Viewpoint
By Don Copenhaver, President

Corn demand shows ethanol’s effects on the grain and livestock industries

Rising demand for ethanol production is causing tension between grain farmers and livestock producers. We all need to take a long, serious look at the situation. MFA has and will continue to serve both markets. We have significant infrastructure involved in both grain and livestock. It is in the interest of all of us to find ways to make this current demand work for both sectors of Midwestern agriculture.

The situation, in a nutshell, is that ethanol is fueling demand for corn. With that demand comes rising corn prices. No row-crop producer in his right mind would object to rising corn prices, right? Conversely, rising corn prices concern all portions of animal agriculture from beef to poultry, swine to dairy. In tandem with corn price, feed costs nationally have jumped 24 percent from August to December of 2006, according to the Federal Reserve. Behind all of these concerns is the very real hand of government.

In January, U.S. Secretary of Agriculture Mike Johanns announced that as part of the new farm bill, the Bush Administration wants $1.6 billion for renewable energy research and production, with a specific focus on cellulosic ethanol. President Bush reaffirmed that in his State of Union address, which included references to loan guarantees for the industry. In fact, President Bush proposed a renewable fuels mandate of 35 billion gallons by 2017.
 
According to USDA, ethanol accounted for 20 percent of the 2006 corn harvest. The United States now has 110 ethanol plants. Another 80 or so are either under construction or expansion. To fill that demand, analysts are forecasting the largest U.S. corn planting since World War II. MFA’s own seed bookings confirm a significant increase. Corn will dominate this crop year with an expected expansion of 10 percent.

Add to this the effect on soybean production. Corn is robbing soybean acres, so bean prices are rising to discourage all acres going to corn. Speculators are playing a major role in driving up price. The same thing happened in the oil crisis when speculators drove up the price of oil to artificially high levels.

In mid-January, the heads of six animal agriculture groups sent a letter to Ag Secretary Johanns outlining their concerns on the effects of an aggressive ethanol buildup. The group represented poultry, pork, dairy and beef producers. These men are not anti-ethanol. These men are pragmatic businessmen trying to find ways to profitably integrate U.S. animal agriculture with today’s government-financed shift toward ethanol and alternative energy technologies. From the group’s perspective, ethanol production will have good and bad economic impacts on the U.S. livestock industry.

“Not only do these challenges go to the heart of these producers’ ability to compete,” they wrote, “but many producers also fear they cannot sustain their operations along side a robust and growing ethanol economy. Producers are currently facing serious pressure from increased demand for finite supplies of corn, its impacts on prices, and even the risk that they may be unable to obtain feed at any price during certain portions of the feed marketing year. This could lead to a reduction in size, of at least some of our herds, and further consolidation within the industry.”

We would all do well to take these men’s concerns seriously. Each 10-cent rise in corn price calculates into a $0.50 a hundred rise in pork production costs. And we’ve seen a $2 rise in corn. Again, according to the Federal Reserve’s analysis, hog and poultry producers are bearing the brunt of the steep rise in feed costs. But beef and dairy are impacted as well. In fact, the rising cost of corn showed up as a $20 decrease per hundredweight in five-weight cattle. That’s $110 per head. Factor in Missouri’s two million cows and multiply by calf crop, and you’ll see the enormous impact. Consider, too, that 2006 was the worst year in memory for dairy producers.

The bottom line is that livestock producers are in trouble. High-input costs joined with dropping feeder-cattle prices, cheap milk prices, low pond levels and an ice storm that cut electricity to the southwest part of Missouri for weeks. In January, corn was $4.40 delivered in southwest Missouri. Hay was in short supply. Western feedlots were beginning to back off on the purchase price of feeder cattle.

The traditional rejoinder here is to say the ethanol industry can supply the market with tons of inexpensive dried distillers grains. At first look, that’s a good observation. Here at MFA, we’re finding ways to put these DDGs to good use. To help our producers make use of DDGs, MFA has designed a supplement designed specifically to help turn these byproducts into a more complete ration. We’ve also developed cattle feed tubs with DDGs as a primary protein source. There will be continuing research in universities and in private industry as to how to most effectively use byproducts.

The most important thing to realize, though, is that current research does not cast a favorable light on distillers grains in terms of feed conversion and carcass quality, compared to traditional complete feeds. Still, price is driving more and more producers to DDGs.

In view of these forces, the feed industry (as well as all of agriculture) is in the midst of dramatic change whether anyone likes it or not. None of us has all the answers, but all of us should be open to frank discussion and analysis.

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