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Ethanol could shift U.S. animal production, analyst says

The growth of ethanol production would seem to have positive
benefits for cattle feeders, and perhaps the dairy industry, said a
Purdue
University Extension marketing specialist.

"However, for hogs and poultry, the question is whether the increased
price
of corn will be offset by added value in the feed product that is
returned," said Chris Hurt. "If not, this could mean some restructuring
of
the location of the U.S. and world animal industries. This appears to be particularly true for the eastern Corn Belt and the
southeastern United States where hog, poultry and dairy are more
dominant."

Hurt's comments came as he reviewed what he termed the "ethanol
revolution." He said that 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.

"While the western Corn Belt continues to build the most new facilities,

the Renewable Fuels Association currently lists nine new facilities east
of
the Mississippi River under construction or expansion," said Hurt.
"These
include one in Wisconsin, two in Illinois, three in Indiana, and three
in
Michigan.

"In addition, these states plus Ohio have a number of additional plants
that have been announced, but are not yet under construction."

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 noted. "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 percent corn acreage and 40 percent 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 added 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 percent fed in the United States and 17 percent 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 explained. "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 said. "Currently, only about 8 percent 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 percent of the market hogs, 47
percent of the dairy cows, 53 percent of the turkeys, 59 percent of the
layers, and 80 percent 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.

"In Indiana, for example, in-state usage of DDG production may be about
40
percent by 2008, but the rest will have to be moved to other regions or
exported," said Hurt. "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."

While there remain many uncertainties, it is clear that the impact of
corn
ethanol is a 'big event' that could influence animal industries, perhaps

for years to come, Hurt said.

The growth of ethanol production would seem to have positive benefits for cattle feeders, and perhaps the dairy industry, said a Purdue University Extension marketing specialist.

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