Cattlemen want balanced, market oriented ethanol policy

By Doug Rich

Tens of thousands of people marched in the streets of Mexico City on Jan. 31 protesting the price of corn tortillas.

U.S. cattlemen have not taken to the streets yet, but they are just as upset about the price of corn in this country. On the same day as the protest in Mexico City U.S. cattlemen were in Nashville, Tenn., for their annual convention and the price of corn was the main topic.

In the last four months the price of corn has risen dramatically thanks to the demand created by ethanol production. This is happening just as the cattle cycle begins its downward turn.

"The high price of corn and ethanol production has definitely affected the corn basis and affected how we do business," Jim Meetz, Lane County Feeders in Dighton, Kan., said. "Then we get into this situation where we have a weather market and the market has not respected the damage done to cattle and it tends to exaggerate things."

"I think 10 years ago none of us cowboys thought it would be an issue we would have to contend with," Meetz said. "All of a sudden you look around and all the buzz is about ethanol."

National Cattlemen's Beef Association (NCBA) members know about ethanol now and during their annual convention passed their first resolution dealing with ethanol.

According to Dee Likes, executive vice-president of the Kansas Livestock Association, for every $1 fluctuation in the price of corn, it has a $22 per hundredweight influence on the price of a 550-pound calf. That is $120 a head difference in price.

What does this mean for U.S. beef production? Will cattle feeding migrate north to take advantage of a more favorable corn basis? Does cattle feeding and processing move back to the corn Belt to be closer to ethanol plants and their by-product distillers dried grains (DDGs)? Can acres be pulled out of the Conservation Reserve Program (CRP) for added corn production? How much DDG can the cattle industry use?

"I think we would be in denial if we did not recognize that there could be some affect if there are more DDGs and lower grain prices in the north," Likes said. "I would not be surprised if that did not move a few feeder cattle north. However, we don't think there will be a great big change or wholesale change in cattle feeding in Kansas."

The opportunity for cattle feeding to move back to states like Iowa or Missouri is limited because of the regulations that have been put in place since cattle feeding moved to the High Plains in the 1960s.

Merrel Breyer, president of the Missouri Cattlemens Association, said they have been contacted by people interested in possibly looking into starting feedyards around ethanol plants in northern Missouri.

"But before we can do anything like that we will have to deal with these county health ordinances," Breyer said. "Until we can get some of those things taken care of the environment is not really conducive for feedlots at this time. Although it does have potential and would be a great economic boon for the state of Missouri."

"With the drought, cattlemen in Missouri are already feeling the pinch," Breyer said. "The high price of corn will not help matters."

A "Freedom to Farm" type of legislation is being presented in Missouri to do away with some of the frivolous lawsuits aimed at animal feeding operations in the state.

"It is very critical that U.S. corn production increase very rapidly not only this year but over the next three to four years," Kevin Good, senior market analyst with Cattle-Fax, said. "If that does not happen and we see prices go from where they are today to the $4 to $5 range there is a direct correlation to calf and feeder prices. It could take another $10 to $20 out of calf prices real quickly."

The most obvious solution to increase corn production seems to be early release of acres enrolled in the CRP. This might be part of the solution but will not provide enough of a boost to keep pace with expanding ethanol production in this country.

"There are over 36 million acres in that program depending on which estimates you look at," Gregg Doud, NCBA chief economist, said. "Anywhere from 4 up to 7 million CRP acres potentially could be planted to corn depending on where you look. But if you look at what is coming out in the next three or so, the amount of acres you have that could go back to corn in the next couple of years is not as great as people might think."

U.S. Secretary of Agriculture Mike Johanns, also cautioned people against thinking that CRP was the answer. "One acre out of CRP does not equal one acre of corn." Much of the CRP ground is truly land suited for conservation, not growing corn, he said.

By the time you take out acres based on the erodibility index that do not qualify for corn production there might be a million or maybe two million acres at the very most, according to Doud.

"We have to have 10 million acres," Doud said. "It is not the panacea that people think it is to get us out of this problem. There are a lot of other interests that want to look at those acres as well."

Another item to consider is that many of those CRP acres that come out may be more suited to soybean production today than when they were enrolled into the program, particularly in North and South Dakota. This could free up traditional corn-soybean acres to more corn on corn production.

"Down the road it will be a really interesting debate to see how much corn on corn we can do in certain parts of the country," Doud said.

In the near term high corn prices will affect days-on-feed and the amount of roughage fed to cattle before they reach the feedlot.

"Last year we had record large days-on-feed at 150 days, according to Cattle-Fax data," Good said. "We would sure anticipate to take at least a week if not two weeks off days-on-feed compared to last year. What we would expect is that cow-calf producers and maybe stocker operators will continue to graze those cattle to heavier weights because we are looking at cost-of-gains that are substantially higher in the feedlot as opposed to outside the feedlot. We expect to see more retained ownership, people taking cattle from weaning through backgrounding just to get more pounds."

Where they are available, DDGs are being used in feedlot rations. Historically about 5 percent of DDGs went to poultry, 10 to 15 percent to swine, and the rest to either dairy or beef production. Until now the dairy industry has fed more than the beef industry, Good said.

When a bushel of corn is used for ethanol production it yields approximately 17 to 18 pounds of usable by-product. Good expects 8 to 10 pounds of that to make its way back to the cattle feeding sector. Most of that will be used in feedlots.

"What most people in Kansas believe is that we need a return to a more market oriented ethanol industry," Likes said. "We recognize that these subsidies are not going to go away overnight, but there is concern that we don't need any additional stimulus from the government to prod more ethanol product. The time is rapidly approaching when we need to let the market forces take over."

"We do have a lot of compassion for corn farmers and the low prices they have received for many years," Likes said. "We have a lot of corn farmers that are also in the cattle business. What we need is a fair, balanced and careful approach here to ethanol policy."

U.S. cattlemen are not likely to take to the streets to advance their ethanol policy, but they are very concerned about the effect ethanol production and subsequent high corn prices is having on their industry.

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Date: 2/23/07

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