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Livestock groups hardest hit by energy demands on agriculture

Agriculture.com Staff 05/26/2006 @ 9:00am

Agriculture is being asked to contribute to the energy industry in a much larger way in coming years.

Agriculture's traditional role as the foundation of the food industry will experience increasing competition for corn use as fuel, Chris Hurt, extension economist at Purdue University, wrote in his weekly outlook letter.

One of the largest groups this will impact are the animal industries which are the biggest users, Hurt said. "Both crop and animal agriculture will face exciting new challenges to meet the growing demands that are currently being proposed. The next decade will be an exhilarating period for U.S. agriculture as it seeks the balance between food and fuel uses."

As the largest user of corn and soybean meal, animal industries have had the advantage of low costs for feed in recent years, the Purdue economist said. As an example, U.S. corn prices received by farmers from the 1998/99 through the 2005/06 marketing years averaged just $2.05 per bushel and high protein soybean meal just $180 per ton, Decatur Illinois. "The rapid growth of the use of corn for ethanol in coming months and years means that the livestock industries have a major new competitor, at least for corn." Hurt said.

Hurt wrote that feed is often the largest single cost factor in production of beef, pork, chicken, turkey, lamb, milk, and eggs. "Livestock feeding has dominated the total uses of corn for many decades, but that dominance has been reduced over time and stands to become less significant in the future," Hurt said. "In the 1960's nearly 80 percent of the total use of corn was for feeding animals. The export boom of the 1970's added dramatic new demands and the average feed use for the decade was 67 percent of total use. Further growth of industrial uses of corn in the 1990s, especially high fructose corn syrup drove the average amount of feeding use downward to 60 percent for the decade. Given the now rapidly growing corn use for ethanol, feed use is expected to drop to about 51 percent for the 2006 crop."

Americans, both consumers (markets) and politicians are signaling they want to use much more corn for fuel, Hurt said. "Market prices of ethanol are currently over $3 per gallon and thus ethanol producers could pay near $7.00 a bushel for corn and still have positive returns. Futures prices for ethanol today average $2.58 for the coming 12-month period, high enough to pay an average of about $6.00 per bushel."

Politically there is support to stimulate the corn for fuel sector even more, according to Hurt. Senators Lugar and Harkin have recently introduced legislation to move the renewable fuels standard upward to 10 billion gallons by 2010 and 30 billion gallons by 2020. While corn grain ethanol would be the primary source by 2010, the hope is that cellulose based ethanol would be a large contributor by 2020.

The recent era of low priced feed may well be over for the animal industries, especially for corn prices but many uncertainties remain. Corn for fuel can currently bid much more for corn than the animal industries. However, ethanol prices in the future will depend on overall energy prices, on whether federal and some state incentives continue as well as their level, and on the value of ethanol as an oxygenate. The costs of corn for ethanol plants will likely be higher as well.

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