Thursday, October 21, 2010

Ethanol Production

The main headline in this week's edition of Feedstuffs magazine claims/cautions that the EPA has partially approved E15 ethanol blends for 2007 and newer model cars. Why this headline trumped a whole lot of other interesting feed industry news is that the whole ethanol situation has huge implications in animal agriculture if we choose to maintain the status quo.

Although using corn to create motor vehicle fuel is fantastically inefficient, we aren't literally on the verge of taking food out of someones mouth because we choose to use corn to produce ethanol. I think a more accurate assessment is that we are using some of our "cheap" grain supply to feed cars instead of cattle, and BOTH are fantastically inefficient uses of corn.

Given that ethanol production AND feed corn production are heavily subsidized by the federal government, we are currently in a situation where thanks to government intervention the market for corn has been severely and artificially manipulated. Since the acreage dedicated to corn is maxed out and pretty static from year to year, I'd say the price of corn is likely to stay high, at least relative to the long term average, until one or both of these industries lose their federal corn subsidies.

Unlike hogs and chickens, beef cattle aren't designed by nature to eat corn. At the end of the day, beef cattle always make sense in places that can't grow much grain. Unless it is fantastically cheap because it has been massively overproduced (as it has been my entire life), it makes no economic sense to feed corn to beef cattle. To grow a pound of beef requires 6 to 10 lbs of corn at a minimum.

As we move toward an election and a new farm bill, keep your ears and eyes on beef subsidies. I'd wager that somewhere in Washington, lobbyists for the cattle industry are proposing a series of subsidies for beef producers to counteract and overcome the current massive federal subsidies on corn.

Didn't we used to call government manipulation of free markets socialism ?

6 comments:

Kate said...

A lot of folks who trumpet their opposition to "socialism" are very interested in the type of socialism that benefits them!

Jason said...

I think agribusiness has a new motto. Get the government out of agriculture, except the part I control ! LOL !

Anonymous said...

hey Jason
I don't agree that it is cheaper to raise beef on poor grassland then on good corn growing farm. If you can get good yields of corn on your farm and feed your own cattle it can be still cheap. I am not talking big time feedlots but small lots of 1 to 2 hundred head. At that size you can turn the manure over to fertilize a crop. Now that corn has taken off in price the feeedlot is empty cause I can find better ways to get in my excercise in the winter and save money by going to a gym. As you said though, that is because of susidies and ethanol. If corn was at its ten year average I can make more by feeding it. Thats just my narrow minded opinon.
Bruce

Jason said...

Bruce;

You're right (and I know you already knew that !) . When corn is cheap it can make sense to feed corn and use the manure back on another crop.

But I'm going to play devil's advocate for a minute.

I know you can make a little money doing what you said because I grew up doing it.

But when I think about the overhead tied up to grow corn, I still say it's pretty hard to compete with a spool of wire, a water trough and some time for making a living with beef.

Anonymous said...

I try to justify my equipment by custom work. It gives me a reason to have bigger toys then I may need and it some years it maybe my only stable income. This year it looks like the gravy on top. I like your way of beef farming and do farm that way for six months of the year but then the great white north factor kicks in. This year is the first year in our farms history of 85 + years where we have sold our stockers off pasture instead of fatting them. It feels very different.
Bruce

Jason said...

Putting more weight on 'em always brings more dollars, and making a living is what it's all about.

We grass feed 'em for precisely that reason and also to help stabilize our returns. Marketing our own beef is a LOT of extra work and if we only sold a few, I'm not sure I could justify it. We sell grass fed priced at $ 3.85/lb hanging wt, vs. grain fed at $ 2.50/lb hanging.

On a hundred head, that adds up to a lot of extra dollars.