricultural commodities must now more 

seriously and fully take into account the China factor. Chinese Government trade 

policy is often difficult to predict. Nonetheless, China’s rapidly growing need for 

more agricultural imports seems somewhat evident. Many, if not most agricultural 

commodity analysts, believe China is poised to become a large net importer of corn 

on a consistent going forward basis. 

An ever increasing demand for corn is being placed on a limited supply of corn, 

at least for the foreseeable future. Corn stocks will likely in the next few years continue to hover around minimum pipeline requirements. There is no cushion, no 

extra bushels in inventory to carry the needs of the users of corn through to the 

next harvest in 2012. To assume that an adequate number of acres will be planted 

to corn next year and the next few years and to further assume favorable weather 

conditions for crops next year and for the next few years are not assumptions the 

U.S. chicken industry is prepared to make, nor should prudent U.S. Government 

policymakers be willing to make. 

Time to Stop Picking Winners and Losers 

Since October 2008 when corn prices escalated to record high levels, it has become 

more and more evident that the national policy regarding corn-based ethanol has 

been heavily tilted toward using more and more corn for fuel rather than allowing 

for a level playing field of competition. The need to re-balance the policy is long 

overdue. Picking one market for corn to be the winner at the expense of losers 

should not be the function of government. Mandating the use of ethanol, subsidizing 

its cost, and protecting ethanol from competition is triple over-kill. Greater energy 

independence is a worthy goal for the United States, but the negative and unintended consequences of moving too far too fast with corn-based ethanol have become 

overly clear. For the chicken industry, like other animal agriculture producers, 

fewer pounds of product have been produced and will continue to not be produced 

in the foreseeable years. Consumers who have sufficient incomes to devote to cover 

the higher costs of food will reach deeper into their pocketbooks and pay the higher 

food prices. Consumers in this country and around the world who do not have an 

adequate income and, therefore, cannot continue to afford animal protein in their 

diets will have to shift to other foods, and in some cases, no food. With land being 

a limiting factor in the production of food, it is most likely all foods, not just corn, 

will be higher in price and tighter in supply, whether of animal origin or not. 

New Plan-of-Action Needed 

Foremost is the need for a credible, equitable, and workable plan-of-action to 

adroitly address the significant shortfalls in the back-to-back corn crops and the 

great likelihood there will be an ongoing tightness in grain and oilseed supplies. Unless there are near-perfect crop conditions next year and the years beyond to plant, 

37

grow, and harvest a record quantity of corn and other feed crops, animal agriculture 

will continue to experience major disruptions while ethanol producers will continue 

to outbid non-subsidized buyers of corn. 

With the weakened U.S. dollar, overseas buyers of U.S. commodities, like corn, 

see these commodities as being relatively more affordable than domestic U.S. buyers. Thus, it can reasonably be argued that U.S. animal agriculture is the most vulnerable corn buyer the supply of corn has a shortfall. It is highly unlikely the current shortfall crisis will be a 2 year problem. The essentially non-existent stocks of 

corn means more and more acres of corn will be required as will higher and higher 

corn yields for the next few years or more. More acres are needed, not just for corn, 

but also for soybeans, wheat, cotton, and other crops that compete with corn for 

acreage. 

While there are many critical issues impacting the viability of the chicken industry, I suggest no issue is more critical than having an adequate supply of grain and 

oilseeds at reasonable costs. 

The rules of the game should be re-balanced and the playing field should be leveled to permit chicken producers and other animal agriculture producers to more 

fairly compete for the limited supplies of corn this year and in the next few years. 

Included in this effort must be a safety-valve to adjust the Renewable Fuels Standard when there is a shortfall in corn supplies. In addition, a plan should be implemented to allow a reasonable number of good, productive cropland to opt out of the 

Conservation Reserve Program on a penalty-free basis. These provisions must be 

acted upon as soon as possible. Congress will very quickly have to make a choice 

between corn for food or fuel. We are now at the point where, annually, there is 

not enough corn for both uses. 

Conclusion 

The National Chicken Council, its members, and the many allied industry companies that support poultry production, processing, and marketing look forward to 

working more closely with the Committee and others in Congress so that poultry 

producers have a better opportunity to successfully manage the increasingly difficult 

challenges and issues. Improving the viability of the poultry industry not only helps 

poultry companies and poultry farmers but, perhaps, more importantly will allow 

consumers of poultry products to continue to enjoy an ongoing, adequate supply of 

animal protein at reasonable prices. 

I have outlined several critical problems, but none is more paramount than the 

very unfortunate situation being forced on the family farms who have or are now 

losing their contracts to grow broilers. Disrupting or ceasing the financial flow generated by the contract payments results in not just the broiler operations being jeopardized, but in many cases results in the entire family farm being put in jeopardy. 

I suggest that if you ask these family farmers if current ethanol policy is good policy 

you would not be able to find a supporter of the program. 

Thank you, Chairman Rooney, Congressman Cardoza, and Members of the Subcommittee, for the opportunity to share the thoughts, comments, and recommendations of the National Chicken Council. I request that my statement be entered into 

the record of the hearing and I look forward to your questions and comments.

The CHAIRMAN. Thank you, Mr. Welch. 

Dr. Erba. 

STATEMENT OF ERIC ERBA, PH.D., SENIOR VICE PRESIDENT 

OF ADMINISTRATIVE AFFAIRS, CALIFORNIA DAIRIES, INC., 

VISALIA, CA 

Dr. ERBA. Chairman Rooney, Ranking Member Cardoza, and 

Members of the Subcommittee, good afternoon. My name is Dr. 

Eric Erba, and I hold the position of Senior Vice President of Administrative Affairs for California Dairies, Inc., whom I am representing here today. California Dairies is a full-service milk-processing cooperative owned by approximately 450 producer-members 

located throughout the State of California. Our producer-members 

collectively produce almost 42 percent of the California milk supply 

and about nine percent of the total U.S. milk production. 

We appreciate your willingness to convene a hearing to gather 

information on feed availability, and hopefully leave you with a 

38

sense of the cost of feed, which is a topic which resonates strongly 

with our producer-members. 

The basic theme of the dairy producers since 2009 has been one 

of survivability, and a huge piece of the equation is cost of production. These costs represent almost 65 percent of the cost of producing milk, and the skyrocketing cost of feed since 2007 have 

caused many dairy producers to question the very manner in which 

they operate their dairies. 

Let me explain what I mean by that. The hallmark of dairying 

in California is a western style of dairying in which dairy producers buy a high percentage of the feed in bulk instead of growing 

the feed on or near their dairies. This model for dairying relies 

heavily on almost all grains and some of the forages shipped into 

California from other states, where they can be grown more cheaply than they can in California. 

Most California dairy producers do grow a high percentage of 

corn, but that corn is for silage, not for grain. This model has been 

in place for decades. It has worked very well until just recently. 

High-priced land and lack of affordable water in California’s agricultural areas represent insurmountable obstacles that prevent 

dairy producers from becoming even more diversified as crop farmers in addition to being dairy producers. 

From our point of view, the problem is not feed availability, it 

is the price of feed. Application of elementary economic principles 

suggests that the two are intertwined. As the supply of feed decreases, the price increases. Applied to what we see in the California dairy landscape, that basic principle can be refined to an 

axiom that suggests that feed has been and continues to be available, but not necessarily at prices which make good financial sense 

for dairy producers. 

There truly has been an issue, however, with the availability of 

hay no matter what the price. In California we have seen tremendous decreases in the alfalfa acreage in just the last 2 years. Alfalfa hay has been a staple for many dairy rations, representing 10 

to 15 percent of the mixed rations fed to dairy cows. We have heard 

alarming reports that hay fields are being torn out and replaced 

with higher-value crops such as cotton, tomatoes, and fruit and almond orchards. These crops may be able to provide some marginal 

value to dairy producers through feed by-products, but they are in 

no way a substitute for what alfalfa hay means to the dairy industry. 

There is no one cause for high feed prices, which affects how 

much feed is available at prices which will sustain dairy farms. 

High feed prices may be the result of unfavorable weather patterns, high energy prices, speculation in feed markets, a weak dollar, and high demand for feed from other countries. One very conspicuous disruption to the demand side of feed is the Federal ethanol program. USDA forecasts that soon more corn will be consumed by ethanol plants than by livestock, a spectacular change in 

historical trends. 

We have heard alternative energy proponents suggest that the 

impact on the ethanol industry and corn prices is minimal. It is 

economically illogical to suggest that almost half the supply of any 

commodity can be removed from the market from a relatively new, 

39

large and defined demand source without any impact on price. It 

just doesn’t make any sense. Other studies suggest the impact of 

Federal ethanol program on corn prices may be increases in the 

range of 20 percent to 40 percent. 

The California Department of Food and Agriculture collects and 

publishes costs of feed data obtained from California dairy producers. California dairy producers paid an average of $300 per ton 

for rolled corn and $275 per ton for alfalfa hay in 2011. From 2000 

to 2008, those same commodities averaged $125 per ton and $160 

per ton respectively, which computes to an increase of 145 percent 

in the corn price and 70 percent in the price for alfalfa hay. 

Dairy producers are critical of the Federal policy that favors fuel 

over food because of evidence that these policies put animal agriculture at tremendous risk for higher production costs with no 

guarantee of higher milk prices. In addition, feed markets, particularly the corn market, have become very sensitized to forecasts and 

reports on plantings, stocks and yields. Markets that are so tightly 

bound to informational releases have a tendency to overreact, making volatile markets even more difficult to navigate through. 

Thank you for inviting me to present this testimony today. I look 

forward to your questions. 

[The prepared statement of Dr. Erba follows:]

PREPARED STATEMENT OF ERIC ERBA, PH.D., SENIOR VICE PRESIDENT OF

ADMINISTRATIVE AFFAIRS, CALIFORNIA DAIRIES, INC., VISALIA, CA 

Chairman Rooney, Ranking Member Cardoza and Members of the Subcommittee:

Good afternoon. My name is Dr. Eric Erba and I hold the position of Senior Vice 

President of Administrative Affairs for California Dairies, Inc. (‘‘California Dairies’’), 

whom I am representing here today. California Dairies is a full-service milk processing cooperative owned by approximately 450 producer-members located throughout the State of California. Our producer-members collectively produce almost 42% 

of the milk supply in California and 9% of the total U.S. milk supply. Our producermembers have also invested over $500 million in large processing plants at six locations in California. 

We appreciate your willingness to convene a hearing to gather information on feed 

availability and hope to leave you with a sense of the feed costs, which is a topic 

that resonates strongly with our producer-members. 

Feed and the California Dairy Industry 

The basic theme for dairy producers since 2009 has been one of survivability, and 

a huge piece of the equation is cost of production. Feed costs represent almost 65% 

of the cost of producing milk, and the skyrocketing costs of feed since 2007 have 

caused dairy producers to question the very manner in which they operated their 

dairies. Let me explain what I mean. The hallmark of dairying in California is a 

Western style of dairying, in which dairy producers buy a high percentage of feed 

bulk quantities instead of growing the feed on or near the dairy. This model for 

dairying relies heavily on almost all of the grains and some of the forages being 

shipped into California from other states, where they can be grown cheaper than 

they can in California. Most California dairy producers do grow a high percentage 

of corn but it is for silage, not grain. This model has been in place for decades and 

worked very well until relatively recently. High priced land and lack of affordable 

water in California’s agricultural areas represent insurmountable obstacles that prevent California dairy producers from becoming more diversified as crop farmers in 

addition to being dairy producers. 

Feed Availability or Feed Price? 

From our point of view, the problem is not feed availability; it is the price of feed. 

Application of elementary economic principles suggests that the two are intertwined—as the supply of feed decreases, the price increases. Applied to what we see 

in the California dairy landscape, that basic principle can be refined to an axiom 

40

that suggests that feed has been and continues to be available . . . but not necessarily at prices that always makes good financial sense for dairy producers. 

We note that there has been more competition recently for U.S. grown feed from 

other countries, particularly for the high quality hay that is usually sold to dairy 

producers. For example, some of the countries have concluded that it makes more 

sense to buy hay from the U.S. than to use their own resources, particularly water, 

to grow their own hay, even if those countries must pay a little more for U.S. grown 

hay. 

Let me take the example of alfalfa hay a step further. The specific matter of feed 

availability is most easily and directly applied to this feed, where there truly has 

become an issue with the availability of hay, no matter what the price. Part of this 

is from increased demand for hay from both domestic and international buyers, but 

a large part of what is affecting the hay availability issue has to do with supply. 

In California, we have seen a tremendous decrease in the alfalfa acreage in just the 

last 2 years. Alfalfa hay has been a staple of many dairy rations, representing ten 

to fifteen percent of the mixed rations. We have heard alarming reports of hay fields 

being torn out and replaced with higher valued crops, such as cotton, tomatoes, and 

fruit and almond orchards. California pioneered the use of feed byproducts as ancillary ingredients for dairy rations, but byproducts have a significant downside—they 

are typically available only intermittently. They may be useful when they are available, but ration consistency is a key for ideal milk production. Simply put, cows like 

consistency in rations, not variety. So while byproducts may be available from these 

higher valued crops, they are in no way substitutes for alfalfa hay. 

Ethanol and Feed Prices 

There is no one cause for high feed prices, which affects how much feed is available at prices that will sustain dairy farms. High feed prices may be the result of 

unfavorable weather patterns, high energy prices, speculation in feed markets, a 

weak dollar and high demand for feed from other countries. One very conspicuous 

disruption on the demand side of feed is the Federal ethanol program. USDA’s Crop 

Production and Supply/Demand Report forecasts that more corn will be ‘‘consumed’’ 

by ethanol plants than by livestock, a spectacular change in historical trends. Is 

there an impact on corn price because of the Federal ethanol policies? We have 

heard alternative energy proponents suggest that the impact of the ethanol industry 

on corn prices is minimal. It is economically illogical to suggest that almost half of 

the supply of any commodity can be removed from the market from a relatively new, 

large and defined demand source without any impact on price. It just doesn’t make 

sense. Other studies suggest that the impact of the Federal ethanol program on corn 

prices may be increases in the range of 20% to 40%. These results seem to be more 

consistent with current corn prices and our producer-member experiences. Alternative energy proponents also point out that ethanol production results in a new 

feed source, dried distillers grain (DDG). That is a hollow argument. DDG is a lower 

quality feed that lacks the starch that corn contains and making corn such an important ingredient in dairy rations. Also, the conversion rate is horrible—dairy producers give up 3 pounds of corn and get back 1 pound of DDG. Finally, current DDG 

prices are about the same as for corn, even though DDG must be supplemented by 

other starch and energy sources to be used effectively as a livestock feed. 

The California Department of Food and Agriculture (Department) collects and 

publishes cost of feed data obtained from California dairy producers. The data reveals that California dairy producers’ cost of production is dominated by feed costs, 

responsible for 65% of the cost of producing milk. Prior to 2008, the cost of feed 

made up less than 50% of total milk production costs. The recent price increases 

for rolled corn and alfalfa hay are even more dramatic. California dairy producers 

paid an average of $300 per ton and $275 per ton for rolled corn and alfalfa hay, 

respectively, in 2011. From 2000 to 2008, the same commodities averaged $125 per 

ton and $160 per ton, respectively, which computes to an increase of 145% in the 

corn price and an increase of 60% in the price for alfalfa hay. 

Alternative Feed Rations 

With the prevailing high prices in the corn and hay markets, there may be some 

question as to why producers do not attempt to seek alternative feed rations that 

are far less dependent on corn and hay as the foundational ingredients. The reality 

is that nutritionists have tried repeatedly to find alternative rations with very limited success. Bear in mind that prices for almost all feeds have increased simultaneously, the so-called ‘‘sympathetic’’ price increases that are evident across all 

feedstuffs when the price of one major commodity increases suddenly. This effect 

limits the ability of dairy producers to substitute away from higher priced feeds. Notably, commodities like whole cottonseed, soybeans and wheat have been nearly 

41

priced out of consideration by many dairy producers who must purchase feeds for 

their dairy cow rations. Even substituting more lower-priced roughage for concentrates may have the unwanted consequence of lowering milk output and altering 

milk component levels. In other words, there may be no change in dairy farm profitability if the feed substitutes that appear to be less expensive result in decreased 

milk production or decreased milk components or both. 

Concluding Remarks 

Dairy producers are critical of the Federal policy that favors fuel over food because of the evidence that policies put animal agriculture at tremendous risk for 

higher production costs with no guarantee of higher prices for product produced. In 

addition, feed markets, particularly the corn market, have become very sensitized 

to forecasts and reports on plantings, stocks, and yields. Markets that are so tightly 

bound to informational releases have a tendency to overreact, making volatile markets even more difficult to navigate through. In combination with already high feed 

prices, a new challenge has been presented for dairy producers—developing some 

proficiency with hedging and forward contracting in feed markets that are characterized by extreme price volatility. Needless to say, inexperience and lack of knowledge when making decisions in these kinds of markets are principal ingredients for 

disastrous results. But there is no avoiding the issue, and dairy producers will need 

to develop the skills necessary to navigate through unpredictable feed markets. No 

producer can count on corn or any other feed price returning to more stable and 

predictable levels anytime soon. 

Thank you for inviting me to present this testimony to you today, and I look forward to your questions.

The CHAIRMAN. Thank you, Dr. Erba. 

Mr. Spronk. 

STATEMENT OF RANDY SPRONK, PORK PRODUCER AND

MANAGING PARTNER, SPRONK BROTHERS III LLP AND 

RANGER FARMS LLP; VICE PRESIDENT, NATIONAL PORK 

PRODUCERS COUNCIL, EDGERTON, MN 

Mr. SPRONK. Good afternoon, Chairman Rooney, Ranking Member Cardoza, and Members of the Subcommittee. I am Randy 

Spronk, a pork producer from Edgerton, Minnesota, where I own 

and operate with my brother and son the same farm I grew up on. 

In addition to my family, my farm also employs about 20 workers, 

and we finish about 125,000 head of pigs a year, farm about 2,000 

acres of corn and soybeans, and our pigs are sent to markets in 

Minnesota and South Dakota. 

As Vice President of the National Pork Producers Council, I appreciate the opportunity to testify on behalf of the NPPC and 

America’s 67,000 pork producers. 

I would like to talk about some of the struggles producers like 

me are having with the current feed grain situation, and the impact tight supplies and high prices have on the ability to feed our 

animals and satisfy the world’s demand for pork products. 

Pork is by far the favored protein of consumers around the globe. 

As long as we have sufficient supply of feed grains, the U.S. pork 

industry will continue to be the lowest-cost producers of pork in the 

world, continue to meet global demand, and continue to help generate nearly $35 billion of U.S. gross national product, and to support the more than 550,000 mostly rural American jobs. However, 

in the past year a combination of bad weather and bad policy has 

created a situation today where we are questioning whether there 

will be an adequate supply of feed. 

For a hog farmer like me, feed comprises approximately 60 to 70 

percent of the cost of raising a hog, primarily fed a mixture of corn 

and soybean meal. Some producers like me also have begun to inVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00045 Fmt 6633 Sfmt 6601 I:\DOCS\112-23\68483.TXT BRIAN
42

clude in feed rations dried distillers grain with solubles, DDGs, a 

by-product of ethanol production. But be aware, DDGs is not without issues. On my farm we routinely have problems handling 

DDGs. They don’t flow from trailers and feed bins as easily as corn 

and soybeans, causing feed outage issues. In addition, because of 

their impact on meat quality, we have to be careful about the level 

of DDGs we include in our rations. 

Today the pork industry, like all livestock groups, stand at the 

edge of a frightening precipice. We face a feed supply situation 

worse than the one we have been warning Congress and the Administration about the last several years. After a year in which we 

have been hit with historic record low year-end stocks of corn, just 

17 days’ worth, we are now looking at an even smaller supply next 

year. Following the cold, wet spring, the droughts in the South and 

Southeast, the record heat this summer, projections for this fall 

corn crop are not good. 

On Monday, the USDA dropped its corn yield estimate to 148.1 

bushels an acre, down from 153. And with a prediction of an early 

frost in some parts of the Corn Belt—in particular on my farm it 

is supposed to reach down to 29° tonight—that number could go 

lower. 

The other time we faced a grain shortage of this magnitude was 

back in 1996. Back then my mill simply did not have enough grain 

on hand, and we couldn’t source it locally to feed out the pigs. I 

was forced to hire two semi trucks and send them on a 540 mile 

round trip to Blunt, South Dakota, to secure that grain. 

Thankfully it appears that most producers heeded early warnings and secured a supply of corn to get them through this year’s 

harvest. For next year, however, there simply may not be enough 

corn to go around in the livestock industry, and pork producers 

such as me and my family will suffer. 

It is a real possibility that next year’s corn will need to be rationed, and NPPC believes that the rationing ought to be applied 

equally to all corn users, including the ethanol industry. 

Please be aware I am not here to attack the ethanol industry. In 

fact, the U.S. pork industry always has been a strong supporter of 

the ethanol production as a way to reduce our dependence on foreign oil. But the ethanol industry is using more and more of the 

nation’s corn supply. This year it is expected to overtake the livestock and poultry producers as the largest user of corn, but its 

growth has been driven almost entirely by the Renewable Fuel 

Standard mandate, which—and this is the most important point 

that I am going to make here today—makes no provision for rationing or a short corn crop. 

The U.S. livestock and poultry industries will bear almost 100 

percent of the risk of a short corn crop. We cannot easily switch 

our production on and off. We can’t simply not feed animals. Ethically and morally I must care for my livestock. 

America’s pork producers are asking Congress to consider all policy options in order to address the looming feed grain supply challenges. In particular, we encourage you to, first of all, require the 

ethanol industry to bear some of the same risk from the corn market supply and price shocks that pork producers and others do; second, adopt measures to assist livestock and poultry producers who 

43

suffer losses because of corn rationing. Even with policy changes 

designed to deal with the inflexibility in ethanol’s demand for corn, 

i.e., the mandate, other corn users still bear a disproportionate 

share of the supply risk that is associated with weather and other 

factors; and last, adopt policies that would fairly and smoothly 

transition the U.S. ethanol industry to full reliance on the private 

market for its supply signals and away from signals provided by 

the government through the Renewable Fuel Standard and the 

subsidies. 

Thank you again very much for allowing me to testify. I would 

be happy to answer any of your questions. 

[The prepared statement of Mr. Spronk follows:]

PREPARED STATEMENT OF RANDY SPRONK, PORK PRODUCER AND MANAGING

PARTNER, SPRONK BROTHERS III LLP AND RANGER FARMS LLP; VICE PRESIDENT, NATIONAL PORK PRODUCERS COUNCIL, EDGERTON, MN 

Introduction 

The National Pork Producers Council (NPPC) is an association of 43 state pork 

producer organizations and serves in Washington, D.C., as the voice for the nation’s 

pork producers. The U.S. pork industry represents a significant value-added activity 

in the agriculture economy and the overall U.S. economy. Nationwide, more than 

67,000 pork producers marketed more than 110 million hogs in 2010, and those animals provided total gross receipts of $15 billion. Overall, an estimated $21 billion 

of personal income and $34.5 billion of gross national product are supported by the 

U.S. pork industry. Economists Dan Otto and John Lawrence at Iowa State University estimate that the U.S. pork industry is directly responsible for the creation of 

34,720 full-time equivalent pork industry jobs and generates 127,492 jobs in the rest 

of agriculture. It is responsible for 110,665 jobs in the manufacturing sector, mostly 

in the packing industry, and 65,224 jobs in professional services such as veterinarians, real estate agents and bankers. All told, the U.S. pork industry helps generate 

more than 550,000 mostly rural jobs in the United States. 

Exports of pork continue to grow. New technologies have been adopted and productivity has been increased to maintain the U.S. pork industry’s international competitiveness. As a result, pork exports have hit new records for 17 of the past 19 

years. In 2010, the United States exported more than $4.8 billion of pork, which 

added $56 to the price that producers received for each hog marketed. (That amount 

represents about 1⁄3 of the total price producers receive for each hog.) Net exports 

last year represented about 20 percent of pork production. The U.S. pork industry 

today provides 21 billion pounds of safe, wholesome and nutritious meat protein to 

consumers worldwide, making it the No. 1 exporter of pork. 

The demand for meat protein is on the rise in much of the world. Global competitiveness is a function of production economics, regulations, labor costs and productivity. The U.S. pork industry can continue to be a leader in food production and 

meet the needs of increased consumer demands as long as exports continue to grow, 

producers are allowed to operate without undue legislative and regulatory burdens 

and feed grains are available. It is that last point that is of concern to producers 

now. 

Feed Grains Situation 

Feed comprises 60–70 percent of the cost of raising a hog to market weight (about 

260–280 pounds). Primarily, hogs are fed corn and soybean meal—each market pig 

consumes approximately 10.5 bushels of corn and 4 bushels of soybeans in the form 

of meal. Some producers include dried distillers grains with solubles (DDGS, a byproduct of ethanol production) in rations. In certain areas of the country—generally 

outside the Corn Belt—hog rations may include other grains such as wheat, milo 

or barley. But corn is used in hog production in nearly every state that has production. 

An adequate corn supply is critically important to the U.S. pork industry. So the 

current feed grains situation has pork producers understandably very nervous. 

It now appears that the 2011 U.S. corn crop could be smaller than the U.S. Department of Agriculture’s initial projection of 12.914 billion bushels. Preliminary 

certified acreage data released by USDA’s Farm Service Agency (FSA) suggests that 

planted acres fell short of USDA’s National Agricultural Statistics Service (NASS) 

estimate of 92.282 million acres. Summer weather conditions have dropped USDA’s 

44

U.S. average corn yield to 148.1 bushels per acre, according to the agency’s Sept. 

12 grain report, from its initial forecast of 153 bushels. The new project would be 

the lowest yield since the 2005–2006 crop year. Chris Hurt, an agriculture economist at Purdue University, estimates an average yield of just 147 bushels an acre; 

Pro Farmer analysts estimate the yield at 147.9 bushels. (Estimates from other 

sources range from 146.3 to 151 bushels; USDA will release new production forecasts Oct. 12.) The final FSA acreage data, along with any additional information 

from the monthly NASS surveys, will be incorporated in the October production 

forecast. History suggests that the October yield forecast will be reasonably close 

to the final estimate. 

USDA’s initial forecast of 41.4 bushels an acre for the U.S. average yield for soybeans was relatively small. Additionally, August weather was not favorable for soybean crop development, and FSA acreage data suggests that planted acres may have 

been less than the 74.958 million estimated by NASS. Recent prices suggest that 

the market is expecting a smaller crop than the current USDA forecast of 3.085 billion bushels. 

[USDA’s yield forecasts are based in part on crop conditions. For the week ending 

Sept. 4, the agency downgraded the conditions for corn and soybeans. It reported 

52 percent of the corn crop in good or excellent condition compared with 69 percent 

a year ago at the same time; it rated 21 percent of the crop in poor or very poor 

condition compared with 11 percent at this time last year. For soybeans, USDA reported 56 percent of the crop in good or excellent condition compared with 64 percent a year ago and 16 percent of the crop in poor or very poor condition compared 

with 12 percent a year ago.] 

The 2011–2012 corn numbers are coming after a 2010–2011 marketing year that, 

while the third largest harvest on record, saw year-end stocks of just 17 days. That’s 

a historic low. The last time the carryover was that small—fall 1996—corn was so 

scarce in Iowa—the No. 1 corn-producing state—it had to be shipped in from Texas, 

and other areas suffered similar shortages. 

If the 2011–2012 grains forecasts prove true, corn and soybean consumption will 

need to be reduced. Indeed, USDA is projecting supplies for 2011–2012 to be their 

lowest since 2006–2007. Based on the most recent USDA projections and the assumption that year-ending stocks should be maintained at or above five percent of 

consumption, corn use would need to be reduced by about 30 million bushels, or 0.2 

percent, during the 2011–2012 marketing year. Soybean consumption would need to 

be reduced by 122 million bushels, or 3.7 percent. The actual reductions will depend 

on the final consumption estimates for the 2010–2011 marketing year, the 2010–

2011 crop inventories on Sept. 1 and the size of the 2011 harvest. 

Some of the reductions in corn and soybean consumption during the 2011–2012 

marketing year may occur as a result of weaker demand, which may be prompted 

by a generally weak economy and continued high unemployment that likely would 

weaken demand for meat and poultry products; by the current abundance of competitively priced wheat that could be substituted for corn and soybean meal in livestock feed rations; by lower energy prices that would weaken demand for biofuels; 

and by larger South American crops in response to the current high grain prices. 

But, depending on the size of the 2011 harvest and on the crop inventories at the 

beginning of the 2011–2012 marketing year, weaker demand may not be enough to 

ration supplies. Grain prices may need to go even higher. The market clearly is expecting a substantial reduction in the forecast for the 2011–2012 marketing year 

corn supplies. Corn futures traded at the Chicago Mercantile Exchange (CME) already have climbed to the highest levels in more than 3 years. Futures indicate 

prices will remain above $7 a bushel through at least the middle of next year. Recently, traders held more than 4,500 call options in CME Group’s corn market at 

strike prices—the price at which the option can be bought—of $11 and $12 a bushel. 

The number of such positions was up 15 percent from a month earlier, an indication 

of growing concern that this year’s harvest will fall short of projections. 

Last fall, $10 corn call options traded for the first time, with large firms such as 

JPMorgan Chase & Co. and MF Global Holdings Ltd. among the buyers of those 

calls, and analyst Kevin Van Trump, of Farm Direction, in Kansas City, Mo., says 

$9 or $10 corn could happen. 

If corn goes to $10 a bushel or higher, there could be an unprecedented contraction in the pork industry, with many producers forced to liquidate herds as losses 

grow. Corn at $10 ‘‘will put a lot of sows in packing plants,’’ University of Missouri 

agriculture economist Ron Plain told one publication. In fact, producers have reduced the breeding herd by more than six percent over the past 2 years—although 

higher productivity has mitigated the impact of that reduction on pork output. 

The pork industry has seen the effects of tight grain supplies before, most recently 

just a few years ago. Despite (at the time) a record harvest in 2007, increasing deVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 I:\DOCS\112-23\68483.TXT BRIAN
45

mand saw prices for corn begin a rapid ascent, increasing from about $3.50 a bushel 

in mid-2007 to a peak of nearly $7.90 a bushel in mid-2008. While corn prices moderated over the next year and a half, falling back to around $3.50 a bushel, they 

began rising again as oil prices rose. The result was soaring costs of production. 

Total industry losses from October 2007 through January 2010 were more than $6 

billion, and the average farrow-to-finish operations lost nearly $23 for each animal 

marketed. More than 6,300 pork operations went out of business. This financial disaster occurred despite near-record hog prices in 2008 and hog prices in 2009 high 

enough to have provided profits at the average production-cost levels that prevailed 

from 1999 to 2006. 

Certainly, since early 2010 producers have been profitable, with hog prices recently at nearly historic highs. But a major reason for those higher prices is lower 

production relative to just 3 years ago, the result of producers’ responses to sharply 

higher costs of production. Costs for typical farrow-to-finish producers will average 

about $87 per hundred pounds carcass weight for 2011 based on corn and soybean 

meal futures on Aug. 31. That is 27 percent higher than last year and 66 percent 

higher than the average for 1999–2006. These costs are now being passed along to 

consumers in the form of higher retail pork prices, which set six record monthly 

highs during 2010 and are almost certain to set new highs this year. Indeed, USDA 

in its April 25 food inflation forecast projected that retail meat prices will rise six 

to seven percent this year, the largest jump since 2004. Further, because of the continued high feed grain prices and weak economy, hog prices have started to moderate. Pork producers now are projected for next year to see production costs above 

hog prices, with average losses of around $10 a head. 

While other factors are pushing up meat prices, including increased global demand for protein—as developing countries switch from grain-based diets—and higher transportation costs because of higher fuel prices, production costs are the main 

driver—and, as stated above, 60–70 percent of those costs are feed grains. And grain 

prices, like almost all commodities, are set by supply and demand. 

U.S. Biofuels Policy’s Role In High Corn Demand 

While a number of factors combined to affect the profitability and competitiveness 

of the pork industry from October 2007 through January 2010, including the overall 

worldwide financial crisis, the relative value of the U.S. dollar and the emergence 

of the H1N1 flu and its associated trade impacts, the effects of drastic changes in 

grain markets that are in large measure driven by the increase in demand for corn 

from the ethanol industry have had the most significant impact on the pork industry. 

Following passage in the fall of 2007 of the Energy Independence and Security 

Act (EISA), which included a Renewable Fuels Standard (RFS2) that quickly accelerated the mandated production of corn ethanol, pork producers struggled to adjust 

to rapidly escalating prices and increased volatility in grain markets, which resulted 

in a reduction in hog production. An effort to include a safety valve that would have 

adjusted the RFS2 in the event of a short-term crop shortage failed in the Senate 

as the EISA was being debated. Recently, debate over renewable fuels and their 

government-supported mandates and subsidies has intensified, with efforts to eliminate tax subsidies gaining significant support. In 2010, as the Volumetric Ethanol 

Excise Tax Credit (VEETC) was expiring, the ethanol and corn industries fought for 

a 5 year extension of the subsidy. Congress approved a 1 year extension, which expires Dec. 31, 2011. At the same time, the ethanol industry has sought to allow 

blends of up to 15 percent ethanol in motor vehicle fuels and subsidies to finance 

construction of ethanol pipelines, storage and other infrastructure. 

USDA estimates that corn use for ethanol production increased following passage 

of the EISA from 1.603 billion bushels during the 2005–2006 marketing year to 5.05 

billion bushels during the 2010–2011 marketing year. It is expected to absorb 5.15 

billion bushels in the 2011–2012 marketing year. Ethanol use accounted for approximately 14 percent of total corn use in 2005–2006, was more than 37 percent in 

2010–2011 and is expected to grow to about 39 percent in the current marketing 

year. Over the same period, use of corn for feed fell from about 55 percent to about 

37 percent and exports dropped from almost 19 percent to about 13 percent. 

Those bushels of corn going to ethanol production could be put to better use. Economist John Lawrence of Iowa State University has calculated that a 100 million gallon ethanol plant creates about 80 jobs. But the same number of bushels needed to 

create that much ethanol support 800 pork industry jobs. 

Furthermore, if ethanol is supposed to be the answer, or at least an answer, to 

how the United States reduces its dependence on foreign oil—ethanol displaces 

about 4.6 percent of ‘‘pure’’ gasoline—why did the ethanol industry export nearly 400 

million gallons last year, a four-fold increase over 2009? And with tight world sugar 

46

supplies (other countries use sugar cane to produce ethanol), many analysts expect 

demand for the U.S. ethanol exports to strengthen. 

The passage of EISA and the associated increase in the RFS-driven demand for 

corn are reflected in the breakout of the costs to produce hogs, with corn prices at 

levels about $10 per carcass hundredweight higher than historical averages would 

have suggested. This increase occurred despite a significant increase in the use of 

DDGS by the pork industry. 

The higher corn cost premium is directly attributable to the ethanol demand for 

corn, the price of which now is largely a function of the price of petroleum, which 

is set by the demand for gasoline and diesel. A very strong case can be made that, 

as a result of the RFS and the ethanol blender’s tax credit (VEETC), higher corn 

yields will have less of an effect on corn prices and instead will lead to greater ethanol production. Starting shortly after the advent of the modern RFS program in 

the middle part of this decade, the price of corn has closely tracked its energy value. 

As long as the market expects an expansion of ethanol production, there will be a 

symbiotic relationship between ethanol and the price of corn. And as long as the 

ethanol industry is receiving strong signals from the Federal Government that 

growth in the industry will be sustained, higher corn yields are not going to provide 

the level of relief in the form of lower prices to feed-grain users such as pork producers. Larger corn crops from increasing yields will instead lead to greater flows 

into ethanol plants. 

So U.S. pork producers are understandably concerned about the impact on their 

industry of the increased use of corn for ethanol production. The U.S. pork industry 

strongly believes the country needs a vigorous renewable energy sector, but it cannot come at the expense of the U.S. livestock and poultry industries. Reducing the 

use of imported oil—becoming energy independent—and focusing on renewable fuels 

are laudable, but markets must be neither distorted by subsidies and taxes nor compelled—or constrained—by mandates to the point where they cannot send effective 

price signals. 

Where mandates and subsidies are allowed to exist, it is unconscionable that longestablished laws would be ignored to drive greater ethanol production. But this is 

the path the Obama Administration has taken in response to demands to allow an 

increase to 15 percent (E15) from the current ten percent in the amount of ethanol 

that can be blended into gasoline. Despite the clear language in the Clean Air Act 

that fuel additives be safe in—that is, not harm—all vehicles, the U.S. Environmental Protection Agency approved E15 for 2001 and newer model year vehicles. 

NPPC and other stakeholders filed suit against EPA over its decision. Pork producers obey the rule of law, and they expect the U.S. Government to do the same. 

Additionally, it is NPPC’s contention that the United States must invest in research and development for other energy alternatives, such as using animal manure 

and fat and biomass, including switchgrass and corn stover. The U.S. pork industry 

wants to emphasize that the right balance is needed to meet the needs of fuel and

feed security. 

Dried Distillers Grains with Solubles (DDGS) 

It was noted above that pork producers are including more DDGS in their feed 

rations. But that product does little to allay the concerns of pork producers about 

the future cost and availability of feed grains and, consequently, the well-being of 

animals and the cost of pork to U.S. consumers. 

The ethanol industry has claimed that feed problems created by its use of a substantial portion of the nation’s corn supply are irrelevant because of the production 

of DDGS. 

But there are several issues with feeding DDGS to pigs. They are inconsistent 

from ethanol plant to ethanol plant and even within a plant. There is variability 

in their nutrient content—protein, fat, phosphorus. If the fermentation or drying 

process for DDGS is changed or varies from batch to batch, it can have an impact 

on the digestibility of nutrients. Additionally, corn can contain mycotoxins that are, 

in some instances, detrimental to pig performance. The presence of mycotoxins varies by growing season, location and environmental factors. Since the ethanol production process removes the starch (2⁄3 of the volume) from corn, DDGS produced from 

mycotoxin-contaminated corn will have three times the level of mycotoxin that was 

present in the corn itself. Depending on the percentage of DDGS fed and which toxins are present, pigs can experience multiple problems, including immune challenges, abortion and feed refusal. This is a severe limit on the widespread use of 

DDGS in gestation and lactation diets. 

As pigs are fed increasing levels of DDGS, the corn oil present (also at three times 

the concentration as in corn grain) can increase the iodine value, leading to soft fat, 

of the carcass. This can result in belly slicing problems and possible rancidity or 

47

shelf-life issues. A higher percentage of DDGS in the diet also can have a negative 

effect on carcass weights, most likely because of the increased fiber content of the 

DDGS. 

DDGS are far more useful in diets for beef and dairy cattle than they are for pork 

and poultry. This affects pork producers in two ways, both of them bad. First, DDGS 

will not be a cost-effective substitute for corn because beef and dairy producers will 

pay more for DDGS, preventing the products’ use in swine diets. This already is 

happening. Second, the cost of producing beef and dairy products using DDGS will 

be lower relative to pork, providing a market advantage to those two sources of protein. 

There also are handling issues with DDGS—humidity tends to make it clump, 

making it stick in railcars and feed bins—concerns over increased phosphorous levels in finishing hogs fed DDGS and issues with ‘‘pelleting’’ DDGS at feed mills. Additionally, the amount of DDGS returned to livestock producers as feed has been 

overestimated by USDA. 

Finally, it should be noted that the ethanol industry is exporting DDGS. In 2010, 

it exported 9 million metric tons, a 60 percent increase over the amount exported 

in 2009 and double what was exported in 2008. 

Tight Grain Supplies + Ethanol Corn Demand + Weather = Disaster 

Any difficulties with the 2011–2012 U.S. corn and soybean crops could be disastrous for U.S. pork producers. Ethical care of animals requires producers to feed 

their hogs even when feed prices are high. But if there are feed shortages, livestock 

producers cannot simply turn a light switch to stop production and cannot stop feeding their animals. Taking animals to market before they reach market weight really 

isn’t an option. Such an action likely would severely depress livestock prices, hurting producers’ bottom line, and would make it harder to rebuild the U.S. swine herd. 

Producers will do all in their power to secure feed to care for their animals. 

Producers may or may not adjust to higher feed-grain prices, but there’s not much 

they can do about a lack of available feed supplies. While NPPC has faith in the 

American farmers’ ability to produce feed grains sufficient to meet demand, it is 

concerned about factors beyond their control, particularly the weather. 

The last real drought in the major corn-growing states happened in 1988, 23 years 

ago. Texas is experiencing the worst drought in its history—81 percent of the state 

has the worst drought classification—and there have been reports of widespread 

crop failures in the state because of it. Oklahoma, Kansas and parts of the Southeast also have drought conditions that are affecting crops. Of course, too much rain 

also can cause problems. Flooding along the Mississippi and Missouri rivers earlier 

this year inundated millions of acres of cropland. Should the Corn Belt suffer a 

weather event that reduces the harvest, there will be regional shortages of feed. 

Some weather experts are forecasting an earlier-than-usual frost for some parts 

of the corn growing regions, including the Eastern Corn Belt, something farmers 

don’t need after being hampered by a cold, wet spring and extreme heat over the 

summer. In a Sept. 1 report, Jack Scoville, an analyst with Price Futures Group 

in Chicago, said: ‘‘Corn losses are certain this year from the hot and dry weather 

seen in July and the poor spring weather that hurt planting.’’

Corn Yields and Weather 

The advent of hybrid corn varieties has revolutionized corn production in the 

United States and has supported the profitable growth in feed grain-using sectors 

such as the pork industry. Yield increases have been strong and give many indications that they will continue, and some of the yield growth appears to be directly 

attributable to greater drought tolerance or resilience. But the empirical evidence 

is mixed on this matter, and it may be just as plausible that the sustained growth 

in yields since the mid-1990s has as much to do with favorable growing conditions 

as it does with corn genetics. University of Illinois agriculture economists Darrel 

Good and Scott Irwin in a recent analysis said that a significant portion of the sustained growth in yields may be because of better-than-average growing conditions 

or because there simply has been too little variability in weather since the 1990s 

to effectively test the hypothesis that the newer corn genetics have created effectively greater drought and bad weather tolerance. 

Looking at the long record of corn data, it is clear that yields and total production 

could be highly vulnerable to severe and widespread drought. In fact, yield decreases from recent trends would not even need to be as large as they were in 1988 

to cause major disruptions for the livestock and poultry industries. A yield decrease 

of only ten percent would be very disruptive not only to those industries but to export markets and other corn consumers—other than the ethanol industry. And, as 

estimated by Irwin and Good, a poor weather scenario, with a 1-in-10 chance of ocVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00051 Fmt 6633 Sfmt 6621 I:\DOCS\112-23\68483.TXT BRIAN
48

currence, would result in a yield reduction of about 14 percent, with corn use by 

livestock dropping more than 16 percent and corn prices rising in excess of $6.44 

a bushel, possibly higher than $7 per bushel. 

Other Factors to Consider 

Another factor that could affect U.S. feed-grain supplies is a major corn purchase 

by another country. According to the U.S. Grains Council, China’s corn reserves are 

10 million to 12 million metric tons lower than previously estimated, and it is expected to import an additional 2 million to 3 million metric tons before the end of 

the current crop year. Such a major purchase would make tight U.S. supplies even 

tighter. 

Changes in the cost structure of the U.S. pork industry and other factors have 

affected pork producers’ ability to adapt to shocks to the feed grain supply. Modern 

confinement buildings, which have enabled so much progress in achieving economies 

of scale and in using inputs and energy more efficiently, have added greatly to the 

pork sector’s fixed costs even while allowing producers to reduce their variable costs. 

It is now far more difficult for a pork producer to temporarily cut back on production 

given the need to continue to make payments on those fixed assets. Furthermore, 

production systems do not allow producers to shift animals quickly out of production. So while poultry producers may be able to adjust their supply in a matter of 

a few months in response to sustained higher corn prices and beef producers can 

move cattle to relatively more forages and pasture, pork producers have a more or 

less fixed supply of pigs for 9 months, unless pregnant sows are slaughtered or baby 

pigs are euthanized. But, as noted above, the ethical and humane treatment of animals requires that producers maintain care even if producers are losing money, and 

the result is huge equity losses in pork operations that could lead to widespread 

bankruptcies and major disruptions in pork supply and prices. 

In addition to the challenges of higher input costs, the dramatic increase in price 

risk and market volatility have made historic risk management tools less effective 

and more expensive. Changing grain demands and higher transportation costs have 

increased basis levels and basis risk. When using hedges to offset actual grain price 

risk, producers are facing significant margin calls as prices have moved far beyond 

their historic normal ranges. These margin calls have, in turn, added to short-term 

credit issues with lenders. In addition, the capital needed simply to fund the increased cost of producing a pig has increased by more than 50 percent, resulting 

in significantly greater working capital requirements. 

[As an aside, under the Dodd-Frank Wall Street and Consumer Protection Act, 

livestock and poultry producers using hedges to lock in feed grain prices could be 

regulated as swap dealers. This will only make it more difficult for producers to 

manage their risks. Another risk-management tool currently used by producers also 

is in jeopardy. USDA has proposed a regulation that could limit livestock and poultry marketing contracts, which allow producers to lock in prices for their animals. 

The GIPSA rule, if approved as proposed, would devastate the livestock and poultry 

industries.] 

The increased need for capital comes at a time when there exists a serious credit 

crunch in the United States. The government’s response has been to provide funding 

for the nation’s largest banks, most of which have little or no presence in agriculture. Most of the banks that were provided Federal Troubled Asset Relief Program (TARP) funds and that are lenders to the swine industry appear to be interested in reducing their exposure in agriculture and in middle-market credits (which 

comprise the majority of livestock businesses). 

In a business environment where input price risk is dramatically increased for the 

foreseeable future and where U.S. lenders have a significantly smaller appetite for 

production agriculture and middle-market credits, the amount of capital available 

to the U.S. pork industry will be less and will only be obtained at a higher cost. 

Some producers have been unable to finance and sustain their operations, with the 

result being many otherwise profitable and highly performing producers exiting the 

business. For those producers who have been able to maintain the necessary levels 

of equity to stay in business, this will dampen their ability to invest in the next 

generation of genetics, technology and other improvements necessary to maintain 

the U.S. pork industry’s world leadership position. 

U.S. agriculture has provided significant benefits to this country and the world. 

It is often noted that because of the productivity of the U.S. farmer and food system, 

Americans pay on average less than ten percent of their personal income on food. 

Hidden in this average is the fact that the working poor, the lowest 20 percent in 

personal income, pay more than 30 percent of their annual incomes for food. The 

food price increases that already have occurred are falling disproportionately on 

them. As lower-income people adjust their diets to reduce meat consumption, less 

49

healthy substitutes such as low-cost starches and carbohydrates likely will fill the 

place previously occupied by meat on the dinner plate, raising the specter of reduced 

health and increased health care costs. 

Conclusion 

The U.S. pork industry is the lowest-cost producer and No. 1 exporter of pork in 

the world, and U.S. pork producers continue to produce the most abundant, safest, 

most nutritious pork in the world. They have proved very resilient, most recently 

weathering financial crises in 1998–1999 and 2007–2009 as well as the vagaries of 

a free market economy, all while investing in and adopting new technologies that 

have promoted animal health, protected the environment and added thousands of 

jobs and billions in national income to the American economy. 

But the rapid development of the corn-based ethanol industry—prompted mostly 

by Federal subsidies and policy mandates—coupled with weather issues and economic conditions, have created challenges for pork producers. The potential longterm impacts have threatened the U.S. pork industry’s competitiveness and the survivability of producers. The markets have rationalized demand for corn over time, 

but the potential for short-term dramatic price swings, as well as localized feed 

shortages, is jeopardizing the industry’s competitiveness and reliability as a domestic food supplier and as an exporter. 

Should the U.S. pork industry—and the beef and poultry industries as well—need 

to contract more than it has over the past few years, not only will consumers around 

the globe be affected through higher retail prices, but corn growers no doubt also 

would feel the effects of the corresponding drop in feed demand. 

NPPC has asked USDA to address potential feed-grain shortages, requesting that 

non-environmentally sensitive farm acres enrolled in the Conservation Reserve Program be released early and without penalty so that they may be planted to crops. 

Additionally, it asked the agency to consider allowing farmers to plant crops after 

they have received ‘‘prevented-planting’’ insurance payments. It also has requested 

that a contingency plan be developed should corn demand exceed supply. USDA has 

yet to take action to address the potential feed-grain crisis. 

NPPC asks that Congress consider all policy options to help address and mitigate 

some of the unintended consequences of the transition to greater reliance on domestic renewable energy sources, including:

• Requiring the ethanol industry to bear some of the same risks that pork producers and other corn users bear from market supply and price shocks. It is bad 

public policy to force users of corn except the ethanol industry to bear almost 

100 percent of the rationing that must occur if there is a short corn crop. Policies are needed that require the ethanol industry to share directly in this supply risk beyond simply the increase in prices paid for the raw material. With 

government mandates in the form of the RFS, the increase in ethanol feedstock 

costs can be passed on to consumers, but that is not possible for the U.S. pork 

industry.

[Such a policy would be for dealing with relatively extreme market conditions, 

where corn is in relatively short supply and price increases are substantial if 

not at near-historic levels. The policy would simply lead to a greater sharing 

of the rationing in corn use among all users. Returns to corn producers with 

a crop to market in these circumstances would remain very substantial.]

• Providing relief to U.S. livestock and poultry producers for losses suffered because of high grain prices that were prompted by severe weather conditions or 

other natural disasters. Even with policy changes designed to reduce the inflexibility in ethanol’s demand for corn, pork producers and other corn users still 

will bear a disproportionate share of the corn supply risks associated with 

weather and other forces. Pork producers and consumers (especially lower-income consumers) are also bearing a disproportionate share of the societal costs 

of helping to transition to less reliance on imported fossil fuels.

• Adopting mechanisms that would fairly and smoothly transition the ethanol industry to full reliance on the private marketplace for its supply signals and 

away from the signals provided by the public sector through the RFS, the 

VEETC and the ethanol import tariff. While such public-sector mechanisms 

may have been essential during its initial phases in the late 1970s, the ethanol 

industry now is a mature industry.

The CHAIRMAN. Thank you, Mr. Spronk. 

The chair would like to remind Members that they will be recognized for questioning in order of seniority for Members who were 

50

here at the start of hearing. After that, Members will be recognized 

in order of their arrival. I appreciate Members’ understanding. In 

the interest of time, I will reserve my questions until other Members of the Subcommittee have had a chance to ask theirs. 

I now recognize Mr. Cardoza. 

Mr. CARDOZA. Thank you, Mr. Chairman. 

Mr. Greene, with the huge increases in the costs of corn in just 

the last year, how do companies plan to survive these cost increases, and can the cost of chicken and turkey go up enough to 

cover the costs?

Mr. GREENE. Thank you. 

It is going to be very difficult for many companies to survive this 

next year with these higher grain prices. I imagine the smaller 

under-capitalized companies won’t survive, they won’t be able to. 

We already see negative equity coming out of dairies, we see negative equity in the poultry industry with many of the poultry companies, and we see a tight lending environment. So those things all 

appear to be coming together in a way that makes it very difficult 

for many producers to survive. 

I think, in addition, as far as increased costs, the poultry industry has been producing chicken on average at 5¢ to 15¢ per pound 

below cost this past year. So if you were to put that into—if you 

were to just gain that, you were almost looking at a 15 percent increase in poultry prices coming forward this next year, and that 

would be to just bring it back to even, not to moving it forward. 

So our expectation would be that significant food inflation is on its 

way. 

Mr. CARDOZA. Dr. Erba, in your testimony you discussed western-style dairying and its inherent vulnerability to feed scarcities 

and, therefore, fluctuating prices. Do you think it is even possible 

that California dairymen could or should consider other business 

models? And is it practical or economical to ask them to do so? 

Dr. ERBA. I think it is very unlikely. I think the model that has 

been built has been established decades ago. That change may 

come. It will not come easily, it will not come quickly. I think with 

the availability of land, high-priced land, the availability of water, 

these are issues that are just simply insurmountable. If anything, 

we will see a contraction of the California dairy industry. 

Mr. CARDOZA. Yes. When we already have 20 percent unemployment in those regions, you reduce the poultry and dairy production 

in those areas, unemployment will be even higher. 

Mr. Chairman, I am going to yield back my time in recognition 

of the fact that we do have votes coming up. 

The CHAIRMAN. Thank you, Mr. Cardoza. 

Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

A couple of you mentioned DDGs, what percent of DDGs can be 

used in feed rationing for the different groups that are represented 

here, livestock and poultry? Is there a mix when you are looking 

at that of how much DDGs you can use?

Mr. SEGER. Well, just speaking for the turkey industry and our 

operation——

Mr. NEUGEBAUER. Push your button there, please. 

Mr. SEGER. I am sorry, I thought I did. 

51

For the turkey industry it is fairly low, as we are using around 

five percent right now. So that is all that is available to us nutritionally. 

Mr. NEUGEBAUER. Just as a follow-up, I want to go—what would 

the ration be for corn? What percentage of your ration would be 

corn? 

Mr. SEGER. Corn? 

Mr. NEUGEBAUER. Yes. 

Mr. SEGER. Corn is 50 percent of the ration. 

Mr. NEUGEBAUER. So——

Mr. SEGER. Soybean meal is 20 percent. 

Mr. NEUGEBAUER. So when you don’t have corn, the DDGs don’t 

really provide much of a substitute——

Mr. SEGER. For the turkeys it does not create any type of significant opportunity for us. 

Mr. NEUGEBAUER. Dr. Meyer. 

Dr. MEYER. For beef cattle, DDGs are by far better feed for beef 

cattle than any other species. The content of low-quality protein 

and a lot of soluble fiber is very easily used by ruminants, so it fits 

in the feedlot applications, it fits into cow/calf operations. Probably 

the beef industry is the industry that can use them best. 

There has been one thing about it is a lot of the cattle aren’t 

where the DDGs are, though, so you have substantial transportation costs in many cases on that. 

There has been some growth of beef feedlot business back into 

Iowa and southern Minnesota, and that is probably going to continue to grow some. It is not by any means going to displace the 

southern Plains as the beef cattle-feeding area, but probably this 

product fits the beef industry better than any others. 

Mr. NEUGEBAUER. So in the pricing structure of the DDGs, are 

they priced appropriately as a substitute when you are looking at 

the future ration? 

Dr. MEYER. Yes, the price of DDGs over the long run is based 

off the price of corn. There is some fluctuation. It runs on an equal 

volume basis between 8⁄10 and 9⁄10 of the price of corn. At one time 

when DDGs were in less supply, in the wintertime, we would price 

DDGs out of the diets of other species because they are such good 

cattle feed. Basically cow/calf operations and feedlots would drive 

up the price of DDGs relative to corn and price them away from 

everyone else. That hasn’t happened the last 3 years, and I don’t 

think it will happen because we have plenty of DDGs available, 

and they will priced relative to the value of corn. 

Did you want to——

Mr. GREENE. I would make a comment because I bring in large 

trainloads of DDGs at times in the California market for the dairy 

industry and for the poultry industry. And it is a good feed for the 

dairymen, and they use quite a bit of it. 

For the poultry industry we can use a small amount. But we 

don’t really see that as a replacement for corn so much as a replacement for soybean meal. It is not a high-energy product. All the 

energy has been pulled out that you would get out of the corn, 

which is typically what you are buying that for. It is really more 

of a protein. You can only put it in at a small levels, but you can 

52

use it. If it is priced right, it will move. For the dairymen, they do 

like that product. 

Mr. NEUGEBAUER. Who is our pork guy? 

Mr. SPRONK. For the swine industry actually the limiting factor 

has actually been from the packer side of it. I have sold to three 

different packers in the Upper Midwest, and they are actually limiting the amount of DDGs that I can put in my rations due to 

harmful characteristics that happen with the meat quality. So we 

are going to be limited to 20 percent, and so from then on we would 

need to use corn. So it is from a quality standpoint that we have 

been limited. 

Mr. NEUGEBAUER. Dr. Erba, did you want to——

Dr. ERBA. Yes. I wanted to follow up on Mr. Greene’s comment 

on using DDGs as a dairy—dairy rations. It can be used sparingly, 

but it has to be supplemented on both the starches which are removed, which are very important for the quality of milk, and also 

be supplemented for energy. So it is a substitute, but I consider it 

to be a lower-quality substitute that corn itself. 

Mr. NEUGEBAUER. I want to talk about availability. In Texas, we 

have had a huge drought, and we have folks thinning their herds, 

and their feed supply is diminished substantially. We are going 

into the wintertime. What are you hearing about hay availability? 

I am not hearing good things about hay availability. And the price, 

it seems to—people are trying to decide whether to hold gold or hay 

right now, and some people are saying hay may be a better investment. 

Dr. MEYER. It is not as easily stored. 

Mr. NEUGEBAUER. Good answer. 

Dr. MEYER. Yes. Hay availability is going to be an issue. I grew 

up in Oklahoma and have relatives that live there and lots of 

friends in Texas. One friend told me last week, he said, ‘‘Well, we 

have already used this winter’s hay supply to get them through the 

summer.’’ That is probably a little bit of an overstatement, but not 

much. 

And so we are going to see haystocks get very tight through the 

end of the year. You have already seen hay prices go up dramatically during the summer months. That is one of those weather-induced kind of things that I fear is going to happen—the same kind 

of thing could happen to corn if we get a short crop at some point, 

given this usage base that we have built and the fact that a user 

of—the largest user of that corn doesn’t really have any flexibility. 

Mr. NEUGEBAUER. Thank you. 

The CHAIRMAN. Thank you, Mr. Neugebauer. 

The gentleman from California, Mr. Costa, who is also not a 

Member of this Subcommittee, has joined us today. I have consulted with Ranking Member Cardoza, and, without objection, we 

are pleased to welcome him and to join in the questioning of witnesses when his turn comes around. Welcome. 

Now we will proceed to Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

You know, I represent Georgia, and in my state is the leading 

poultry-producing region in the whole world, not to just mention 

the United States. The poultry industry is by far the largest contributor to Georgia’s agriculture economy, and agriculture is the 

53

biggest part of our state’s economy. So anything that affects the 

health of the poultry industry is very dear to me and certainly 

needs to be examined very closely, and especially the issue of the 

feed prices and the competition with corn and ethanol. 

So I am pleased, very pleased, to see and have with us Mr. Michael Welch, who is the CEO and President of the Harrison Poultry 

Company from Bethlehem, Georgia. I certainly want to welcome 

him, and certainly appreciate having his perspectives on the poultry industry and this particular issue and its impact on Georgia 

and throughout our nation. 

And with that, Mr. Chairman, I also would like to seek unanimous consent to enter into the record an article that we have here 

from the Atlanta Journal-Constitution of last week, which is entitled, Higher Corn Prices Pluck Georgia’s Poultry Farmers. I would 

like that entered into the record. 

The CHAIRMAN. Without objection, so ordered. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

[The document referred to is located on p. 67.] 

Mr. SCOTT. Mr. Chairman, I was contacted back in February by 

Mr. Mike Giles, who heads up the Georgia Poultry Federation. And 

also, Mr. Welch, Mr. Giles asked me to say hello to you as well. 

I let him know you were here. But back in February, Mr. Giles told 

my staff and I that the University of Georgia’s economist predicted 

that Georgia’s poultry farmers will pay an extra $454 million above 

and beyond their normal costs in 2011 alone just for corn due to 

the price increase between 2009 and early 2011. And unfortunately, as we all know, the price of corn has risen even more since 

then. 

So, Mr. Welch, I would like to start with you. Can you tell the 

Committee how much extra money you have had to spend this year 

for fuel, for feed, and what changes, if any, have you had to make 

to your operation in order to free up that extra cash? 

Mr. WELCH. Representative Scott, thank you for the question. At 

our company I guess we haven’t calculated it, but it would be easy 

to calculate. If we use approximately 7 million bushels of corn a 

year, and we are a small company, multiply that times whatever 

you call the price increase of corn, whether it was—as stated earlier by one of the witnesses, a few years ago it was $2, and now 

it is almost $8, or if it was last year’s price in the $4. And so take 

any dollar number you want and multiply it times seven million 

and that becomes the increased cost to us, and that is just on the 

corn side. 

So if you pick a number of 3 million—$3 or $4 a bushel increase, you would have $20 million to $30 million that it has just affected 

us as a small company. 

Industry-wide it has been studied and said that, since 2006, it has raised the price of the entire industry $22 billion or something 

like that. And so it is a significant number, and that is just the 

corn alone. 

Any grain affects the price of any other grain, and so the soybean 

used in our production, all of the energy we purchase to run all of 

our trucks to deliver the feed, and pick up the chickens, and haul 

the product to the dressed markets are all critically impacted by 

this as well. 

54

Mr. SCOTT. Let me ask you, it would be very helpful for us to 

know, at what corn price would it have to be for you to consider 

simply closing up your business? 

Mr. WELCH. Well, the price is there now if the exact same circumstances happen over for an elongated period of time. One of the 

colleagues here said earlier, I think it was Mr. Greene, that maybe 

15 percent. We think that poultry prices are going to raise 20 to 

25 percent to get to a level of break-even or slight profitability, 

which that in and of itself, besides if the industry is able to right 

itself, provides a tremendous tax on the consumer, the user of product. It is a latent tax based primarily on the government policy. 

Mr. SCOTT. I would like to see if we could get a price on that, 

what that price would be before firms like yours and others would 

just simply have to close the door. 

Let me ask you, Dr. Meyer, you are an economist on that. You 

have heard what Mr. Welch has said. In your own opinion, what 

corn price would it be, do you think, that would make a profit-obtaining poultry operation unattainable? When do you predict we 

might get to that point? 

Dr. MEYER. Well, I am not terribly familiar with the specific economics of the chicken operation. I can tell you this, that the corn 

price is already unprofitable given the price situation and the price 

situation in the poultry business, and it has been since last fall. 

This industry has been making major cutbacks in egg sets and 

chick placements since the early summer months to try to reduce 

supplies and push prices up. 

You know, one thing we always need to remember is these are 

commodity businesses. We don’t get to go out and tell people what 

the price is going to be. We have to adjust our supply in order to 

get prices there, and you have seen reductions in all of these species. You are going to see major reductions in the beef industry 

over the next year and a half in order to push prices higher to 

cover costs of production. In the case of chickens, they are already 

below break-even, so I could argue that the corn price is already 

too high for them. In the case of pork, we have had some profits 

this year, but this corn price, where it is right now in my models, 

has losses projected for the next year. 

The beef cattle industry is a little more flexible than that because we can feed roughages. You have sectors of the beef industry 

that don’t use very much grain, those that are very grass based, 

but the feedlot industry has seen their average cost of production 

go up 20 percent in the last 2 years, and so that has to be covered. 

And I can tell you that some of those cattle are coming out at 

losses now as well. 

So it all—it changes not weekly, but very frequently, but there 

are some of these businesses already seeing corn prices that are too 

high to be sustainable. 

Mr. SEGER. Congressman Scott, if I could weigh in on the answer 

to that question, I think a good testament to that is what has happened in the broiler industry just in the last 3 years where three 

major companies have filed bankruptcy, and 22 percent of the equity of the broiler industry is now foreign owned because of that. 

So the answer to the question is we are already there for a certain 

sector. 

55

Mr. SCOTT. Thank you very much. Very good information. Thank 

you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Scott. 

Mr. Gibson. 

Mr. GIBSON. Thanks, Mr. Chairman, and to our panelists. 

I will keep this very brief. I want to associate myself with the 

remarks of the panelists and would just urge that we take action 

consequent to what we are hearing and certainly what we are all 

hearing back home among our farmers. I look forward to—hope 

this is a bipartisan effort to do so and yield back. 

The CHAIRMAN. Thank you, Mr. Gibson. 

Mr. Boswell. 

Mr. BOSWELL. Well, thank you, Mr. Chairman, and thank you for 

holding this hearing. It comes at a unique place for me. I am on 

both sides of the issue. I am a livestock producer and over the 

years have raised a lot of corn, and I was still in uniform when we 

had the first fuel crisis. Some of you have heard that story and witness what people just like us in this room do when they can’t get 

fuel, and I realized back in those days, that was the early 1970s, 

that we were in kind of a bondage to OPEC. I have tried pretty 

hard to be part of trying to get out of that and think of things we 

can renew and grow out of the ground and turn into fuel and so 

on. I have been involved in that for a number of years. 

I think we are going to have a vote here in a little bit. I will try 

to get to the point here. I don’t feel personally that I have tried to 

be on both sides of it. We have a livestock operation and raised a 

lot of corn. When I was drafted and went off to the Army, my dad 

was getting basically $2 corn. Some of you remember that. Guess 

what it was when I came back? Still $2 corn. 

I don’t know, how many years did we subsidize corn so that folks 

in the commodity side of it on food packaging made a profit? Quite 

a long time. That information is there, too. I still think it is somewhere around—the percentage of the cost of food ingredient that 

goes to the farmers is like 19 percent or less. And so I have listened to producers, and I have been part of it, complaining about 

not having any parts of the value-added side of it for years, years, 

years. Then, along came the prospect of renewable fuels and a 

chance to do that, ethanol, and here was a chance to do it, and 

science has not gone as far as it can possibly go. 

Then we learned what to do with the distilled grain. We find out 

that it is good feed. Yes, it costs to transport it, but maybe some 

of those transportation costs or some of those livestock operations 

would come to where the grain is, help something, or where the 

ethanol plant is. 

So, we have to think carefully what we are thinking about doing 

here. I have a long memory about what happened when I watched 

what people were doing when they couldn’t get fuel for their car 

or their delivery truck, good people, and it is a serious situation. 

We don’t want to go there. So we ought to have this dialogue. 

I don’t think that ethanol is causing the problem. I haven’t seen 

how it is yet. You know, 12.5 billion bushels of corn this year, that 

is probably the third—some said, I think you said, the third largest 

in our history. I am not so sure it is the problem, and I would like 

56

to hear from you, if I could, what data leads you to claim that the 

high prices are directly tied to ethanol consumption and not market 

speculation. I would like to hear any of you speak to me about that 

if you would, please. 

Mr. GREENE. Well, I guess I would say that I think it is tied to 

both market speculation and to ethanol, and you can draw that 

conclusion when you look and you say, as you did, that the price 

of corn was $2, $1.80 to $2.50, for this period of time, maybe 20 

years or so. Yields improved during that period of time, but that 

seemed to be the stable price. We introduced the ethanol program in 2006, and we took that $2 to $2.50 corn, and we now have a corn market that last year, a 

year ago was $4. We are now at a $6 to $7 market, and as I stated 

in my testimony, if you do the numbers, the math on that, that is 

effectively a $60 billion cost to the public for this upcoming year. 

So when we think about that $6 billion subsidy, the real cost is $60 

billion more, and I do that by taking this $5 spread, $2 to $7, taking that $5 times the 13 billion bushels, and I get to a number like 

that. 

Because we haven’t controlled the speculative interests as well as 

we should have, and that money, much of it, leaves this country, 

I think the speculator has jumped on to the ethanol program now 

that we have made corn part of the energy process, and he is in 

there playing. So since ethanol is mandated, what we have done is 

we have actually made—we have made a product within the corn 

sector that is willing to pay and will pay any price for corn. It is 

not constrained because the mandate says you must use it. So it 

doesn’t matter if the price of corn is $5, $10, $20 a bushel, you still 

have to use corn for ethanol. You don’t have to use it for feeding 

livestock. 

So what we are seeing, if you look at the latest USDA report, the 

latest USDA report shows that ethanol moves ahead of feeding 

livestock. The reductions the USDA made in this week’s report 

were reductions in livestock feeding, reductions in exports, and 

only very slight reduction in ethanol. So what we have done because of the mandate is we have created a situation where one 

component of the corn demand sector has a demand, and a growing 

demand, mandated by the government and insensitive or not sensitive to any prices whatsoever. 

Mr. SEGER. And I think, if I could add to that——

Mr. BOSWELL. Just a moment. My time is about up, and I know 

the Chairman is going to—it is already up. I am sorry. 

Well, if I could close, Mr. Chairman, if I could, just this comment. I respect your being here and presenting to us, and we need 

to have this dialogue, but I am not convinced that there are facts 

before us that ethanol is the cause of this. I think there are many, 

many other factors, and this process, Mr. Chairman, will probably 

bring that out and will give us a chance to decide what we need 

to do. And I thank you for the time and yield back. 

The CHAIRMAN. Mr. Boswell—Mr. Seger, were you answering, 

were you going to address——

Mr. SEGER. Yes, just as another aside to his question on how do 

we know that it is a real market as opposed to speculation. I can 

tell you from a local basis level on what procurement people pay 

57

for corn, for example, this year in our area where normally the 

local basis might be 40¢ under a December board price, this year 

we are 10¢ under and really can’t buy the local corn. So that tells 

me that the local corn just isn’t there. Irregardless of what Chicago 

is bidding up on a board price, locally it is just not there in any 

type of quantity that it used to be. 

Dr. MEYER. Mr. Chairman, may I respond to Congressman Boswell? 

The CHAIRMAN. Please do. 

Dr. MEYER. Thank you. 

Congressman Boswell, I guess I would refer you first to Figure 

1 in my written testimony. If you look at that, the usage of corn 

for feed and residual is lower than it has been—is lower now than 

it was 5, 10 years ago. If you look, non-ethanol food and industrial 

usage is roughly the same. Exports goes up and down, but generally on a level playing field as well. 

The only one of the four major uses of corn that has gone up is 

ethanol, and it has gone up eightfold, and 75 percent of that in the 

last 5 years. At the same time, the corn crop has gone up, but not 

nearly by the amount of these usages. 

Now, given all the others are the same, we have more corn to 

work with, and ethanol is the one that has gone up by a factor of 

eight, who is driving the market? I mean, I don’t think there is any 

question that it is ethanol. 

Now, does speculation play a part of it? It certainly did in 2008 

and 2009, but speculators like the market to go up and down, and 

if we look at the market this year, it has just gone up and stayed 

up. It is not a speculator’s playground other than day trading, 

which is always going on. 

And so I would happen to agree. I think we need to put tighter 

limits on speculative positions. Hedging against inflation, you 

should be having—if you are going to be counted as a hedger and 

thus be exempt from limitation, position limits, you should be 

hedging against the commodity in question, not against some general inflation or moving the economy. 

But still I don’t think there is any question that ethanol has been 

the driver here, and the real question is what happens when we 

don’t have enough corn, and are we going to allow and require ethanol to participate in the rationing? That is my biggest fear is that 

one of these years we are not going to have it, and you remember 

1983 and 1988 in Iowa, it was pretty ugly. If we hit one of those, 

given our policy at the present time, it is going to be a very, very 

bad situation. 

The CHAIRMAN. Thank you. 

Just for information, we have been called for a vote. We are 

going to try to not go into recess. I am going to try to be substituted by Mr. King. I know Mr. Ribble and Mr. Costa are awaiting questioning, so I am going to yield to Mr. Ribble for his questions, and hopefully Mr. King returns in time so we don’t have to 

go into recess and come back. 

Mr. Ribble. 

Mr. RIBBLE. Thank you, Mr. Chairman, I will be very brief. 

My question is specifically for Dr. Erba. Welcome. I am from Wisconsin, where we have happy cows. My question specifically, so we 

58

can get right to it, what changes would you suggest to our current 

ethanol policy with respect to the food versus fuel debate, and do 

you believe that we need to look more broadly even at the Renewable Fuel Standard as well? 

Dr. ERBA. I think so. I think these gentlemen who have joined 

me today have outlined some very good programs which would mirror what we would suggest in the dairy industry, and that is a 

good, hard look at the ethanol policy in the U.S., the RFS, all of 

us have mentioned in one form or another, as being a driver behind 

it. Even if you address the tax credits and the tariffs, you still have 

the RFS, which drives everything. If you don’t address that, you 

may not really solve anything at all. So, it has to start there. There 

may be more comprehensive programs as well, but I think that is 

the low-hanging fruit that is before us right now. 

Mr. RIBBLE. Okay. Thank you very much. 

We have been called for votes. Mr. Chairman, I will go ahead 

and yield back the remainder of my time. 

The CHAIRMAN. Thank you, Mr. Ribble. 

I will go ahead and ask a question to try to give Mr. King enough 

time to get back here. It has been touched on a bit, but I think that 

it is important for me to ask this on behalf of my constituents, that 

I think it is important for all of us to consider that this is not a 

problem that is felt uniformly across the country or by all livestock 

producers in the same way. Florida, like Mr. Cardoza’s California, 

and New England, is a feed-deficit region. My constituents feel a 

particular vulnerability during our current feed availability conditions. Mr. Greene and/or Dr. Erba, can you please shed some light 

on the additional challenges that folks in our part of the nation 

have to wrestle with today? 

Mr. GREENE. Thank you. I will be glad to. 

In these feed deficit areas, it becomes difficult to manage the 

supply chain when our supply chain is not hours or even a day or 

2. We have to manage a supply chain that deals with rail logistics, 

which often can be challenging; weather, as far as weather getting 

in the wintertime in particular. So that supply chain for us runs 

approximately 10 days, can run 8–12, and to manage around that 

we have to spend capital for increased storage infrastructure. We 

rely upon other people to store. We bring in trainloads of 100 rail 

cars at a time to help manage that supply. So it is much more capital-intensive when you bring in 100 rail cars instead of 25 or 5, 

as many other people do, so it is very much a challenge. 

When we get into a period of time like we have this year, I would 

say, the feed companies in California have done a great job in making sure that the customers were able to have a pretty reliable supply chain, but I would tell you behind the scenes, we put grain in 

storage in the Midwest. We have never done that before. We put 

grain in storage in other terminals throughout California, which we 

typically do not do during the summer months. We brought in and 

used wheat at a level that we have never used before. We have—

and even with all those actions, we have multiple facilities, we 

found it necessary for both corn and soybeans to truck between facilities to make sure that the supplies are where they need it when 

they need it. So it has been very much of a challenge, and I expect 

59

with short crops and short supply chains, those challenges will do 

nothing but increase over time. 

The CHAIRMAN. Thank you, Mr. Greene. 

Mr. King. This is what happens when you have a rookie Chairman, but we are doing our best. Mr. King, thank you. 

Mr. KING [presiding.] Thank you, Mr. Chairman. I ran back from 

voting here, and I do appreciate the testimony from all the witnesses, and I had a brain full of things when I ran over there. Now 

I will see if I can recover some of that now. 

I just want to reflect that, as I listen to the testimony, I am hearing from different perspectives, whether it be from hogs or cattle 

or dairy or turkeys, and I happen to live in the middle of a lot of 

this, as you all know. And I know I was asked up here am I for 

feed or fuel, and I said both. And I happen to represent the district 

that is number one in pork, that is number one in eggs, it is number one in renewable energy of all kinds, and I have lived through 

the farm crisis when your land values were dropping so fast, you 

couldn’t sell it fast enough to get rid of it. I watched as people’s 

hope and opportunity dimmed and the sparkle that was in their 

eyes, and I watched it destroy some people’s lives along the way. 

We have recovered from that. We have come back. 

The ideas on ethanol took place in the 1970s, the foundation 

from it, really building the network, followed through in the 1980s 

during the farm crisis years. One of the things that I have seen in 

the cycle, when things are bad, when things are hard, you start to 

generate new ideas to try to solve that situation. Ethanol was one 

of those. So when I hear kind of a broadside against ethanol from 

each of you, from each of your perspectives, I wonder if you have 

actually stepped back and looked at this. 

And I would make this point, that the real question that is before 

us is not specifically how does it—how does ethanol affect feed 

prices for poultry or hogs or cattle, any of the other feed sources 

that might be out there, but we are really dealing with an equation 

here that is the global equation of energy and food. What is the 

cost of that production, what are the market forces that move that, 

and what are the subsidies and government incentives that adjust 

those market forces which turn out to be more or less supply depending on how the producers and the consumers react to that? 

That is the equation. 

So I don’t want to posture myself as I am in here looking at it 

through a particular lens, and I don’t think any of you have proposed it in that way, but I would just take you back to something, 

I am just here kind of doodling and dusting off a memory, and that 

would be in the year 2009, we produced 13.1 billion bushels of corn, 

and of that we exported 2.5 billion bushels. That is more than we 

had ever exported before. We converted 3.1 billion bushels into ethanol, and of that you have to add half of that back in as feed value, 

and so we ended up with 9.1 billion bushels of corn available for 

domestic consumption in that year, from the crop year 2009. 

And so I thought, okay, what then would be the corn available 

for domestic consumption in the years prior to that in the decade, 

which would be clearly representative, and that number comes up 

to be 7.5 billion bushels would be the average available for domestic consumption. 

60

So we saw more domestic consumption, more bushels of corn 

available to the tune of 1.6 billion more bushels available than the 

average of the previous years in that 2009 year. 

I know I picked the best year we have had for corn, but we have 

still seen high market prices, we have—and I am watching as each 

industry goes through its own pains. I recall some numbers that we 

saw that showed that food prices went up 4.6 percent, and that was 

pointed to as food versus fuel, that ethanol had brought that about, 

but energy prices in the same period went up over 18 percent. And 

so about 24 percent of the gallons of fuel that go through the nozzle 

into a gas-burning car in America of the domestic—of a domestic 

source are ethanol. 

So that tells you a little bit about some of this bigger equation 

that we have. And I understand that—one of the gentlemen mentioned that we exported 350 million bushels of corn through the 

course of the 1 million gallons of ethanol that we exported. That 

was the gentleman from Georgia Mr. Welch. And so are you also 

concerned about the corn that we export from our domestic market, 

Mr. Welch? Because that competes also with your feed supply. 

Mr. WELCH. Yes, United States, you are very correct, exports 

corn also. The U.S. exports a lot of chicken, and as one of the Secretary of Agricultures used to say, chicken is merely condensed 

corn. And so the question becomes is it exporting food, is it exporting fuel? What are the ramifications thereof? 

The interesting—just on Labor Day weekend, in The Wall Street 

Journal, the Chairman of Nestle ́ had come up with an article that 

was written about, and the title was Can the World Still Feed 

Itself? And the thing it said that people do not understand between 

the food market and energy market, there is a close link. That link 

is the calorie. And so if you take calories in whatever form to feed 

people or to fuel our cars or the balance in between, your mathematics are correct as to the crop has increased. 

I would disagree somewhat with the dried distillers grains is 

going back as a feed. The others commented, I know, in the chicken 

industry DDGs don’t work very well and for a variety of reasons. 

Some of it is the logistics, the moving the material and so on. Others is just the nutritional value. 

The nutritional value, when the computer least-costs the feed, 

and you offer it DDGs, are they priced appropriately? Well, the 

marketplace has decided the price, so apparently we don’t discount 

what the marketplace says. Apparently enough DDGs are exported 

that it works better out of the country than it does in the country, 

and it is removing the energy from the feed product. And so what 

does the chicken industry do if you use DDGs? You turn right 

around and add chicken fat back. You pull out energy to turn right 

around and put the energy right back in. It seems somewhat inefficient. 

Mr. KING. Well, thank you, Mr. Welch, and you have characterized a lot of this correctly in that transportation hasn’t adjusted 

itself to the different supply, and producers find themselves in 

places where they are at a disadvantage. 

I am also watching, as Dr. Meyer said, watching some of the cattle feeding industry come back into the corn country where it can 

take advantage of the DDGs that are there, and I am watching a 

61

lot of my neighbors mow and bail the ditches it didn’t before, and 

I am watching them feed cornstalks that never bailed them before. 

All of that is an added value. I am watching them reduce their corn 

as a grain ration going into cattle. All of that is part of this equation we are talking about. 

But I would turn to Dr. Erba, our dairyman here, and ask you, 

you talked also about high grain prices, and we saw raw milk 

prices nearly double over the last 3 years, if I recall. And when it 

was down around $10, what would corn have had to be to break 

even at $10 raw milk prices? 

Dr. ERBA. I think free probably would be the answer there. You 

know, corn is a major component of dairy rations, but I don’t know 

that you could get the corn price low enough to deal with the $10 

milk price. There was a time that maybe that was possible, but 

those days are past us now. There would have to be an extremely 

low feed price, not just corn, but all feed across the board, to get 

to anything that looks like a break-even at $10 milk prices. It is 

really astronomically under what cost production really is. 

Mr. KING. So you would agree, I would think, that even though 

grain prices at that time were about what they are now, 2008 until 

2011, milk prices are about double what they were. So the grain 

prices didn’t affect the—well, they did affect the corn price perhaps, 

but I guess I would ask you to put that into the—or, excuse me, 

the milk prices were affected to some degree by grain prices because you had people get out of the industry, but that is the part 

I didn’t hear you say. Is that really the substance of it, there is less 

production now because of low prices 3 years ago, and that is why 

we have prices that are up? 

Dr. ERBA. Milk production is kind of a funny thing, Congressman. It moves up and down. Milk production this year, 2011, has 

been some of the best we have had on record, particularly in California. We are back to where we were a couple years ago in terms 

of record milk production, and at the same time we have record 

high feed prices, particularly for corn. 

So back in 2009, the year you talked about, corn prices, I 

wouldn’t say they were low, but they were a heck of a lot lower 

than they are right now. There is an equation here that we have 

become very familiar with in the dairy industry, and that is margin. It is not necessarily the price of milk, it is not necessarily the 

price of feed, it is the difference between the two, the margin. 

Even though milk prices are very high right now, the margin is 

very small. Even when our milk prices were at tremendous levels, 

as people have already pointed out, we still have producers that 

simply can’t make it and are going out of business this year. 

Mr. KING. Did I hear you in your testimony, though, say that almost half of the corn crop goes to ethanol? 

Dr. ERBA. That is out of USDA’s report. I don’t know if it is this 

year or next year, I am not sure which one, but the report is that 

over half the corn crop will go toward ethanol, not toward livestock. 

More of it will go toward ethanol than livestock. 

Mr. KING. I could calculate that this 2.5 billion bushel crop here, 

there is only going to be 6.25 billion bushels available for domestic 

consumption as opposed to the 9.1 billion that was available in 

2009? 

62

Dr. ERBA. I will take your word for it. I am not that familiar with 

those numbers. 

Mr. KING. Let me state that I couldn’t calculate that, and you 

know that, but you just have to add back in, again, whether it is 

transportation or not, as Mr. Welch said, half the value of that 

going back in more to Dr. Meyer’s feedstock than it is to poultry 

or to pork. But I just thought we should clarify that. 

And then I am going to pose this question to Dr. Meyer since he 

is an Iowan, and he knows that I am fair game anyway, and I feel 

him leaning forward here, an opportunity to respond to that, and 

then also asking this question: we saw $2 corn here not that long 

ago, and now we saw corn that was $6.75 this morning in 

Dennison, Iowa, which is the closest market to where I live. Was 

that lower corn price from the decade or a little more ago, 2001 and 

2002, for example, was that price subsidized, and was that part of 

the reason why it was so low, Dr. Meyer? 

Dr. MEYER. In my opinion, absolutely it was. I mean, we were 

paying loan deficiency payments. We had a whole system of payments that were going to corn farmers at the time and other grain 

farmers as well, not just corn, and users of corn benefited from 

those subsidies. 

I would point out that producers of corn were not damaged by 

those subsidies, though, and in that case those subsidies were offered to make them whole, or we wouldn’t have had $2 corn because they wouldn’t have produced as much corn. So in that case 

a subsidy did not damage someone else. It did help livestock producers. In the case we are talking about now, subsidies are damaging one group while they are helping another, Congressman. 

I would also challenge your assertion that half of this comes back 

in as feed. Fifty-six pounds of corn goes into a distillery; 17 at best 

comes out of the distillery as DDGs. That is about 1⁄3. The data 

that I see from clients and I hear from Dr. Wisner at Iowa State 

is really it is closer to 15 pounds that comes out. So it is not that 

big. 

I would challenge your numbers on feed availability. I have calculated them, they are in my testimony. I can provide you the 

numbers that are behind those charts if you would like. I think 

your number is a little high on that. 

So no question about it, it did help the livestock industry. I 

would argue that it did not hurt the corn farmer in that case. 

Mr. KING. And I would come back to you and rebut the statement on—in Iowa, if it is 17 pounds of feed value coming back in 

afterwards, you have 56 pounds to start with, but when you put 

that feed into livestock, you have the 1⁄3 that is CO2. Does that get 

converted to anything that has value, or does it go into the atmosphere whether you turn it into ethanol or whether you feed it to 

cattle? 

Dr. MEYER. I don’t know. The CO2 goes into the atmosphere as 

far as I know, but that doesn’t help us at all. 

Mr. KING. Right, but it distorts the equation that you have delivered to me, because if you start with 56 pounds of corn, and if you 

split it 1⁄3, 1⁄3, 1⁄3, I will go to your 17 and say that is just a little 

less than 1⁄3 of the 56 pounds. If 1⁄3 of it is CO2, you lose it anyway, 

and if you have 2⁄3 that is left, 1⁄2 of 1⁄3 is a number just very close 

63

to 17. So I will say 1⁄2 that by weight, 1⁄2 that by energy, it is a 

good round number to work with, but it is not off by 1⁄3. Dr. MEYER. Well, we only end up with 17 pounds of feed. I don’t 

care what thirds you are talking about. 

Mr. KING. Well, I want this record to understand, to know that 

corn is 1⁄3, 1⁄3, 1⁄3. It is 1⁄3 starch, 1⁄3 protein, 1⁄3 CO2, and whether 

the corn is fed to livestock, turned into ethanol, the CO2 escapes 

into the atmosphere, and it is not a measurable quantity. When I 

add back in 1⁄2 the value of that feed, that discounts the CO2, whether it is used as feed or whether it is used as ethanol. 

I thank all the witnesses here, and I would yield back the balance of my time. 

The CHAIRMAN [presiding.] I would like to thank Mr. King for 

bridging the gap there and the witnesses for putting up with the 

vote called in the middle. Hopefully you will appreciate that we 

didn’t have to recess and come back, which will be better in the 

end. 

I would like to now yield to Mr. Costa. 

Mr. COSTA. Thank you very much, Mr. Chairman, for the privilege of sitting in with the Subcommittee. This is an issue that I 

think all of us feel has—that we have an opportunity to revisit the 

policy that was implemented a number of years ago. 

I am one who believes that ethanol in some fashion ought to be 

a part of our future, but I am not so sure that corn-based ethanol 

is our future after looking at the impacts that have taken place on 

a whole list of our feed-based industries which are represented 

here today; whether some forms of cellulosic fuel down in a secondor third-generation development of ethanol could well be applicable 

and be a part of our long-term energy plans. 

I, first of all, want to thank the Chairman for having a number 

of California witnesses, Dr. Erba from Visalia, but especially my 

friend and one of the leading agriculturalists in California Mr. 

Greene, who I have known for many years, and who I think has 

done a terrific job on this panel this afternoon. 

Let me begin by following up on Mr. King’s comments just a moment ago. Do any of you there disagree—he talked about 1⁄3, 1⁄3, 1⁄3—that whether the corn that is used for ethanol is actually close 

to 25 percent, and when that is factored in, do you include the 

DDGs? I mean, is there a consensus among you? 

Dr. MEYER. I will address that. The corn used for ethanol in this 

crop year is going to be about 42 percent of the total, used for feed 

and residuals is going to be about 40. Ethanol usage is larger, it 

is not quite 1⁄2, but it is 42 and 40 I believe are the percentages. 

I can get those exactly for you, Mr. Costa. 

Mr. COSTA. Please get those to the Committee. 

I don’t know if anyone else cares to comment. 

I would also like to get a sense, do you expect grain exports to 

increase in the next 5 years, and if so, by how much? I am not asking you to put your speculator’s hat on, but you know about the 

poultry industry, the beef industry, the pork industry, and the 

other demands on corn. 

Mr. GREENE. I believe that the numbers last year in 2011, the 

2011 crop year, about 5 billion bushels went to ethanol, and 5 billion went to livestock feeding, and that was as of the last USDA 

64

report. This next year the USDA has kept ethanol at about 5 billion and has now moved livestock feeding down to 4.7 billion. So 

3 million bushels has to go away from feeding livestock, and you 

have to recognize that means—and part of the reason why this 

problem is so severe—that means that amount of business has to 

go away. That amount of feeding of animals needs to go away. That 

amount of jobs needs to be lost. That amount of foreclosures need 

to happen. So you have that. 

The second thing that you have, you also have exports reducing. 

So one of the other challenges that this Committee and the Congress now has is do you start to—how aggressively do you take on 

exports? Because if you continue down this path where you are taking more and more of the corn towards fuel and another piece of 

it towards—you try to preserve what you can for feeding of livestock, then the only other option is to start freezing exports, something that I know this Administration is not keen on, but it is—

fundamentally you only have so much to work with. 

Mr. COSTA. Well, and then there is—I mean, I understand, and 

the flip side of that, of course, is to try to incentivize this industry. 

We have created three incentives. I mean, it is just not the subsidy, 

but it is the tariff on the Brazilian imports, and of course it is also 

the requirement. And it seems to me that I think incentives can 

work in a number of instances, especially in new industry. But, I 

mean, it is one of the reasons my position is part of that effort to 

look at repealing that effort in terms of the subsidy. 

Mr. Erba, the LGM-Dairy is a set program that looks at feed 

prices as a way to protect margins on new programs that are being 

discussed, and to focus on the margins instead of the price of milk 

alone. What is your sense of this? Do you think this is a way in 

which the dairy industry can protect itself? 

Dr. ERBA. I think the focus probably does need to be on margins. 

I am not so sure that there is actually a program out that can do 

that very effectively. I have heard about the discussion draft that 

was released earlier this year by Representative Peterson. There 

are some elements of that that contain that same logic of a margin 

protection, a margin focus. I believe that is probably the right way 

to go from now on, because we do have the issue of costs which are 

not as stable as they used to be and prices which are not as stable 

as they used to be. 

Mr. COSTA. Okay, I have another quick question. My time is running out. Mr. Greene, what part of this volatility do you think is 

associated in the increased prices of corn to speculation? 

Mr. GREENE. We have looked at that quite a bit, and we really 

estimate that about 30 percent of this is speculative driven. And, 

one of the things that is important for people to think about when 

they think about speculative interests and how that is impacting 

the price, that speculative money, the money that is gained as a 

speculator tries to move in front of the end-users and extract profits: I believe that many of those profits do not come back into the 

United States, that many of those profits are being kept overseas, 

and it is money that is being lost here. So not only is it damaging 

and causing inflation and inflationary pressures, it is causing volatility in a way that we have a very difficult time dealing with it. 

You see volatility in a week that we used to see in a year. 

65

Mr. COSTA. Right. 

Mr. GREENE. So if you make the wrong call, you make a wrong 

judgment there, you can really be negatively impacted. 

Then, like I said, this speculative interest in these ag commodities where these index funds are being treated as hedgers rather 

than being treated as the speculators and thereby getting around 

these speculative requirements that the CFTC has, this is very disruptive to the marketplace. 

Mr. COSTA. Well, and I appreciate that, and although my time 

has expired, I think the volatility and the speculation also takes 

place in gas prices, where we see oil prices dropping, yet we see 

the price of gas per gallon not following the same track on per-barrel prices. 

And I have a number of other questions, Mr. Chairman, I would 

like to submit to the witnesses. I will do that in writing. 

I guess, with the Chairman’s consideration, do you think there 

is any protection on that speculation on the Dodd-Frank regulations that they are going to impact and what impact it might have? 

This gentleman here does a great deal of purchasing in the markets, both for the poultry—they are diversified—and for their dairy 

feeds needs, so Mr. Greene has a lot of experience in this area. 

Mr. GREENE. Yes. I think the Dodd-Frank regulations, if they are 

followed, do provide some security for agricultural markets in speculation. We made comments of that in the AFIA’s documents that 

I have submitted, and you can follow up on those. They do help to 

enforce. 

I think an important thing to think about there is up until recently the Chicago Mercantile Exchange was not a publicly traded 

company. It was privately held. And now that it is publicly traded, 

its objective is to bring forth maximum volume of business; and by 

bringing forth maximum volume of business, there has been a new 

proposal just recently introduced to allow even larger speculative 

interests into the final month of a contract, and this is very disruptive to the market. This won’t bring about what we are supposed 

to see, which is convergence in the marketplace in that final 

month. This will actually bring about additional volatility, additional risks, and higher potential for certain people to take very 

large positions that could be very disruptive to the marketplace. 

Mr. COSTA. Thank you very much, Mr. Chairman, for your time 

and allowing me to sit in on the Subcommittee, and I want to 

thank all the witnesses. I am sorry I didn’t get a chance to ask all 

of you questions. I have a lot of them. But I will submit them for 

the record and look forward to continuing to work with all of you. 

The CHAIRMAN. Thank you, Mr. Costa. 

Before we adjourn, I would like to thank all the Members of the 

Subcommittee and especially the Ranking Member, Mr. Cardoza, 

and Mr. Costa for joining us today, all the witnesses for taking the 

time to address this very important issue, as well as all the staff 

for all your hard work in getting us ready for this hearing. 

We are going to keep doing these hearings to try to continue to 

educate our Members, and with that, under the rules of the Committee, the record of today’s hearing will remain open for 10 calendar days to receive additional material and supplementary writVerDate 0ct 09 2002 12:03 Nov 29, 2011 Jkt 041481 PO 00000 Frm 00069 Fmt 6633 Sfmt 6601 I:\DOCS\112-23\68483.TXT BRIAN
66

ten responses from the witnesses to any question posed by a Member. 

This hearing of the Subcommittee on Livestock, Dairy, and Poultry is adjourned. 

[Whereupon, at 3:14 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

67

SUBMITTED ARTICLE BY HON. DAVID SCOTT, A REPRESENTATIVE IN CONGRESS FROM

GEORGIA

THE ATLANTA JOURNAL-CONSTITUTION

Higher corn prices pluck Georgia poultry farmers 

September 7, 2011

David Markiewicz 

Two numbers stick in Georgia poultry executive Tom Hensley’s head: the price of 

feed corn in 2010 and the price today. 

‘‘Last year it was $4 a bushel,’’ he said. ‘‘Now, it’s $8 a bushel.’’ During that time, 

he said, the price of chicken ‘‘hasn’t gone up commensurately.’’ 

But don’t be surprised if it does. Producers say it’s the only way they can make 

money. 

The whopping increase in the cost of feed corn, on top of higher prices for fuel 

and lower prices for chicken, is making the poultry business a money-losing venture, 

they said. 

‘‘The current financial picture for poultry is as serious as any the industry has 

faced in recent memory,’’ said Mike Giles, President of the Georgia Poultry Federation. 

Industry representatives said they are not aware of any related layoffs, farm closings or bankruptcies in the state. 

But there are signs of distress. Sanderson Farms, one of the nation’s largest poultry producers, said it lost $56 million in its most recent 3 month period, despite 

higher sales. The company cited ‘‘. . . significantly higher costs for corn and soybean meal, our primary feed ingredients, compared with the same period a year 

ago.’’ 

Tyson Foods remained profitable even with ‘‘extremely volatile input costs and 

market prices at or near historical lows.’’ The company said its chicken segment 

likely will lose money in the fourth quarter. 

The poultry business is critical to Georgia, employing 100,000 people, directly or 

indirectly, and contributing an estimated $13 billion to the economy each year. The 

state has 3,800 poultry farms and is the largest poultry producer in the U.S. 

The only solution to the problem, poultry industry executives suggest, is to cut 

supply by putting less chicken on the market. That will cause prices to rise, restoring profitability. 

‘‘Production has got to go down. They can’t continue to operate at a loss, and right 

now their costs of production are significantly greater than what they can get for 

the product at the grocery store,’’ said Mike Lacy, head of the poultry science department at the University of Georgia. 

Hensley, President of Baldwin-based Fieldale Farms, expects that U.S. production 

of chicken, now about 160 million head processed each week, will be trimmed to less 

than 150 million. When that happens, he said, the wholesale price of chicken will 

jump from the current $1.55 per pound. Last year, the price topped $2. Overall, food 

prices have increased during the same period. 

If poultry prices don’t rise, Hensley said, ‘‘every chicken company will go broke.’’ 

Even if that does happen, it will take time to affect the retail market. One reason 

is that consumer demand for chicken drops off in cool weather months, so the lower 

supply won’t quickly prompt prices to rise. 

Brenda Reid, a spokeswoman for Publix Super Markets, said, ‘‘We anticipate that 

our cost of chicken will go up slightly. However, our retail price for customers will 

remain the same through the end of the year. We will not be able to forecast our 

pricing into 2012 until we get closer to the end of this year.’’ 

Lacy said he is reluctant to label the current problem facing the poultry industry 

a crisis, but he is concerned. 

‘‘These things do go in cycles,’’ he said. ‘‘But this one has been extremely difficult 

because of the perfect storm of the downturn in the economy, the unprecedented 

feed costs, the rising fuel prices and problems with some of the export markets (for 

poultry).’’ 

Poultry industry representatives said corn prices are up because of demand for 

use in ethanol. Drought conditions in growing regions also cuts crop production and 

boosts prices. 

Several other factors contribute to poultry producers’ pain. Higher diesel fuel 

prices boost costs producers who may use thousands of gallons a day. 

Also, demand for chicken, while still strong in general, is uncertain in some export 

markets such as China and Russia, although it has picked up in other markets including Mexico and the Middle East. 

68

Still, the cost of corn, by far the main feed stock for poultry, remains the biggest 

problem. 

‘‘There’s no good substitute for corn,’’ Hensley noted.

Georgia Poultry Facts:

• Georgia is the number one poultry producing state in the nation.

• If Georgia were a country, it would be the sixth-largest poultry producing nation in the world.

• Georgia produces approximately 1.4 billion chickens annually.

• On an average day, Georgia produces about 26 million pounds of chicken.

Source: Georgia Poultry Federation. 

SUBMITTED STATEMENT BY NATIONAL CORN GROWERS ASSOCIATION

The National Corn Growers Association (NCGA) appreciates the opportunity to 

provide testimony as part of the Subcommittee’s hearing to examine feed availability and its effect on the livestock and poultry industries. NCGA represents 

35,000 corn farmers from 48 states, as well as the interests of more than 300,000 

growers who contribute through corn checkoff programs in their states. Corn fuels 

nations around the world, as a food ingredient, a feedstock, a fuel, a fiber, an ingredient in building materials and beyond. It is possibly the most versatile crop in the 

world, and demand is at an all-time high. 

Historically corn farmers have understood that they have the ability to supply 

growing ethanol and livestock producers simultaneously without negatively impacting either as a valued customer. With advances in both seed and farming technologies, U.S. corn producers have increased average yield substantially in the past 

few decades. 

On September 12, 2011, the United States Department of Agriculture (USDA) released a report confirming that the United States is still on track to produce the 

third-largest corn crop on record, estimated to total 12.5 billion bushels of corn. Despite U.S. corn farmers facing several major weather events that negatively impacted much of the production acreage, causing national average yield estimates to 

drop to 148.1 bushels per acre, the world corn stocks projection has increased, more 

than offsetting the reduction projected for the country. 

This spring, rain and flooding delayed planting in much of the Corn Belt, while 

flooding and blown levies along the Mississippi and Missouri rivers caused growers 

to lose planted acres. In Texas and much of the South, scorching heat and drought 

devastated the crop while abnormally high temperatures in July and August impacted a large area of the Corn Belt to a lesser extent. As harvest approached, many 

farms along the Atlantic Seaboard were devastated as Hurricane Irene pounded the 

operations with strong winds and heavy rain. On top of all this, hail and high winds 

impacted thousands of acres in the Midwest during the growing season. 

Even in light of these events, it is important to keep the final production estimates in perspective, realizing that a 12.5 billion bushel harvest would still be the 

third-largest on record. Only 10 years ago, the average yield nationally was 138 

bushels per acre and production totaled only 9.5 billion bushels. The decade before 

that, the average yield reached only 107 bushels per acre nationally and production 

totaled only 7.5 billion bushels. Even as estimates are revised down to account for 

the damage done to the 2011 crop by weather, the strides made through innovative 

technology and techniques continually allow growers to excel even under difficult 

circumstances. 

World corn ending stocks are projected up 2.9 million tons from August, with increases in South America and Europe more than offsetting the reduction projected 

for the United States. Further, distillers grains from ethanol production provides a 

high-quality, high-value feed product for livestock producers, displacing almost 1.2 

billion bushels of corn in livestock rations this marketing year in the United States 

and abroad. 

Improved Economic Conditions Since RFS Expansion 

On August 5, 2011, NCGA released a study conducted by Texas A&M University 

and Doane Advisory Services to compare input price changes on representative livestock operations before and after the Energy Independence and Security Act of 2007. 

Researchers demonstrated that economic conditions have improved for beef and 

dairy farmers since the implementation of the expanded Renewable Fuel Standard 

(RFS) in 2007. 

69

The study, which utilized Texas A&M University’s Agricultural & Food Policy 

Center’s premier farm-level modeling system and data from the University of Missouri’s Food & Agricultural Policy Research Institute, determined that net cash 

farm incomes for representative beef-cow/calf and dairy operations had increased 

since provisions of the biofuels mandate went into effect. This conclusion verifies 

NCGA’s position that increased ethanol production has not negatively impacted the 

profitability of key livestock markets. 

The study was written in response to ongoing allegations that increased ethanol 

production resulting from the expanded RFS had caused financial insecurity in livestock and dairy operations by spurring an increase in feed prices. Researchers 

looked at changes in input and output prices in January 2007 and January 2011 

for beef-cow/calf and dairy operations in 12 states, with consideration given to overall market changes. The final analysis concluded that while higher feed costs do 

exist, the profitability of all operations examined had increased over the 4 year period as a result of increased output prices. 

While it is easy to reiterate artificial arguments against the use of ethanol, NCGA 

believes this study clearly illustrates the fallacies on which they are often based. 

In reality, we do not have to choose between using corn for food or fuel.

Æ