Push for Biofuels Sparking Changes in Livestock Production

KANSAS - The push for expanding the biofuels industry is driving many changes in animal agriculture and there are still more to come, according to an Iowa State University agricultural economist.
calendar icon 23 February 2007
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John Lawrence spoke on the topic, “Will there be enough corn to go around? The impact of biofuels on corn and soybean meal prices,” at the K-State Research and Extension Swine Profitability Conference held Feb. 6 in Manhattan.

“Yes, there will be enough corn, but markets aren’t kind, gentle or smooth,” Lawrence said, adding that agriculture has become a fuel producer, with the ethanol industry growing faster than economists can make graphs. The growing demand for corn for ethanol production is driving the price of corn up significantly.

The corn market has had relatively flat demand with the exception of ethanol, he said. According to industry estimates, 5.5 million to 10 million bushels of corn will be grown just for ethanol by the year 2012.

Corn prices are now more closely linked to crude oil prices, he said. If world oil prices are at $60 per barrel, ethanol plants are expected to expand until corn is around $4 per bushel for corn.

In addition to providing another market for corn, recent increases in ethanol production also mean that there is more dried distillers grain (DDGS) available for livestock feed, the economist said. Lawrence estimated that there will be about 46.8 million tons of DDGS produced if the industry processes 5.5 billion bushels for ethanol. Although DDGS may reduce feed costs for pork producers, the price will not be low enough to offset the higher corn price.

New technologies are emerging to produce a better DDGS for hogs, Lawrence said, but for now, producers should be aware of where the DDGS is coming from.

“The DDGS will change depending on the plant it comes from and how it’s made,” Lawrence said.

The long-term implication for animal agriculture depends on many factors, including the amount of DDGS in the ration, Lawrence said. The price of DDGS relative to corn and soybean meal prices also is a factor.

In addition, “DDGS is global. You can send it anywhere around the world, but wet distillers grain is a local market because it can’t be shipped far or stored long,” he said.

Also in the long-term pork producers can expect more corn basis volatility.

“Storage is key,” Lawrence said, adding that livestock producers are accustomed to having relatively low-cost corn. Now producers should be aware of their physical control of the grain, now and months from now.

If they haven’t already, Lawrence said, now might be a good time for producers to consider building and managing storage for feed use year round.

Lawrence reminded Swine Profitability program participants that a U.S. Department of Agriculture report will be released in late March predicting the number of acres that will be planted in corn.

“It is an exciting destination, but the journey scares me,” Lawrence said.

Lawrence is a professor of economics at Iowa State University. He was raised on a crop and livestock farm in southwest Iowa and earned his bachelor’s and master’s degrees at Iowa State. He earned his Ph.D. at the University of Missouri.

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