March 9, 2007

 

US livestock producers feel pinch as ethanol uses up corn prices

 

 

US livestock producers vented frustration Thursday (Mar 8) to lawmakers over rising corn-based feed costs as the expanding ethanol industry consumes more and more corn, and some demanded the government stop subsidising production of the fuel.

 

"Pork producers operate on very tight margins," Joy Philippi, a former president of the National Pork Producers Council, said at a House Agriculture subcommittee hearing. She stressed the industry was being hit hard as

feed grain was being diverted "in very large quantities to biofuel production, particularly corn-based ethanol".

 

US corn production is expected to rise substantially this year, but record amounts will also be consumed by the ethanol industry, leaving stocks very low, according to recent government forecasts. The USDA predicted this month that corn use for ethanol in 2007/08 will rise by 50 percent to 3.2 billion bushels from 2.15 billion in 2006/07.

 

Ernie Morales, a Texas rancher representing the National Cattlemen's Beef Association, testified: "The livestock industry remains the largest consumer of corn by utilising almost 58 percent of the total corn used over the past decade. In the past year alone, cattle feeders have seen a 92 percent increase in cash corn prices."

 

Both the cattle and swine groups laid some blame on the US government's 51-cent-per-gallon tax credit for ethanol refineries and 54-cent-per-gallon tariff on imports for fuelling the dramatic rise in US production.

 

The federal tax credit for ethanol is scheduled to expire at the end of 2010, and the tariff is set to expire at the end of 2008. The livestock groups have said they do not want Congress to extend them.

 

House Agriculture Committee Chairman Collin Peterson, D-Minnesota, said Thursday he realised that livestock producers are experiencing some "short-term pain" from high corn prices, but added that Congress would not likely agree to ending ethanol subsidies or tariffs designed to keep imports low.

 

Peterson, speaking to reporters, said he believes the subsidy should be extended or even "made permanent" because they will be needed to support the development of a cellulose-based ethanol industry. Corn will still be the primary feedstock for US ethanol production for years to come, but lawmakers, government and industry officials widely believe that cellulose crops--such as switchgrass--are the future of ethanol production.

 

"We are going to switch from corn to cellulose," Peterson said, "and we need the tax credits ... to stand up this industry, and the longer they're extended, the more likely we'll get financing for these first commercial cellulosic ethanol plants."

 

USDA Deputy Secretary Chuck Connor confirmed Thursday at the subcommittee hearing that ethanol production is on the rise and using up much more corn, but also told lawmakers that meat prices are strong enough to ameliorate high feed costs.

 

He called the high feed costs a "period of adjustment" for livestock producers," but stressed: "Total US production of meat and poultry and exports are both forecast to be record highs in 2007. These increases are expected to boost livestock receipts to a record-high US$125 billion this year."