Rising Feed Costs Sock Poultry Giants

Ethanol, Floods and the Global Food Crisis Add Up to Sticker Shock on Corn and Soybeans

HARRISONBURG, Va. -- Soaring corn and soybean feed costs are squeezing some of the big poultry companies that employ thousands of farmers and workers in Virginia and on the Delmarva Peninsula.

Harvest shortfalls, global demand, the recent Midwest floods and the government's mandate for ethanol production have more than doubled the price of corn and soybeans over the past two years.

This has created a boon for the farmers of those crops but is hitting the bottom lines of the livestock, poultry and fish industries, which depend on the feed to fatten their animals. Some poultry operations in Virginia and Delmarva and in other parts of the United States have cut production, a move that could push food prices higher. The cuts are also hurting contract farmers who depend on these companies for their livelihoods.

"This is probably the worst I've seen it ever," said Gary Lohr, who at 64 has been growing chickens on Valley Pike Farm in Rockingham County for nearly 50 years. "Everything across the board has gone up."

The pinch has led the meat industry to urge Congress to help lessen the demand for the crops by easing a renewable fuel standard passed by congressional Democrats and signed by President Bush late last year. The legislation mandates that 15 billion gallons of corn-based ethanol, or about 10 percent of motor fuel, be used by 2015.

Texas Gov. Rick Perry, a Republican, has filed a petition with the Environmental Protection Agency to cut the requirement in half, and Virginia poultry growers and others have lined up in support of him. On the other side are the renewable fuels lobby and corn farmers, who say that gasoline prices are the biggest factor in increasing food costs and that easing the mandate would exacerbate those costs for all Americans. A decision on the governor's petition is expected by the agency in August.

The outcome weighs heavily here. Towering above the rail tracks that traverse Harrisonburg -- a country town in the Shenandoah Valley that is also home to James Madison University -- are the feed mills for some of the biggest poultry companies in the country: Pilgrim's Pride, Cargill and Tyson Foods. The Virginia Poultry Growers Cooperative, a worker-owned turkey producer, was founded in nearby Hinton in 2004.

Every day cargo trains bring tons of the Midwest soybeans and corn that provide a fresh diet for the valley's hungry beaks. At the Pilgrim's Pride mill, an industrial compound that is dusty with the powdery feed it produces, truck after truck lines up to carry the meal to the 240 chicken farms that grow the company's birds.

Pilgrim's posted a $111.5 million loss in the first quarter of the year, attributing the decline largely to higher feed costs and an inability to push up prices because of an oversupply of chickens. The company's stock has lost 67 percent of its value since August. In April, Pilgrim's said it would reduce production by 5 percent to decrease the bird supply and pass on costs to consumers.

As of June, meats such as beef and pork had risen 1 percent compared with the same month last year. The price for poultry rose 2.8 percent in the same span.

When it can, Pilgrim's is also shortening contracts with grocers, restaurants and others, from a year to 90 days, so that it can respond faster to rising prices in the months to come, said Ray Atkinson, a spokesman.

Other companies have taken similar measures.