Corn farmers are enjoying the high prices corn is bringing as ethanol production continues to siphon off a sizeable chunk of the U.S. corn crop, but cattle producers are taking an economic hit, said Tom Troxel, professor/beef cattle specialist University of Arkansas Cooperative Extension Service.
“Their costs are really increasing,” Troxel said of beef and dairy producers. “The high cost of corn is cutting into their profits.”
Rebecca Thomas, Grant County, Ark., Extension staff chair, said producers have been clobbered from several directions. “My cattle producers have been hit hard by drought last summer, which reduced their hay for the winter; high fertilizer costs, high fuel costs and high grain costs,” she said. “Most are part-time cattle producers with primary jobs somewhere else.”
Many cattle producers depend on corn for feed. “Seventy percent of all hay doesn't meet the energy requirements of lactating beef cows, and corn has historically been the most cost effective source of energy available to meet their needs,” Troxel said.
“There are other sources of energy, but they're all based on corn prices, which means they've increased too.”
Troxel noted that even though the UDSA is predicting a large 2007 corn crop, producers shouldn't expect prices to decline anytime soon.
“Big acres and good planting weather will mean a big crop; USDA estimates 12.2 billion bushels will be harvested this fall, which would make 2007's crop a record,” he said.
“If this large corn crop materializes, storage capacity will be a challenge. But that huge supply, according to USDA, will still fall 300 million bushels short of demand,” Troxel said.
USDA is projecting that 2007 corn crop prices could average $3.60 a bushel, which would be a record. It's 40 cents higher than 2006's estimated average price.
“The USDA's 10-year forecast contains some unbelievably low corn stocks carryovers for the coming years,” Troxel said. The USDA pegs carryover — the amount of corn left in storage each Aug. 31 — this year at 935 million bushels or, given daily usage, about 30 days' supply, according to Troxel.
On Aug. 31, 2008, though, corn carryover from this year's anticipated record production will fall to but 19 days' usage. In 2009, carryover will drop to 18 days; then to just 16 days in 2010.
If the USDA is correct, he said, it will mean three things: $3-plus corn will be the price benchmark for years to come. USDA predicts corn price averages of $3.50 for 2007, $3.60 for 2008 and $3.75 for 2009.
With near-zero carryovers, any planting, production or harvest hiccup will send feed, food and fuel prices skyrocketing at breakneck speeds.
With stocks of America's chief food and feed grain balanced on a pinhead, Congress might discuss the possibility of including a modest grain reserve in the 2007 farm bill to ensure domestic supply and stable prices.
Many people predict the demand for corn from the ethanol industry will continue to increase for the next three to five years or until other types of cellulose can be used to make ethanol. Currently technology isn't available to convert cellulose to large scale ethanol production. Until it is, livestock producers will pay more for corn.
Troxel said cattle producers have little choice but to use alternative feed sources. He said while they are priced higher, in many cases, the prices are lower than corn.