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Economist tells of corn, livestock woesBy Larry Dreiling When telling the problems of the livestock industry, Gregg Doud can sum them up in one simple sentence. "We just don't have enough corn." Doud, chief economist of the National Cattlemen's Beef Association, offered that message during the recent Colorado Cattlemen's Association annual convention at Colorado Springs. Doud offered a few talking points to help cattle producers explain their positions. Doud said cattlemen: -Aren't anti-ethanol. -Don't believe in ethanol subsidies. -Don't believe we need a larger mandate. -Were told "no" when they asked for an 'off-ramp' if there was a short corn crop. -Want the Volumetric Ethanol Excise Tax Credit and tariff eliminated over time. -Are asking to compete on a level playing field with the ethanol industry for that bushel of corn. "When I ask the corn guys as to why they need a mandate, they say they want guaranteed demand for their product," Doud said. "How many of us have guaranteed demand for our product? "That's their justification. When we asked for an off-ramp in case there was a wreck in the corn market, they told us to take a long walk off a short pier. It isn't very pretty, this discussion in Washington." "Fewer lawyers, more economists" The corn price situation is being debated in Washington, Doud said, with corn producers telling him the price of corn has had no effect on food prices. "When the price of corn goes up, the price of a 750-pound feeder steer goes down," Doud said. "Food inflation? We're just getting warmed up. We haven't even seen the effect this is going to have on the beef industry." Doud explained that when an ag commodity with a demand function that is not sensitive to supply (such as food and fuel) becomes scarce, the producer always pays the majority of additional costs in the short run. In the long run, the consumer will pick up the tab as the industry shrinks. "This is something most people in Congress do not understand," Doud said. "We have too many lawyers and not enough economists in Washington. They don't understand the fundamental aspects of our industry. The rancher is picking up the tab for all of this." Not only are Washington politicians failing to understand this, Doud said, but consumers also don't understand that their food bill will sharply increase as time goes by, due to scarce supplies. "America needs to make a decision. Is this what America wants? Do Americans want higher food prices because of biofuels or do we want an energy policy that has a lot of variables in it including putting a hole in the ground, nuclear, and a lot of other things? "It's a decision that everyone in this country will have to make. Right now the politicians are doing it for you," Doud said. "They have yet to understand the implications of what they've done." Shrinking business Doud said that those who think high food prices are all to do with the price of ethanol alone are being intellectually dishonest. Yet, those who think that it's not-and that it's all about exports-are contradicting themselves. "We are 70 percent of world corn trade. If people need corn and given the value of the U.S. dollar, where are they going to buy it? Right here," Doud said. "Therefore, can we balance our supply and demand balance sheet by a reduction in corn exports? Not only no, but heck no." The U.S. Department of Agriculture estimates that world corn trade will decline in the next year, which means U.S. exports are expected to decline, Doud said. That means more animals will be fed with wheat, as world wheat trade is expected to increase with higher production. "There's a wrinkle with USDA's analysis here. What's the price of wheat? What's the price of corn? Record highs," Doud said. "That means either the price of wheat has got to go down or the price of corn has got to go up." Soybean acreage will remain high because of a current European Union mandate for biodiesel production, which consumes a steady portion of U.S. biodiesel production. "We have more biodiesel production capability in this country than we do vegetable oil production capability," Doud said. "Not one of those plants really makes a profit even with a $1 a gallon subsidy, but they're running because they can make it here and then ship the stuff to Europe and make another subsidy that makes it all worth while. On Jan. 1, we're going to start a mandate for soybeans. "With all this happening, corn is on a tear to go $5 away from soybeans. Are you depressed yet?" "We are losing about $100 million in equity a week in the cattle business and rubber's about to meet the road. This isn't sustainable. When that banker tells that feedlot operator that it's over, what's going to happen? We're going to shrink this business." There is hope, however, Doud adds, because the market thinks supplies will be smaller. That will lead, eventually, to higher prices. "Can we pull off $112 on live cattle? The answer is yes," Doud said, "depending on what we get out of a good carcass cutout price. Again, this is food inflation staring at us right in the face." Resolutions A large number of resolutions was approved by CCA members during their annual meeting including: --A demand for input on the location and building of a bio-containment and waste disposal facility of a research facility for the Colorado Division of Wildlife in Fort Collins. --Opposition to the combination of the Division of Animal Industries and the State Board of Stock Inspection into one division under the Department of Agriculture. --Continuing opposition to expansion of the Pinon Canon Maneuver site while calling for an education campaign oriented toward public officials, area legislators, media, and the public at large, in and around Colorado Springs, regarding the benefits that agriculture provides to the area and state. --Opposing the permanent closure of any grazing allotment for any reason. --A demand from railroads in the state to adopt routes that parallel existing major highways while supporting just compensation for property condemned by the railroad. Larry Dreiling can be reached by phone at 785-628-1117 or by e-mail at ldreiling@aol.com. 6/23/08 Date: 6/18/08 Advertisement
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