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DAVID KRUSE

By Staff | Jul 23, 2010

Progressive Farmer Magazine Senior Editor, Victoria Myers, wrote, “Cattlemen could see lower prices for calves next if a decision to bump blending rates for ethanol continues to gain political momentum.”

The connection would be that increased ethanol production would raise corn consumption and corn prices so that feed costs would be higher and feedlots would pay less for feeder cattle.

Maybe, but the same could be said of China buying corn boosting corn exports or if the poultry industry continues to increase chick sets boosting feed demand.

Ethanol is not the only demand that increases corn prices and feed costs, but it is the only demand that returns a third of each bushel of corn it uses as feed to the cattle industry in the form of distiller’s dried grain. It is also the only corn demand that livestock groups pick on.

China won’t send us back DDGs from the corn that it buys and the poultry industry can’t efficiently use it. Raising the ethanol blending cap to E-15 will only increase the use of corn for ethanol to the degree necessary to fulfill the 15 billion gallon Renewable Fuels Standard.

Nobody is building any more new ethanol plants. Yet, the ethanol industry got picked out by NCBA and NPPC as unacceptable competition for corn despite the beef industry symbiotic relationship with DDG co-product. They are spending money on lobbyists in Washington to stop the cap increase to E-15 and end the blender’s credit and tariff when they expire at year’s end.

NCBA’s chief economist Greg Doud claims, “We want to compete for that bushel of corn without government supports. Right now this is not a level playing field. We believe it’s time to move toward a market-based approach. Supply and demand should be based on economics, not government intervention in the marketplace.”

They say thet want the ethanol industry to operate in the free market without subsidies. China subsidizes corn prices which creates the demand to import U.S. corn. Chinese subsidies are OK and ethanol subsidies are not? When the NCBA and NPPC comes out asking to ban U.S. corn exports to China because of Chinese subsidies, then they will add credibility to their philosophy.

That doesn’t change the fact that the livestock industry has been indirectly subsidized with below-the-cost-of-production feed by farm bills producing surpluses.

Doud also points out, “First you have to distinguish between wet distiller’s grains and dried distiller’s grains. More ethanol production might be a good thing if you’re within about 50 miles of a plant and you can buy the wet distiller’s grains. But dried distiller’s grain, which can be transported further, are priced at a point where they are nutritionally equivalent to corn. So this wouldn’t necessarily be a great savings for cattlemen.”

Doud represents big Southern Plains feedlots that are not close enough to ethanol plants to use wet distiller’s grain so the ethanol industry makes Midwest feedlots, located near plants with access to the wet co-product, more competitive. That’s why Plains states feedlots and NCBA don’t like ethanol because of wet distillers grain. The cost of gain is significantly cheaper in Iowa than in Texas.

Meyers wrote, “Kansas State University economist Daniel O’Brien published an article recently exploring what might happen as a result of increasing ethanol levels in U.S. fuels from the current 10 percent to 15 percent over the next 10 years.

He said for each 15 percent increase in ethanol allowed in U.S. gasoline blends, 1.3 billion more gallons of ethanol would have to be produced.”

I noted the spin, “would have to be produced.” That suggests that raising the cap to E-15 is a mandate. It is not. It’s voluntary. What raising the cap does is allow access for selling ethanol to the consumer, consistent with the RFS. The 15 billion-gallon, corn-based RFS, can’t be fulfilled without increasing the blend cap.

More corn exports to China, or elsewhere, competition from poultry, pork productivity expansion or weather, will impact corn production, ending corn stocks corn prices and feed costs.

The livestock industry picked out the ethanol industry to beat down rather than promote banning corn exports to China. Cattlemen would like to sell beef to the Chinese so will tolerate the U.S. selling them corn raising prices and feed costs here. The bottom line is that livestock industry organization opposition to ethanol that doesn’t represent Midwest producers has caused a rift in agriculture that is unwise and counter productive.

The ethanol industry is good for the country and corn producers and it can adequately supply the RFS mandate and feed needs, too. The ethanol cap needs to be increased to E-15 and the blender tax credit and tariff reauthorized to support Midwest cattle producers.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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