Ethanol Demand Can Raise Both Corn and Livestock Prices

As corn prices rise due to increasing ethanol plant demands, feeding livestock becomes more expensive - unless you have access to ethanol byproducts.

Published on: Oct 20, 2006

In a web seminar Wednesday, John Lawrence of Iowa State University and Steve Meyer of Paragon Economics said as ethanol production's demands drive up corn prices, livestock prices will follow due to higher cost of corn for feed.

Lawrence and Meyer forecast a corn price range varying anywhere from $2 to $5 a bushel in the future.

The key to offsetting this cost, however, may be built into the ethanol production system. Byproducts from ethanol production, called distillers grain and solubles, can be fed to cattle and is often available for cheap.

These byproducts make for high-protein feed available for farmers who live close to ethanol plants, and with plenty of the feed available, prices are very cheap. Lawrence says this may result in a movement of feedlots to areas near ethanol plants.

With corn prices climbing, however, Lawrence questions whether or not all proposed ethanol plants will find it profitable enough to operate. Some of this would depend upon plant operating costs and efficiency, in addition to gas and corn prices.

"Two dollars per gallon of gas at the pump translates into about $60 per barrel of crude oil," says Lawrence. "At that price, ethanol plants can afford to pay about $3 per bushel for corn."