Many of you are aware that the steel industry is in turmoil worldwide. Prices have doubled and tripled in the past 2 years. We at MFA Incorporated handle a lot of products made from steel. In fact, every year we sell enough barbed wire to build a five-strand, barbed-wire fence from Columbia, Mo., to Nome, Alaska (3,342 miles). For our part, this whole steel industry crisis ignited in agriculture in October of last year when we received notice of an increase in t-post prices (6 to 7 cents a post). By Dec. 21, most suppliers served their customers notice that steel prices were escalating out of control. A number of wire and post manufacturers refused to honor their pricing on our orders. By mid-April, fencing prices were up $4,000 a truckload over December's price. Prices leveled off in late spring but took off again in July and early August.

A quick look at market prices for steel in 2002, 2003 and 2004 reveals incredible price hikes. For instance, in January 2002, shredded metal scrap price was just over $80 per gross ton. By January 2003, the price was around $105. During the same month in 2004, the price stood at $180. In mid-March 2002, shredded scrap cost $95; in 2003, $140; in 2004, the same product cost $270. In early August of this year, the price stood near the $300 mark.

MFA sells approximately $20 million worth of steel products a year including fencing, posts and livestock handling equipment. In fact, in fiscal year 2003, we sold 136 truckloads of barbed wire and fencing. Add to that 1,825,000 posts (350 truckloads). When I say truckloads, I mean tractor trailers. Just recently, already record prices increased another $78 a ton. For a 22-ton truckload, that added another $1,700 to the price. Remember that's on top of an already record price. Keep in mind that if you're looking at manufactured products in which labor and manufacturing are large parts of the unit cost (cars and trucks), they will be less affected by steel price than are items that are mostly dependent on input cost-like t-posts and wire.

What's going on? Industry economists assure us that as in most other sectors of our business, it's the effect of a world-wide economy. Most analysts point a finger at demand by China. In just the first 2 weeks of June, Chinese buyers gobbled up more than 200,000 tons of scrap steel from the United States. They're not through by any measurement. The Chinese economy continues to fuel demand for resources.

Industry observers have noticed continuing Chinese efforts to book scrap steel, not just in the United States, but worldwide. In a little over 3 years, the Chinese have challenged Japan as the world's largest importer of iron ore. That in itself is enough to drive prices steadily upward, but added to the demand are increasing orders from steel industries in Turkey, South Korea, Thailand and India.

According to an industry report, U.S. shipments to foreign steel operations exceeded 1,000,000 tons in just one month this spring. By itself, China accounts for a huge section of the world's steel demand. That demand, in turn, shows up in finished products. China's booming economy is demanding everything from refrigerators to cars. In fact, its economy is growing more than 8 percent a year. Just as China is challenging Japan in iron ore imports, China is now vying with Japan to be the world's largest steel producer.

The demand for steel brings a tremendous price increase in the scrap steel market as well as the raw steel market. Adding to the problem are bankrupt U.S. steel mills and many of the existing mills running at less than full capacity. Thirty-five years ago our biggest steel supplier for wire and posts was U.S. Steel. They haven't supplied the ag market for decades. Missouri Rolling Mills out of St. Louis was another huge supplier. They're closed, too, as are Armco, Northwestern, Penn-Dixie and Continental. In addition, the market is negatively affected by the weak U.S. dollar as well as shortages of ocean vessels and rail cars (which drive us crazy during fertilizer and grain movement).

Steel manufacturers and scrap dealers may be making a lot of money during this fiasco, but I can assure you we're not. Like any viable, well-managed business, we price on replacement costs, but there's no windfall for MFA in this mess. We turn our inventory too often. Despite our huge volumes in fencing and livestock handling equipment, agriculture is a small player in the steel market. We cannot demand price.

The situation is such that most industries from manufacturing to construction, who depend on stable prices in the bidding process, are refusing to contract steel, opting instead to designate current market price. It's almost like ordering seafood in a restaurant. Prior to this market upturn, industry issued price quotes good for 30 days or more. Because of today's price volatility, however, we're seeing prices rise literally overnight, often several times in a 24-hour period.

No one looks for this to be a short-term problem. Industry experts project high worldwide demand to continue through 2005 and maybe beyond. As a result, if you've got rusting equipment in the fencerow, now's a good time to check out scrap prices. You might clean up an old fencerow and make some good money in the process. We'll keep you informed. Talk to your nearby MFA Agri Services manager.