June 10th 2006, IOWA, USA: Increased cost could be sent to consumers
Explosive growth in U.S. ethanol production has a potential downside for hog feeders: higher-priced corn that could cut into producers' profits.
Consumers could be affected, too, by higher prices at the meat counter, market analysts predicted Friday.
Cash corn prices are expected to average $2.45 per bushel across the United States for the 2006-2007 marketing year, the U.S. Department of Agriculture reported Friday. That's up more than 22 percent from the average for the marketing year that ends Aug. 31.
In Iowa, prices will average about $2.35 per bushel next year, said Robert Wisner, an Iowa State University Extension economist. By Wisner's calculations, the price of corn in Iowa could climb to $2.70 per bushel in the 2007-2008 marketing year and $2.85 per bushel the following year.
"The driving force in that is the huge expansion in ethanol production," he said. "That is by far the dominant reason."
Eugene Moody of Maxwell and other producers attending the 2006 World Pork Expo voiced concerns about higher grain prices.
"If we get all the ethanol plants up and going, are we going to be shooting ourselves in the foot?" Moody asked.
This year, U.S. ethanol production is expected to consume at least 14 percent of U.S. corn. The growth is driven in part by demand for alternatives to foreign energy. Iowa is home to 25 ethanol plants with combined annual production capacity of 1.5 billion gallons, according to the Iowa Renewable Fuels Association.
As the nation's No. 1 producer of corn, soybeans, pork, eggs and ethanol, Iowa has much at stake in what happens to grain prices this year. While farmers selling corn could benefit from higher grain prices, livestock producers who must buy corn would be hurt, Wisner and others said. At this point, ethanol prices are high enough that makers of the corn-based fuel additive could withstand higher grain prices, analysts said.
The greatest impact will fall on livestock feeders, because feed costs represent their single largest production expense, said John Lawrence, an ISU Extension economist who is director of the Iowa Beef Center in Ames. Corn accounts for over half of the cost of hog and cattle feed.
"That ultimately will be passed on to consumers in the form of higher food prices," Lawrence said.
Ethanol production may benefit farmers who feed livestock wet or dried distillers grains, a by-product of the ethanol process. Swine and poultry feed can contain up to 10 percent distillers grain, while it can account for up to 40 percent of cattle feed, Lawrence said.
Lawrence said Iowa was on track to produce 11 billion pounds of distillers grains annually, which could reduce feed costs, especially for operations near an ethanol plant.
Sam Carney, a hog producer from Adair, said he thought ethanol plants' increased demand for corn could make it harder for hog producers to make a profit.
Farmers are considering raising more corn and less soybeans to meet the increased corn demand, Carney said.
Weather is the key to what happens this year, both with crop development and with prices, farmers and market analysts said.
The latest crop condition reports show that corn and soybeans in Iowa are off to a good start.
Farmers and other crop specialists are increasingly worried about drought this year. Several weeks of unusually hot, dry weather have contributed to those concerns.
Weather could pose some challenges for Iowa farmers during the rest of the growing season, said Harry Hillaker, state climatologist with the Iowa Department of Agriculture and Land Stewardship in Des Moines.