Nearly 40% of the nation’s 12.5-billion-bushel corn crop this season will make its way to ethanol production.  

What's the biofuel doing to your feed costs?

No matter how Jim Boyle pencils out his feed costs, he can’t find a way to escape the impact of high corn prices on his three Arizona dairies. 

Flaked corn to feed his milking string has risen to $280 per ton, up sharply from $180 in 2007. Dried distillers’ grains with solubles (DDGS), which account for about 10% of his herd’s rations, have jumped to $240 per ton, more than double what they were five years ago. Even local barley, which he sometimes substitutes for corn, isn’t a great deal at only $7 to $8 per ton less than flaked corn.

"Corn sets the price of everything," says Boyle, who milks 5,500 cows near Mesa and Casa Grande. "It’s had a massive impact on our feed prices. Before, even when there was a bad corn crop, we could expect the corn price to be $2.50 per bushel."

But those days are long gone, now that corn has hit $7 per bushel. Like many dairy producers, Boyle and California’s Peter de Jong blame their escalating feed costs not just on corn’s upward price leap but more specifically on the influence of corn-based ethanol.  

Peter de Jong has cut his corn purchases by half for the 15,000 cows he milks near Hanford, Calif. (Photo: Catherine Merlo)

"Corn prices have been artificially inflated by ethanol’s subsidies, tariffs and mandates, and the help the government gave to build ethanol plants," says de Jong, whose family business, Hollandia Farms, operates three dairies near Hanford, Calif.

"Our costs are up $2.50 per cwt. this year, and that’s largely due to ethanol," he says.

Hollandia Farms, which milks 15,000 cows, has increased its DDGS amounts from 4 lb. to 7 lb. per cow per day. But the ethanol byproduct isn’t the ideal feed, de Jong says, since DDGS provide no starch and their high sulfur, nitrogen and phosphorus levels limit their use.

While de Jong’s feed costs are up 60%, his fuel, land, water, fertilizer and labor expenses have also risen. "That can all be traced to corn, oil and the weaker dollar," he says.

Nearly 40% of the nation’s 12.5-billion-bushel corn crop this season will make its way to ethanol production, up from just 14% in 2005. Nearly 5 billion bushels of corn will be used to produce about 15 billion gallons of ethanol. Ethanol demand for gasoline use is dramatically boosting competition for the yellow-eared crop, affecting costs for food, livestock feed, land and more.

"There is a cause and effect of high corn prices and feed costs, and it’s coming from ethanol," says Normand St-Pierre, a professor and Extension dairy specialist at The Ohio State University. "Ethanol demand has a significant impact on corn prices and everything else. You cannot yank 40% of the corn production in a country that produces about 40% of the total world corn supply without having a substantial impact on the grain and feed markets."

Dairy feed costs spiked 60% from August 2006—not long after the ethanol boom hit—to December 2010, St-Pierre says. Total feed cost in that four-year span averaged $7.35 per cwt., compared to $4.60 per cwt. from January 2005 to July 2006. (These figures are for lactating cows only.) 

Since 2007, flaked corn (right) has jumped $100 per ton, and dried distillers' grain prices have more than doubled. (Photo: Catherine Merlo)

"The difference is even greater when the additional cost of feeding dry cows and replacement heifers is accounted for," St-Pierre says. "Producers used to say that feed costs represented 35% of their milk checks," he adds. "Now they would be happy if those were even at 50%."

The break-even cost of production for dairies nationwide has risen from $13 per cwt. to $17 per cwt., he adds. 

Five years ago, Arizona’s Boyle would have been "terrifically happy" with the milk prices he’s recently received: $17 per cwt. in December; $16.50 per cwt. in January. "Now, we’re not even breaking even," he says. "Ethanol has added $2 per bushel to corn prices."

Ethanol’s impact has radiated beyond corn costs, St-Pierre says. As more land goes into corn production, competition builds for other acreage, driving up prices for soybeans, wheat, alfalfa hay and other forages. Cotton’s dramatic price increase makes it another rival for farm plantings.

"The cost of renting and leasing land has gone up because of that competition," St-Pierre says. "Lease rates have almost doubled in the last five years."

Ten years ago, Ohio farmland was priced at $2,000 to $2,200 an acre, he says. The same land now costs $3,500 an acre.

With corn reserves at their lowest levels in 15 years and demand expected to remain strong, St-Pierre says the nation will be "scraping the bottom of the barrel" for supplies this year.

"We’ll need a record crop to balance supply and demand for corn and soybeans," he says. "The U.S. produces 40% of the world’s corn. If anything goes wrong—rain, drought, heat—brace yourself. We could see $10 corn."

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