US Ethanol Policy Blamed for High Feed Costs

by 5m Editor
2 February 2011, at 12:17am

CANADA - A market analyst with the Guelph, Ontario-based George Morris Centre suggests US policies surrounding ethanol are the biggest factor driving up feed costs in North America, writes Bruce Cochrane.

In October the US Department of Agriculture released a report which indicated grain supplies and grain quality and yield where much lower than originally thought and in January USDA confirmed that stocks heading into 2011 are near record lows.

Kevin Grier, a market analyst with the George Morris Centre, suggests that report and confirmation of the low supplies coupled with strong export demand and in particular ethanol demand caused prices to sky-rocket and we're probably looking at record high grain prices throughout 2011.

Kevin Grier-George Morris Centre

First and foremost the direction of the prices is driven higher by ethanol.

In 2011 it's conceivable that ethanol will burn up more of the corn crop than will be consumed by livestock and poultry and it's a case of ethanol becoming a run away train.

I don't think anybody anticipated that we'd get to a situation where ethanol uses up more corn than the livestock industry so in an of itself that is the single reason why we've got this out of control grain price situation.

Our crops in 2010 were near record large so we need to continue to have record large crops in order to feed the ethanol beast which is again fueled by subsidies, tariffs and mandates.

It's an extraordinarily artificial pricing situation but the reality of it is it's driving livestock producers out of business.

Mr Grier says the American situation has gone so out of control on ethanol that we now have a feed cost advantage in western Canada and in Eastern Canada, which is a positive.

He suggests producers across Canada need to lobby the government to make sure Canadian ethanol policies do not go as out of whack as the Americans and drive up feed costs further in Canada.