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

Agriculture.com Staff 03/10/2006 @ 9:45am

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."

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