Des Moines Register
06-10-06
Higher corn prices may hurt hog producers
Increased cost could be sent to consumers
ANNE FITZGERALD AND JERRY PERKINS
REGISTER FARM WRITERS
Explosive growth in U.S. ethanol production has a potential downside for hog
feeders: higher-priced corn that could cut into producers' profits.
Consumers could be affected, too, by higher prices at the meat counter, market
analysts predicted Friday.
Cash corn prices are expected to average $2.45 per bushel across the United
States for the 2006-2007 marketing year, the U.S. Department of Agriculture
reported Friday. That's up more than 22 percent from the average for the
marketing year that ends Aug. 31.
In Iowa, prices will average about $2.35 per bushel next year, said Robert
Wisner, an Iowa State University Extension economist. By Wisner's calculations,
the price of corn in Iowa could climb to $2.70 per bushel in the 2007-2008
marketing year and $2.85 per bushel the following year.
"The driving force in that is the huge expansion in ethanol production," he said.
"That is by far the dominant reason."
Eugene Moody of Maxwell and other producers attending the 2006 World Pork
Expo voiced concerns about higher grain prices.
"If we get all the ethanol plants up and going, are we going to be shooting
ourselves in the foot?" Moody asked.
This year, U.S. ethanol production is expected to consume at least 14 percent of
U.S. corn. The growth is driven in part by demand for alternatives to foreign
energy. Iowa is home to 25 ethanol plants with combined annual production
capacity of 1.5 billion gallons, according to the Iowa Renewable Fuels
Association.
As the nation's No. 1 producer of corn, soybeans, pork, eggs and ethanol, Iowa
has much at stake in what happens to grain prices this year. While farmers
selling corn could benefit from higher grain prices, livestock producers who must
buy corn would be hurt, Wisner and others said. At this point, ethanol prices are
high enough that makers of the corn-based fuel additive could withstand higher
grain prices, analysts said.
The greatest impact will fall on livestock feeders, because feed costs represent
their single largest production expense, said John Lawrence, an ISU Extension
economist who is director of the Iowa Beef Center in Ames. Corn accounts
for over half of the cost of hog and cattle feed.
"That ultimately will be passed on to consumers in the form of higher food
prices," Lawrence said.
Ethanol production may benefit farmers who feed livestock wet or dried distillers
grains, a by-product of the ethanol process. Swine and poultry feed can contain
up to 10 percent distillers grain, while it can account for up to 40 percent of cattle
feed, Lawrence said.
Lawrence said Iowa was on track to produce 11 billion pounds of distillers grains
annually, which could reduce feed costs, especially for operations near an
ethanol plant.
Sam Carney, a hog producer from Adair, said he thought ethanol plants'
increased demand for corn could make it harder for hog producers to make a
profit.
Farmers are considering raising more corn and less soybeans to meet the
increased corn demand, Carney said.
Weather is the key to what happens this year, both with crop development and
with prices, farmers and market analysts said.
The latest crop condition reports show that corn and soybeans in Iowa are off to
a good start.
Farmers and other crop specialists are increasingly worried about drought this
year. Several weeks of unusually hot, dry weather have contributed to those
concerns.
Weather could pose some challenges for Iowa farmers during the rest of the
growing season, said Harry Hillaker, state climatologist with the Iowa Department
of Agriculture and Land Stewardship in Des Moines.