Ivan Rush: Corn prices
June 12, 2011
It has been good to see warm weather, which will get the grass to grow after recent rainfall. It has also been good to see corn growing in many parts of the country, as it has been delayed by a lot of moisture this spring. Another positive of the cool, wet spring is that entomologists are predicting a lower level of grasshopper infestation this year.
One of the biggest concerns for anyone in livestock production is the cost of inputs. It seems every time we turn around costs have increased; except for electronic tools such as computers, which many don’t consider equipment. Almost all other equipment or supplies we purchase have increased 5-15 percent since the last time we purchased them. Reviewing the costs on repair bills for equipment is starting to look more like hospital bills. They haven’t quite got to the point of $12.95 aspirin yet, but it is heading in that direction. New equipment has inflated to the point that many are electing to pay the higher price for repair.
The largest cost continues to be feed, which is based in most cases on the price of corn. We have been in a period where hay prices were relatively low, but that has changed now due to drought in the southwest. Additionally, acres of land that was in hay production has now been converted to row crops. As long as our fine government continues to mandate and pay significant subsidies to produce and blend ethanol, I don’t see any significant changes in the corn market.
Nearly half of our annual corn crop is now going to the ethanol industry, and it does not appear the subsidies will be curtailed soon, nor will the price of oil decrease. I am familiar with the argument that the government also highly subsidizes the petroleum industry, but I feel that should also be curtailed as we look at $4 per gallon fuel and record profits for the large petroleum companies. Furthermore, it is troubling to watch the current status of the corn crop, some of which has just been planted, having so many challenges that may ultimately reduce production this year.
These factor have caused a considerable search for methods to produce cattle where low levels, or no corn, is fed. A few may suggest only utilizing grass to produce beef, but this would require the utilization of 25-30 percent of the grass that is now being used by the mother cowherd, resulting in a loss of 7 million cows. Losing this many cows will decrease the size of the industry and the number of people needed in the industry. Furthermore, with current market conditions, the cost of producing beef on grass would only lead to a drastic increase in the cost to produce a lower-quality product. I do not think this is the direction the industry needs to go. So it challenges our industry to continue producing high-quality beef at a price the consumer is willing to pay for.
There is no question that we will have to look for ways to finish cattle with fewer bushels of corn. Feeders in close proximity to ethanol plans have increased the level of distiller’s grains in their rations and in a few cases, cattle have been finished with high levels of distiller’s grains and no corn was fed. This works fine in areas close to ethanol plants and one would expect to see the feeding industry grow in these areas to the point that the demand of byproducts outpaces the supply and prices are driven up. However, when a bushel of corn goes into an ethanol plant, only one-third of it comes out as distiller’s grains that can be used as livestock feed.
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Currently distiller’s grain byproducts contain a high level of fat which provides a lot feed energy to the animal. Every indication is that as ethanol plant technology improves in the future, considerable more oil will be removed during the distillation process; lowering the feed energy value of the byproduct. Therefore, in the future, simply feeding high levels of distiller’s grains byproducts may not provide the energy needs to finish cattle as we know it today.
A considerable amount of forage is available and is currently not being utilized by cattle. Feeds such as corn stalks and cereal straws are utilized to some degree but much of the available plant matter goes unused and is returned to the soil. Research has been done and some is currently being conducted to treat low-quality forages with products that improve the feed value. Although these treatments are effective, they are currently cost prohibitive. If the price of starch continues to increase, this relationship may change.
If more low-quality feeds could be used for maintaining the cowherd, then more high-quality forages would be available to grow cattle for a longer period of time outside the feedyard. This is what is occurring now to some degree as you look at the increase in stocker and yearling programs. However, in many cases, much of the summer grass used for yearlings is being taken from the decrease in cow numbers in the industry. Some will point out that the industry is not shrinking, as we are still producing the same amount of beef with fewer cows. Fortunately we had a brief time where finished cattle prices supported the higher feed costs; however it now appears that retail beef prices hit a point of resistance and finished cattle prices backed off $15 per hundredweight. Now red ink is showing up in feedyard closeouts.
So what can we do to stay profitable and competitive with pork and poultry? We of course will have to rely heavily on the use of byproduct feeds as long as the price is competitive. In the past, we have fed large quantities of wheat but at this point it doesn’t appear it will be priced low enough to compete with corn and feed-grade barley will continue to be used in regions where it is produced.
Every available avenue needs to be pursued to utilize the lower-quality forage for the mature cowherd and the higher-quality forage utilized by growing cattle so that we may grow them to a larger weight before entering the feedlot for finishing. Low-starch byproducts should be fed at levels that produce at least 2 pounds of daily gain while grazing forages. This may require extra labor and equipment, however it may still be more cost effective than feeding $7, $8, or $9 corn to a young feedlot steer or heifer.
I wish I had a better answer, but I think it behooves all of us to sharpen the pencil and look for alternate feeds and production systems. I see little change in corn prices as long as the government mandates and subsidizes ethanol production. I hope the rains continue and we have a great grass year.