You think corn is expensive?
You may think corn is high-priced at your rural Midwest markets. But try buying it in Phoenix, Arizona, or south Florida. Livestock feeders in those areas -- 1,500 miles from the heart of the Corn Belt -- don't just dream of $5 corn, they live with it already.
Relief coming for "hot" rations
Norman Hinz is general manager of Pinal Feeding Co., a 180,000 one-time capacity cattle feed yard south of Phoenix, Arizona. This yard feeds a lot of Holsteins, he says, and the rations are "hot" -- 78% corn. The corn is delivered to south Arizona by rail, 100 cars at a time, from the western Corn Belt (Nebraska and Iowa). "We feed three of those shuttle trainloads a month, or about 30,000 tons [just over a million bushels]," Hinz says.
The price Pinal Feeding Company pays is fixed at $1.10 a bushel above the basis price at the Chicago Board of Trade. They were smart enough to lock in the 4th quarter 2006 price at $2.40 on the Board, meaning the current price at the feedyard is $3.50 a bushel. However, seeing a big crop coming, they didn't lock that price in for 2007. Consequently, corn prices in the first quarter of the new year will go up by about $32 a ton -- nearly another $1 a bushel.
"It's almost enough to make you want to look for an exit strategy from this business,â€ says Hinz, only half in jest. "These are interesting -- and disturbing -- times."
Relief may be on the way for Pinal Feeding. A new ethanol plant is under construction right next to the feedyard. It will also utilize Midwest corn, and if all goes as planned, will be producing a steady stream of wet distillers' grains (DG) for the cattle by summer. Hinz says they've crunched the numbers, and plan to use the DG for 26% of the cattle rations.
When corn goes up, everything follows
Red Larson founded Larson Dairy in the Miami, Florida, area just after World War II. As the area grew, he and his family moved the cows away from the suburbs and into south central Florida. They now milk about 6,000 cows at a location 100 miles south of Orlando. Their rations are corn-based with grains railed in from the Midwest. "We won't feed southern corn," says Larson. "Not after a serious aflatoxin problem we got into a few years ago."
Larson Dairy did lock in protection on corn prices earlier, and is currently paying $156 a ton [$4.35 a bushel] for corn delivered to a feed mill it jointly owns with another large dairy. They can replace some of that corn with alternative ingredients such as citrus pulp, a local byproduct, and distillers' grains, shipped in from the Midwest. "But when corn goes up, they go up, too," says Larson. "And the price of milk has been just about flat. It makes us very cautious about things here."
Larson Dairy also feeds its cows about 100,000 tons of corn silage annually, produced not far away around Lake Okeechobee. Silage corn is grown there in rotation with sugar cane.
Brenda Godwin is the general manager of Dairy Feeds Inc., the feed mill jointly owned by Larson and the other dairy. She says their corn comes from Iowa, Illinois, and Indiana, and it comprises about 30% of the dairy rations they make.