As global food prices surge to their highest levels in years, an economist in Penn State's College of Agricultural Sciences said climbing worldwide competition for feed grains could make 2011 an important growing season for Pennsylvania's animal-agriculture industries.

James Dunn, professor of agricultural economics, pointed out that American agriculture is the world's leading exporter of feed and food grains. Consumer food prices are closely tied to such large-acreage commodities as corn, wheat and soybeans, and prices for those are currently high. He said dairy and meat producers may struggle to buy animal feed in a tight grain market, so they'd be hit hard by a bad growing year.

"Typically in Pennsylvania, many farmers — such as dairy producers, for instance — grow a lot of their own feed," he said. "And their ability to produce that feed will be exceptionally important this year because if they have an unsuccessful corn silage crop or have difficulty getting their hay in, farmers will have to go out on the open marketplace to replace feed that they've already spent money to produce. 

High-priced replacements

"Farmers who don't get the feed they need from their own fields are going to have to buy some high-priced replacements. The price of milk, while reasonably good, may not be high enough to offset the added expense. If you're a farmer, this is definitely a time when you ought to think about crop insurance. You've got a very valuable crop out there, and if you spend the money to grow it and then don't get it, then your underlying profitability gets hit very hard."

Dunn cites several reasons for the price increases, starting with a long-term rise in the global demand for food and feed grains, which led to a global food-supply shortfall in 2007-08. As national economies shake off the effects of the recent recession, he predicts the same climbing demand again.

"Part of the current shortfall has to do with bad weather in northern Europe, which really hit the feed grain markets in Russia and Poland," he said. "Crops struggled because of the hot weather they had there last year. The United States usually can export feed grains to any places that are short, but our crop was also a little smaller than expected last year."

Dunn said grain prices also are influenced by the demands of biofuel. Ethanol production, which used approximately 10 percent of the nation's total corn crop a decade ago, now consumes almost 40 percent, and the other users of corn have no good alternatives.

"The nation had a record soybean crop in 2010, but the increased demand still will surpass production, and the high market price of corn means that some soybean acreage probably will be switched to corn this year," he said. "About 95 percent of feed grains in the U.S. are corn, so if we're short of corn, farmers have no place to go.

"Even though we had a near-record corn crop last year, we're going to use more than we grew, so the corn available going into this current growing season is the lowest it's been since 1937 as a percentage of the total crop. So, if you're a producer you have a lot of pleasant choices, but if you're going to feed animals with this corn, you have fewer, mostly unpleasant choices."

You can find more information on crop insurance at the Penn State Crop Insurance Education website at http://www.cropins.aers.psu.edu/Default.htm.