Higher corn costs affect state livestock producers

However, three Oklahoma State University agricultural economists contend that indirect effects of an increase in the price of corn likely will affect state cattle producers.

President Bush’s call for a 20 percent reduction in the use of gasoline by 2017, primarily to be achieved by escalating production of ethanol and other alternative fuels mandated by the federal government, adds to the concern of those who depend on feed corn to produce livestock.

“The surge in corn demand for ethanol production will have widespread and diverse impacts on U.S. agriculture in the coming years,” said Derrell Peel, OSU Cooperative Extension livestock marketing specialist.

Peel said corn used to make ethanol increased by 21 percent from 2004 to 2005, and it is expected to increase by another 34 percent from the 2006 to 2007 corn crop. This equates to more than 800 million bushels of corn being diverted to fuel production from other uses.

Feedlots in the Panhandle are already seeing the effect of the higher corn price in their operations and are responding by buying fewer cattle, said Phil Kenkel, OSU Fitzwater chair for agricultural economics.

“Farmers in the state who have bought interests in ethanol production facilities stand the best chance of benefiting from higher corn prices and upcoming changes in agriculture in the long run,” Kenkel said. 

Kenkel said ethanol production facilities are approximately 45 percent to 48 percent farmer-owned across the country.

National companies like Cargill have been the main early investors in ethanol. More recent efforts to seek out farmers as investors for upcoming plants have changed the picture.

Kenkel said farmers stand to gain from interest in ethanol in two important ways: They can benefit from a return on their investment, and if they are near a plant, their operations could also benefit from the availability of high protein distiller’s by-products.

“Oklahoma’s ethanol plants are based on trucking in corn and locating close to feed lots for use of the by-products from distilling,” Kenkel said.

Enid’s planned facilities will take advantage of a rail system for bringing in corn and storage that already exists.

Kenkel’s work with agriculture cooperatives has given him firsthand knowledge of the impact ethanol is having on grain production and use. He predicts some changes in crop mix and rotation around the country and in the state.

“I think we will see more crop diversification out of this,” Kenkel said.

Kenkel said more milo is expected to be produced in Oklahoma, as well as some changes in the rotation of soybeans. Milo is competitive with corn price-wise and is also used for ethanol production.

Peel said the impact of higher corn and feed prices is having an effect on cow-calf producers. Cattle producers around the state are in for “a wild ride.”

“There’s so much excitement right now about alternative energy,” Peel said. “What we are going to do is put agriculture through a lot of contortions.”

Peel said trying to service additional new uses, nationally and internationally, will provide motivation for more technology and crop efficiency, increase the value of land and place a burden on everyone in agriculture to stay abreast of markets.

“This is so sweeping in nature – the most sweeping set of impacts we have probably seen since the development of post World War II agriculture – (and will change) agriculture the way we know it today,” Peel said.

Kim Anderson, OSU Cooperative Extension grain marketing specialist, has confidence in the grain markets and the nation’s ability to respond to changes.

“The markets say higher prices will continue for corn,” Anderson said.

He said that could be true for several years while a balance is sought.

Anderson also said the market will balance out the product, with the larger world market working to allocate the available resources to meet needs.

“The price is going to ration the product,” Anderson said, “whether it is corn, beans, or other grains.”

Anderson said those affected by changing markets can make good choices if they have current information.

“Cattlemen, farmers and ranchers are very resourceful.  If the price of corn gets too high, they will put cattle on feed at a heavier weight and they will use more forages,” Anderson said.

Recent national news has seen questions and answers abound in the ongoing “feed versus fuel” debate, a discourse triggered largely by the already noticeable increased use of corn as more ethanol facilities come onboard.

Interest in how the issue is resolved will increase as America’s agriculture industry considers changes in direction in what may become one of the most sweeping market issues in recent years.

“In general, I think you will see some tempering about the current focus on ethanol,” Kenkel said. “Ethanol plants were planned when petroleum prices were high.”

Anderson offered a realistic perspective by mention of the one factor no one in agriculture can afford to ignore for long.

“The weather will be more important of a factor in the availability of corn and grains for food and feeds than the demand for ethanol,” he said.

“It is going to be interesting for some people, frightening for others, terribly exciting for some, and for a few it will be all three,” Peel said. “It is hard to get your hands around.”

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Janet F. Reeder
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Fax: 405-744-5739
E-Mail janet.reeder@okstate.edu

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