Ethanol Revolution Changes Nature of Corn Industry

In the animal industries of the eastern Corn Belt and the southeastern United States, the ethanol revolution has raised concerns. Compiled by staff

 

Published on: Feb 28, 2006

The growth of ethanol production at first site seems to boost farmers' bottom lines. However, for hog and poultry producers the question is whether the increased price of corn will be offset by added value in the feed product that is returned. If not, a restructuring of U.S. and world animal industries' locations.

Chris Hurt, Purdue University Extension marketing specialist, calls it the "ethanol revolution." While the future has many uncertainties, it is clear that a sufficient number of ethanol plants are currently being built already to call this a revolution that will change the nature of corn demand and corn price relationships.

In the animal industries of the eastern Corn Belt and the southeastern United States, the ethanol revolution has raised concerns. In particular, how much will corn prices rise as a result of these large new corn demands, and can animal industries get enough value back from the feed product to offset the potentially higher corn prices?

"Those answers are not easy to derive at this point, but some light can be shed on some of the factors that will be important," he notes. "First, the new corn demand will compete with current uses for corn, and/or corn supply must increase substantially through greater production, which probably means many more acres of corn and fewer soybean acres.

"The new demand could be met from the supply side. As an example, a shift to 60% corn acreage and 40% soybean acreage in Indiana could meet the current feeding demands, current corn processing demands, and the new growth in demand for ethanol expected by 2008. However, this also has major implications for the soybean sector."

Hurt adds that there are interesting dynamics on the corn demand side as well. For the 2005/06 marketing year, U.S. corn consumption is expected to be 55% fed in the United States and 17% exported. The largest portion of exports is destined for feeding animals as well. The new corn demand for ethanol may compete heavily with animal feeding in the United States and in foreign countries.

"The highest value use of the distillers dried grains (DDG's from dry mills) is in cattle feeding and dairy rations where it primarily substitutes for soybean meal," Hurt explains. "The value in hog and poultry ration is much lower where it substitutes more for corn.

"As an example with current corn and soybean meal prices, DDG's are worth about $170 per short ton in beef and dairy rations but only $84 per short ton in poultry and hog rations. The production of DDG's will be so large that supplies will most likely force DDG prices down to their lowest value, which means they will be similar to, or just above, the value of corn."

Cattle feeders in particular may be able to purchase a low-priced product that has considerably more value in the ration that the costs.

"But the dilemma for the eastern Corn Belt is the low number of cattle on feed," he says. "Currently, only about 8% of the U.S. cattle on-feed are in a region that is roughly east of the Mississippi River--including Arkansas and Louisiana. In contrast, 38% of the market hogs, 47% of the dairy cows, 53% of the turkeys, 59% of the layers, and 80% of the U.S. broilers are in this region."

In contrast to the western Corn Belt, which has been able to move much of its DDG's into cattle on-feed, the eastern Corn Belt will have to move that product into hog, poultry, and dairy rations and/or export large amounts.

"Problems with DDG's in rations of hogs, poultry, and dairy include high phosphorus levels, the impact on fat deposition in milk and meat, as well as concerns about concentrations of mycotoxins. Much more research is needed to answer these and other concerns," Hurt warns.