$4 corn and smaller pork chops
Experts at a National Pork Board session on how the ethanol boom affects hog-producers served up a message of leaner times ahead Monday.
Hog farmers will have to compete with a tax-subsidized ethanol industry that can pay up to $4 a bushel for corn at today's petroleum prices, they learned at a meeting in Des Moines, Iowa, that was also sponsored by the National Corn Growers Association, the Renewable Fuels Association, Monsanto and Iowa corn, pork and agribusiness groups. Those producers will be using more distillers grains from that ethanol industry and will have to know their suppliers well to be assured of getting quality feed. And they're likely to feed pigs to lower finishing weights to offset higher feed costs.
Sometime in the next decade, the ethanol industry is likely to make about 13 billion gallons of ethanol and use nearly five billion bushels of corn, said William Holbrook of the ProExporter Network.
"In our long-term outlook, it's as big as the feed industry in the United States," Holbrook said at the meeting, called Distillers Grains: Implications for the U.S. Pork Industry.
Holbrook's analysis isn't exactly a doomsday prediction, either. He expects the U.S. to produce about 14 to 15 billion bushels of corn by the 2015-2016 marketing year, thanks to a combination of bigger corn acreage and yields that are rapidly increasing. An average U.S. yield of 186 bushels an acre will be possible by then, he said.
That means that the Corn Belt will still have surplus to ship to corn-deficit feeding regions like Texas and the Southeast, although it will be a smaller amount. And more affluent corn importing nations are likely to continue paying world prices for corn. "We believe there's a floor in those markets," he said of U.S. corn exports. It might be 1.4 to 2 billion bushels.
The scenario in his group's computer model shows corn prices going up to about $3.50 per bushel.
"We don't believe that $3.50 a bushel corn is going to slow down the ethanol train very much," Holbrook added. The computer model shows it takes a corn price of about $4.25 per bushel to drive ethanol plant profits down to zero and slow the growth of the industry.
Economist Steve Meyer of Paragon Economics, a consulting service that works with pork producers, agreed with Holbrook that the ethanol industry could survive $4 corn at today's fuel costs, which means that livestock producers will face the tough job of responding to high prices.
Part of the reason for ethanol's ability to survive high corn prices is the 51 cent-per-gallon tax credit that fuel blenders get for using ethanol, as well as the federally mandated renewable fuel standard that requires the U.S. to consume 7.5 billion gallons of ethanol and biodiesel by 2012.
"This is a politically popular idea with, in my opinion, some unintended consequences," Meyer said.
One, is that cattle and dairy producers will have an advantage over pork and poultry producers. Ruminants can use a higher percentage of the ethanol co-product, distillers grains.