Cattle and ethanol face unique challenges when it comes to corn
March 26, 2012
There is no doubt that Nebraska is a beef producing state. It is also a corn producing state. It doesn’t really matter what part of Nebraska you are in, you will probably see cattle and corn. However, all that field corn does not go to feed the cattle. In fact, more corn goes to ethanol than livestock in Nebraska.
The state has 1.88 million beef cattle, and feeds over 5.1 million cattle a year. It also produced an estimated 1.47 billion bushels of corn in 2011.
Many cattle feeders use corn in their rations, as grain fed corn produces more marbling and cattle can reach slaughter weight at a faster rate.
However, there is another industry that also uses field corn, and that is the ethanol industry. It is estimated that the plants in Nebraska used 700 million bushels of corn last year, producing 6 million tons of distiller’s grains, which can be fed to cattle.
According to the Nebraska Corn Board, 35 percent of the corn raised during the 2010-2011 marketing year (From September 1, 2010 through August 31, 2011) was used for ethanol production.
The next largest sector of the corn industry is exports, with 25 percent of the total crop exported out of the state. Livestock feed represents 16 percent of the corn used, and of that, 73 percent is used for cattle feed.
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Both industries rely on corn, and the corn will go to the highest bidder. However, these are not the only two industries competing for this resource. Worldwide demand for corn has increased, and countries such as China are buying a lot of American corn. Because the demand is so high, corn prices are now more than $.50 higher than last year.
As of midday on March 22, corn was trading at $6.43 per bushel. This is a decrease from the previous week, when corn opened at $6.69 per bushel. Last year at this time, corn was traded for roughly $6.00 per bushel.
“When the new USDA planting intentions come out, I believe the price of corn will lower. The pricing right now is based on speculation. The inventory that is there doesn’t justify the high prices we are seeing,” said Todd Sneller, administrator for the Nebraska Ethanol Board.
High prices are good for corn farmers. “They like the fact that they are seeing economic return for their productivity, because they haven’t had that for many years. This has been a very good time for the ag community. People who sell products and supplies to that industry are selling more supplies. They are doing well because ag is healthy,” he said.
This high price, as well as the shortage of hay, has driven up the cost of livestock feed, making it harder for cattle feeders to break even. Many cattle feeders are switching to distiller grains or other feedstuffs in their rations to try to bring down the price of rations.
“We are trying to do as much price protection with options and futures as we can, and see if that will create buying some opportunities. We have a lot of contracts that are made at harvest, and we store that corn here. We are trying to use hay contracts as well; whatever we can to lower prices,” said Tim Peetz, manager at Dinklage Feedyards in Sidney, Neb.
He continued, “We’ve done a little bit of feed substitution with our grower ration using millet or straw, but even this year, those products were higher priced than what they usually are. A lot of the hay was moved out of the state, and we didn’t have the ability to buy cheaper hay.”
Peetz worries about the corn market, and what it will mean for prices. “The prices could be a slight problem, but if they continue to get rain in the south, and we get a good corn crop, we will be sitting OK with feeding roughage and should be competitive,” he said.
He added, “However, we don’t know what the corn crop is going to be. If we get drought conditions, that could drastically affect us. Also, the world demand for grain plays a huge role in the price. If they have a disaster in another part of the world with their crops, that also affects us because they will want to buy more of our corn.”
The other issue that livestock feeders face is high feeder calf prices. An overall shortage of cows leading to shortage of calves, high hay prices and a booming export market have driven up the price for feeder cattle, as feeders all over the country are competing for the same limited number of calves.
Feeders are now turning to alternative feedstuffs, such as dried distillers grains. Ethanol plants in Nebraska are plentiful, and this is one advantage feeders in Nebraska have over feeders in other states. “There tends to be an enormous value in ddgs with cattle and dairy feeders,” said Sneller.
Even though cattle feeders face these issues, ethanol producers also have issues they are facing. Regulators in California want to mandate the use of corn-based ethanol in their gasoline. A rule there would assign high carbon scores to fuel that is produced outside of California.
“The key thing it does is create an inefficiency in a national market that has existed for 25 years. The first ethanol plant 26 years ago shipped all their ethanol to California. To design a standard that basically discriminates corn based ethanol for whatever sets of reasons creates a commerce issue, and higher fuel costs for those in California,” said Sneller.
Nebraska is the second largest producer of ethanol, so seven states, including Iowa, Kansas, Michigan, Missouri, North Dakota, South Dakota and Nebraska are opposing the rule citing the supremacy and commerce clauses in the constitution of the United States.
According to the U.S. Senate’s explanation of the clause, “The ‘commerce clause’ is one of the most far-reaching grants of power to Congress. Interstate commerce covers all movement of people and things across state lines, and every form of communication and transportation. The commerce clause has permitted a wide variety of federal laws, from the regulation of business to outlawing of racial segregation.”
The supremacy clause states that federal laws will take precedence over state laws, and binds judges to follow this clause in court.
California regulators believe that Midwestern ethanol has a higher carbon footprint than ethanol produced in California and Brazil.
These regulators believe that corn used to produce ethanol is no longer being exported, forcing other countries to deforest their lands in order to make room for agriculture. Opponents of this theory, called the indirect land usage threat, feel that it does not take into account the increased yields from crop production.
California is the largest consumers of gasoline, followed by Texas and Florida. Many ethanol producers worry that if this rule is passed in California, other states will follow suite, removing a large portion of the ethanol market.
Up until this year, the federal government had several mandates related to ethanol. First, the government mandated that so much ethanol is used nation-wide in a year. Secondly, the mandate put a tariff on imported ethanol. The final part of the mandate gives refiners a $.45 per gallon subsidy to those who blend the ethanol with their gasoline. By the year 2015, 15 billion gallons per year will be required to be used.
Across the country, ethanol production is currently at 13 billion gallons, produced at more than 200 facilities.
One issue that both industries face is high transportation costs. High fuel prices, which as of midday March 23 was $3.88 per gallon of gasoline. Diesel fuel, the primary fuel used for farming and over-the-road trucking, averaged $4.15.
The increase in fuel prices and food prices has consumers tightening their budgets and pinching their pennies, trying to make things work. No matter what happens, there is one primary component of the puzzle: corn.