Aug. 13 (Bloomberg) -- President Barack Obama, campaigning in Iowa today, announced $170 million in government meat purchases to help farmers struck by drought, helping to send hog prices to a one-week high.
The purchase of as much as $100 million of pork, $50 million of chicken, and $10 million each of lamb and catfish come on top of $30 million in assistance announced last week. Farmers and ranchers are struggling with the worst combination of heat and dryness since the 1950s, the administration said.
Obama said he also directed the Defense Department to speed up purchases and hold the meat for later use. The buying will help farmers, and the government will get a better price on products than if they were bought later, he said.
“We’ll freeze it for later -- but we’ve got a lot of freezers,” Obama told supporters in Council Bluffs as he kicked off a three-day visit to Iowa, a swing state that is also the country’s leading producer of pork, soybeans, corn and ethanol. “That will help ranchers, you know, who are going through tough times right now.”
More than half the counties in the U.S. have been declared natural disaster areas by the Department of Agriculture, and 69 percent of the Midwest last week had moderate to exceptional drought, government data show. The price of corn, the main ingredient in livestock feed, has surged 57 percent since mid-June, reaching an all-time high of $8.49 a bushel on Aug. 10 on the Chicago Board of Trade.
Cattle prices are falling as producers slaughter more animals to avoid the higher feed costs, Cody Jensen, 32, who has a 120 head cow-calf operation in Plainfield, Iowa, said in a telephone interview. Jensen said he’s slaughtering a few more cattle than normal to avoid the rising feed costs.
As producers are “putting more and more live animals to kill, that is putting more meat on the table, which is driving the price down,” Jensen said in a telephone interview.
Livestock producers may be at greater economic risk from the drought than growers of grains and oilseeds because they receive less federal support, said Bill Lapp, a former chief economist for ConAgra Foods Inc. For cattle, the drought may further thin a national herd that at the start of the year was the smallest since 1952, as meatpackers including Tyson Foods Inc. and Cargill Inc. boost short-term slaughter, he said.
Later, as he visited a farm in Missouri Valley, Iowa, Obama called for Congress to pass a five-year agriculture policy bill that the White House said would “provide short-term relief and long-term certainty” to farmers and ranchers.
“The best way to help these states is for Congress to act,” Obama said.
A livestock-assistance program in the current farm bill expired last year. The U.S. Senate and the House Agriculture Committee have approved bills to replace the current law which contain livestock relief provisions. House Republican leaders have not set a vote on their legislation. The House on Aug. 2 approved a $383 million stopgap measure to reinstate the livestock aid, while the Senate took no action. The current farm bill was passed in 2008 and expires in September.
The pork purchase will be a “small shot in the arm to help us through a real trying situation here,” said Bill Tentinger, 63, who markets about 10,000 hogs a year from his farm near Le Mars in northwest Iowa.
“With a purchase like that, I can’t help but think it’s going to help us through somewhat,” said Tentinger, who said he’s been considering liquidating his herd because of high feed costs.
In a statement, R.C. Hunt, the president of the National Pork Producers Council, echoed Tentinger’s remarks, adding that the group “will continue to work with the USDA to help pork producers through this current crisis.”
Dennis Smith, a senior account executive at Archer Financial Services in Chicago, disagreed, calling the planned purchases “way too little, too late.”
“The damage has already been done in terms of feeding margins and the losses these guys are going to incur,” he said in a telephone interview. “We still expect large-scale sow liquidation this fall. It’s already started. It’s not going to stop because of this program.”
Hog futures rose today following the government announcement, Smith said. The October contract climbed as much as 2.7 percent to 77.6 cents a pound on the Chicago Mercantile Exchange, the highest price in a week. Cattle gained as much as 0.9 percent.
“We are very limited in what we can do” because of the congressional impasse, Agriculture Secretary Tom Vilsack said in an interview last week. “The key issue for livestock is access to hay and grazing opportunities,” he said, adding that the USDA is focusing its response on opening conservation lands to grazing and helping move water to parched herds.
The Corn Belt just went through the third-driest June-July period on record, according to the government.
In the short term, what’s bad for ranchers may be good for consumers. The increased sales of animals to slaughterhouses will boost beef supplies and slow price increases at the supermarket, Lapp said. The USDA last month lowered its forecast for beef-price inflation for 2012 half a percentage point to 3.5 percent to 4.5 percent. For 2013, the expectation is a gain of as much as 5 percent.
“Near term, there is an adequate supply of meat from all species,” Michael Martin, a spokesman for Minneapolis-based Cargill, said last week in an e-mail. “As we move into 2013, the supply of beef, in particular, could be constrained by the U.S. herd being the smallest in 60 years.”
In a statement today, the Defense Department said it would review its meat purchases to see if they can be accelerated. The agency buys about 94 million pounds of beef, 64 million pounds of pork and 500,000 pounds of lamb annually.
Bulk government meat purchases are not without precedent. In 2011, the U.S. Department of Agriculture announced plans to buy as much as $40 million of chicken products for federal nutrition programs to help “bring supply in line with demand,” Vilsack said at the time. In 2009, the government said it would spend about $105 million in supplemental pork purchases, according to the Pork Producers Council, partly to help hog producers suffering from a slump in prices caused by outbreaks of the H1N1 virus, known as swine flu.
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