Farm News
10-20-06
Feed costs expected to impact sector
By RANDY MUDGETT- Managing Editor
AMES — The burgeoning biofuels market and its overall effects on agriculture in
Iowa have yet to be felt, especially given the fact that the demand for ethanol
production has grown too fast to keep up with the production of corn.
The short term result has pushed up feed grain prices overnight across the Corn
Belt now that the carryover stocks have been reduced by the USDA who said the
corn crop is not as large as previously thought.
The long term result of higher demand for corn is a largely unknown factor, as of
yet. ‘‘We are just not sure where all of this ends up,’’ said Mike Duffy, Iowa
State University economist. ‘‘No one has really thought much about the big
adjustment that is coming.’’
The ‘‘big adjustment’’ Duffy referred to is farmers either getting paid more for
their corn that they currently raise or the pending environmental consequences of
raising more continuous corn in the heart of the Corn Belt.
‘‘Right now, all we can do is use the past to predict the future, and I am worried
about that,’’ Duffy said.
The vast implications of higher grain prices may not affect the ethanol industry
nearly as much as it affects livestock producers. Corn prices at $3 a bushel will
raise breakeven costs for hog producers to around $47 per hundredweight. With
current prices, producers still make money, but eventually the higher costs
of feed will force up market values of all livestock.
Bruce Babcock, director of the Center for Agricultural and Rural
Development at Iowa State University in Ames, said higher corn prices will
have a multiplying effect not only here in the U.S. but internationally.
‘‘In the long run the impact will be felt on exports as we lower our available
exports of corn to the world,’’ Babcock said. ‘‘Much of this would be caused by
the expansion of ethanol as the U.S. typically sets the price for grains worldwide.
So, once our price of corn goes up, other countries decide they do not want to
pay the higher price and find a way to raise it themselves.’’
Babcock said the inflated corn, wheat or soybean price then forces those
countries to also re-examine the price they pay for meat and decide they can
raise that cheaper themselves as well.
‘‘The domestic prices for meat will rise as corn prices rise, thereby lowering
exports and lowering overall domestic and international demand,’’ Babcock said.
Duffy said ‘‘the big adjustment’’ should also create another problem for new and
beginning farmers as land prices will inflate along side the price of grain and
livestock. ‘‘The last time this happened we had the 1980s farm crisis,’’ Duffy said.
‘‘I am not predicting that could happen again, but then again no one saw it
coming then either.’’