October 20, 2006

Increasing corn use for ethanol could raise cattle price

Livestock prices could increase as a result of higher feeding costs due to increasing prices of corn owing to its increasing demand for ethanol production, concluded John Lawrence and Steve Meyer of Iowa State University and Paragon Economics respectively.

Corn prices might go between US$2-5 a bushel. The ethanol byproduct could be used in animal feeds, as distillers grain and solubles, or DGS.

This DGS need not be dried to be consumed by the cattle, thus giving a cost benefit to cattle feedlots closest to ethanol plants. However, the impact on the grading of cattle, was being examined.

To the question as to whether this would give an area like Iowa, which had a plethora of ethanol plants, a cattle-feeding advantage over other areas, Lawrence said cattle moved from Iowa to the high plains in the 1960s and 1970s. They were yet to decide whether to invest in a rail line, or build a feedlot in Iowa.

As of June 2006 there were 102 operational ethanol plants, with 32 others under construction and another 127 announced or proposed. But considering the recent hike in corn prices, it remained uncertain whether the proposed and announced plants would come to fruition, disclosed Lawrence.

For all 261 operational and proposed plants, the potential total of fuel would be 15.99 billion gallons, and of corn 5.3 to 5.9 billion bushels, according to the National Corn Growers Association.

Prices of gasoline, corn and plant operating costs remained some major variable factors for ethanol supplies. A US$2-dollar per gallon of gas would translate into about US$60 per barrel of crude oil, said Lawrence. He said at that price, ethanol plants could afford to pay about US$3 per bushel for corn and the rest depending on the plant's efficiency.

Other uncertain elements would include increased use of rail lines and water supplies.