CattleNetwork.com, KS
10-19-06
Corn Use For Ethanol Could Mean Higher Cattle Prices
CHICAGO (Dow Jones)--If corn demand for ethanol production boosts corn
values, livestock prices will also increase because of higher feeding costs.
That is the conclusion that was drawn by John Lawrence of Iowa State
University and Steve Meyer of Paragon Economics at a discussion on the
implications of ethanol production for livestock producers at the Chicago
Mercantile Exchange Wednesday afternoon.
Both speakers predicted future corn price volatility, with a corn price range
between $2 and $5 a bushel.
But the ethanol byproduct can be used in animal feeds, with cattle able to make
the best use of that feed, called distillers grain and solubles, or DGS.
Cattle can eat the DGS without having the feed dried first, thus giving cattle
feedlots closest to ethanol plants a big feed cost benefit. The impact on the
grading of cattle, whether they would be less likely to yield choice meat, for
instance, is being studied.
Asked whether this would give an area like Iowa, with its plethora of ethanol
plants, a cattle-feeding advantage over areas of the country without plants,
Lawrence admitted to a slight Iowa bias because he is a native Iowan.
"Cattle moved from Iowa to the High Plains in the 1960s and 1970s," said
Lawrence. "There may have to be some decisions made whether to invest in a
rail line, or build a feedlot in Iowa."
As of June 2006 there were 102 operational ethanol plants, with 32 others under
construction and another 127 announced or proposed. Iowa has the most plants
in operation.
But with recent corn prices increasing rapidly, the most uncertain element in the
ethanol equation is whether those proposed and announced plants will come to
fruition, according to Lawrence.
For all 261 operational and proposed plants, the potential total of fuel would be
15.99 billion gallons, and would use an estimated 5.3 to 5.9 billion bushels of
corn, according to the National Corn Growers Association.
The major variable factors for ethanol supplies are gasoline prices, corn prices
and plant operating costs. "Two dollars per gallon of gas at the pump translates
into about $60 per barrel of crude oil," said Lawrence. "At that price, ethanol
plants can afford to pay about $3 per bushel for corn. Of course, much will
depend on the efficiency of the plants."
Increased use of rail lines and water supplies were other factors that were
mentioned as uncertain elements in ethanol profitability.
jim.cote@dowjones.com