In recent years, U.S. livestock and poultry producers have increasingly complained about limited feed availability and resulting higher feed costs. A Wednesday afternoon hearing of the House Subcommittee on Livestock, Dairy, and Poultry focused on the feed issues.
The panel’s testimony uniformly painted ethanol -– with its government backing and production mandates -- as a key cause of livestock/poultry producers’ dipping profits and a coming rise in consumer prices.
“My difficulties with U.S. fuel ethanol policy arise from the provision of subsidies for the product’s usage, protection against imports which have, until recently, been lower-cost that U.S.-produced ethanol, and, most of all a mandate that forces ethanol to be used regardless of the economic circumstances, especially those that pertain to competing users of corn,” testified Steven Meyer, president of Paragon Economics, an Iowa-based livestock and grain market analysis firm. He spoke on behalf of the National Cattlemen’s Beef Association.
“I realize that we cannot ‘un-ring the bell’ on ethanol subsidies and tariffs,” Meyer continued. “In combination with the promise of an ever-growing market through the Renewable Fuel Standard (RFS), these policy instruments drove the rapid construction of an ethanol production segment that has for several years been large enough to meet the ultimate 15 billion gallons of forced ethanol usage in 2015 contained in the RFS.”
Further, Meyer testified “subsidized ethanol has meant record high corn prices, record-high costs of production for meat and poultry, resulting lower per capita meat and poultry output and, finally, record-high meat prices. The U.S. pork industry lost $6 billion in equity from 2007 through 2009 but improved profitability did not stop the exodus of pork producers in 2010. From 2007 through 2010, 6,350 hog operations exited the industry and 84 percent of them held 500 of fewer hogs in inventory. During that same five years, 30,510 cattle and calf operations and 24,350 beef cow operations exited the industry. Most were small.”
While livestock operations have become more efficient, “lower feed availability will eventually mean still lower meat and poultry output and still higher meat and poultry prices.”
Rejecting such causality and claiming a deck stacked against it, the ethanol industry jumped into the fray early. As an indication of how volatile the “fuel-versus-food” tussle has become, advocacy group releases/statements began arriving even before the hearing.
“America’s ethanol producers are on pace to produce nearly 40 million metric tons of livestock feed in 2011 – a volume greater than all the corn used on cattle feedlots all across the country,” said a Renewable Fuels Association (RFA) release. “Additionally, ethanol producers are poised to export nearly 25 percent of that volume to meet growing feed demands around the globe.”
The RFA pointed out that the six-member panel included “a wide range of livestock and meat processing interests, but do not include anyone from the nation’s ethanol, corn growing, or feed milling industries.”
The panel make-up “demonstrates the predetermined outcome of this hearing,” said Bob Dineen, RFA President. “America needs thoughtful energy and agricultural policy that is based on all the available facts, not just those some lawmakers choose to hear.
“If this subcommittee were truly interested in finding out the facts, they would be interested to know that ethanol producers will provide nearly 40 million metric tons of livestock feed this year. They would also be interested to note that at today’s corn prices, a pound of pork chops retailing for $3.51 per pound contains just 30 cents of corn – less than eight percent of the total cost. Similarly, the farm share of each retail food dollar is less than 16 cents. Additionally, members of the committee may also be interested to know that many of the nation’s largest integrated livestock and meat manufacturers are enjoying strong quarterly profits despite the abnormally high price of corn. Facts matter and we hope that the members of the committee will take a comprehensive look at the issue rather than taking the word of industries seeking to return to days of subsidized corn production.”
See an Informa Economics report commissioned by the RFA here.
The ethanol industry has been joined by the Obama administration in rejecting claims that the fuel is responsible for higher feed costs. During a tour of Iowa last spring, Agriculture Secretary Tom Vilsack said, “Ethanol production (doesn’t have) a significant impact and effect on food prices. There’s a misconception in the public that ethanol is driving up food prices. That isn’t the case. In 2008, the last time we had an increase in food prices, we saw ethanol responsible for about 10 percent of the overall increase – a very small percentage.”
Iowa Rep. Leonard Boswell said as a corn-grower and cattle owner he was “on both sides of the issue.” Still, he wouldn’t blame ethanol as the leading factor in feed costs and challenged the panel’s conclusions. “What data leads you to claim high (feed) prices are directly tied to ethanol consumption and not market speculation?”
Ted Seger, President of Indiana’s Farbest Foods, took up the challenge. “I’d say it’s tied to both market speculation and ethanol. I think you can draw that conclusion … when corn was $2 or $2.50 for 20 years, or so. … We introduced the ethanol program in 2006 and took that $2.50 corn to, last year, $4 and it’s now at $6 or $7. If you do the math on that, it’s effectively a $60 billion cost to the public for this coming year…
“The speculator has jumped onto the ethanol program now that corn is part of the energy process. He’s in there playing.”
Boswell was unmoved. “I respect you being here and we need to have this dialogue. But, with the facts before us, I’m not convinced ethanol is cause of this. I think there are many, many other factors. This process will probably bring those out and give us a chance to decide what we need to do.”
Drought, hay, DDGs
Another question posed by Meyer: with ethanol mandates and livestock feed needs, what will happen when the United States faces a year of widespread drought in corn-producing areas?
“We’re living on borrowed time from a sometimes fickle Mother Nature,” said Meyer. “The last major drought in the Midwest occurred in 1988. The national average corn yield that year was 26 percent below the long-term trend. The 1988 shortfall didn’t cause major disruptions in U.S. livestock and poultry operations because farmers and the federal government held huge stocks of corn.”
What would happen now if yields fell 26 percent below trend with a 5.4 percent projected at the end of the coming crop year? In such a scenario, due to improved corn varieties yields are unlikely to fall as much as they did in the 1980s.
Even so, Meyer said if the impact is only half as large “the resulting corn crop would be less than 12 billion bushels in a world that needs 13 or 14 billion. A completely free market would push prices to effectively ration the short supply.” However, pointing again to the RFS, Meyer said today’s “corn market isn’t free … and the brunt of rationing will fall on livestock and poultry producers. But they can’t shut down a production system quickly – animals must be fed or destroyed.”
As for how hay figures into the feed equation, Eric Erba, California Dairies, Inc., Senior Vice President for Administrative Affairs, said “there truly has been an issue of availability of hay. In California, we’ve seen decreases in alfalfa acreage in just the last two years. … Alfalfa represents 10 to 15 percent of the rations fed to dairy cows.
“We’ve heard alarming reports that hay fields are being torn out and being replaced by higher-value crops such as cotton, tomatoes and fruit and almond orchards.”
Erba also played up “a spectacular change in historical trends” as a recent USDA report says that ethanol plants will soon consume more corn than the livestock industry.
In his home state, said Texas Rep. Randy Neugebauer, “we’ve had a huge drought and folks are thinning herds and feed supply is diminished substantially as we go into winter. What about hay availability?”
Meyer: “Hay availability will be an issue. … One friend (in the Southwest) told me last week ‘we’ve already used this winter’s hay supply to get (the herd) through the summer.’ That may be a bit of an overstatement, but not much.”
Hay stocks, predicted Meyer, will “get very tight toward the end of the year. Prices have already gone up dramatically during the summer months.”
Neugebauer also wanted to know how dried distillers grains (DDGs) factor into the feed situation.
“For the turkey industry, it’s fairly low,” said Michael Welch, president of Georgia-based Harrison Poultry, Inc. “We’re using around 5 percent (DDGs). … Corn is 50 percent of the ration and cornmeal is 20 percent.”
Meyer said DDGs are “by far better feed for beef cattle than any other species. … But a lot of cattle aren’t where DDGs are so, in many cases, there are substantial transportation costs.”