Corn Use: With High Prices, Who Will Cut Back First?

January 26, 2011 11:44 AM
Corn Use: With High Prices, Who Will Cut Back First?
Last week the U.S. Environmental Protection Agency (EPA) paved the way for gasoline that uses up to 15 percent ethanol, called E15, to be used in cars, SUVs, and light pickup trucks made between 2001 and 2006. Last October, EPA approved the use of E15 for cars and light trucks built in 2007 or later.
With 38 percent of the 2011-12 U.S. corn crop already projected for use in ethanol, and prices on a steady rise, some industry analysts wonder which segment of the agriculture industry will cut back on corn usage first. Some have already started.
Many California dairy producers, for example, reduced corn usage by as much as 30 percent six to eight months ago, from about 12 pounds per head per day to 8 pounds, notes Mark Aseltine, dairy nutritionist and animal science instructor at California Polytechnic State University, San Luis Obispo.
Corn is one of the highest energy feeds available for use in dairy rations. To replace it, producers need to feed both an energy source and roughage. "You can only feed so much animal fat and bypass fat is expensive," says Aseltine. Other possible replacement feeds like oats and barley are not very available.
Many California producers are hand to mouth, buying corn on the spot market. When opportunities arise, they are replacing corn with ground grains, corn extenders, hominy, rice bran, wheat and anything else that works. "But the availability of those ingredients isn’t very good either," says Aseltine. "Dairies won’t cut back how much milk they produce or how many cows they milk." At least not yet, so it looks like large amounts of corn will remain in the ration.
In the Midwest, dairies have started to replace a few pounds of corn with haylage. "Some dairies are cutting back 5 to 10 percent of the grain they feed," says Dan Undersander, agronomist with the University of Wisconsin.  But they, too, are hesitant to cut back too much in fear of losing milk production.
Cattle producers like other livestock feeders are reluctant to cut corn out of their rations. "There are not a lot of alternatives for corn," says Ken Winter, owner of Winter Feed Yard in Dodge City, Kansas. At full capacity Winter feeds 30,000 head. Today he’s feeding 14,000 cattle and waiting for industry economics to improve.
Finishing rations contain about 90 percent corn, or about 25 pounds per head per day. With the cost of corn and feeder cattle escalating, Winter has not brought new animals onto his feedlot for three months. "As corn prices go up, the cost of feeder cattle will have to drop or the price for live animals ready for slaughter will have to go up," he says. "Rationing will have to come from another side of the industry—like ethanol."
Yet the federal government mandates the use of 12.6 billion gallons of ethanol in 2011. "If they have to meet the mandate, there is no way ethanol producers will cut back," says Bruce Babcock, director of the Center for Agricultural and Rural Development (CARD) at the University of Iowa.
However, he says, that blenders carried over renewable identification numbers (RIN) in 2009 and 2010. These numbers reflect the amount of blending that occurred in excess of the federal mandate and can be used to meet the current year’s mandate. "Unless crude oil prices go up unexpectedly or corn prices come down, which is unlikely, we’ll see some cutback in corn use for ethanol," Babcock says, particularly since current profit margins are near zero for ethanol producers.

Babcock notes that ethanol producers could meet the 2011 mandate with 11 billion bushels of corn if all of the RIN were used, reducing corn usage by 700 million bushels But, he says, a cutback would take time. "It would take four to five months to wean our fuel system off ethanol," he adds. "The only way around this situation is to pray for good weather and lots of acres." 

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Spell Check

1/26/2011 12:48 PM

  Any other farmers getting tired of hearing only grain prices accused of being high? Lord knows nothing else out there is high priced, right?

1/27/2011 06:24 PM

  Right now everything is to expensive. Try being a young farmer trying to expand the operation. Can't even get a loan through FSA for 80 acres of land. Just wish everything would level out so everyone can make good money(wishful thinking).


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