Cattle producers should use caution when blaming ethanol production for dramatic increase in feed corn prices seen over the past seven years, according to Ted Schroeder, an agriculture economist at Kansas State University.
Speaking to participants at the Range Beef Cow Symposium in Mitchell, Nebraska on Nov. 29, Schroeder said “ethanol production is a big component but that’s not the whole story” when identifying what has led to $6 per bushel corn costs.
Ethanol subsidies have been a fixture in domestic energy policy going back decades, Schroeder said. States pushed their vehicle fleets to use ethanol blends, and automakers expanded E-85 production.
When energy policy became tied to national security, ethanol production demand expanded further. With the Energy Policy Act of 2005, Congress upped fuel standards and mandated the doubling of renewable fuels by 2012, and followed it up with another vote requiring 36 billion gallons of ethanol to be blended by 2022.
As leaders talk about ethanol production helping national security against oil-rich nations, “those are very important attributes that anyone in political arena has to support,” Schroeder said.
Ethanol production now claims 40 percent of the U.S. corn crop, Schroeder said in his presentation, which is an enormous rise considering how the figure was just 5 percent in 1995. Corn prices during that period ranged between $2.10 and $2.15 per bushel. The drive above $3 per bushel corn began in 2007.
Fast forward to today and the range from $5 to $6 per bushel “would have been a buck to a buck and a half lower” without the ethanol factor. “That’s important, and it’s certainly significant, but it’s not the whole half of the story.”
Other key factors, he said, included global export markets heating up a weak dollar, and production variations both upward and downward.
Higher corn prices also lead to higher forage prices, Schroeder said. He explained how $1 increase in the bushel of corn results in $15 per ton increase in annual hay costs.
And because the feedlot also has to pay more for feed grains in finishing, feedyards are not going to have stronger demand for calves when prices are higher. “Your yearling calves are worth less when forage or corn prices go up,” Schroeder explained, adding that the $1 per bushel, and $15 per ton increase in corn and alfalfa, respectively, reduces the price paid for a 750-pound calf around $60 per head.
So what is a producer to do with ethanol still pushing corn costs up for the foreseeable future?
Schroeder said lobbying against federal ethanol policy could be a hard sell. The subsidies and tariffs have been around for 30 years and have substantial political support, plus the feed grain price increase is only partially driven by ethanol.
Instead, Schroeder said investing in the proper technology – something most producers try to do – is the right start.
“We can’t compete on global scale if we don’t invest and discover technology to make (beef products) affordable, safer, higher in quality and more prosperous.”
More critical is to promote and push global demand of beef. Schroeder said Domestic Beef Demand Index, which figures per capita consumption with the price consumers are willing to pay for beef, has increased in the past three years.
Meanwhile foreign buyers value American beef at near record levels. He estimated that global beef demand has added $40 per head just since 2009.
Schroeder said producers need to protect and closely monitor the quality of beef “whether it’s genetics or things through the production process, to make quality characteristic.”
Ted Schroeder, an ag economist for Kansas State University, said ethanol production probably factors into $1 to $1.50 in the $5 to $6 price for a bushel of corn.