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Rising corn prices affect ethanol, cattle

By Staff | Oct 15, 2010

DES MOINES (AP) – Rising corn prices have increased the value of Iowa’s crop by billions of dollars, but more expensive feed has affected cattle producers and financial experts say the spike in corn cost could harm ethanol production.

“If corn prices get much higher, ethanol production could come to a screeching halt,” Iowa commodity trader Tomm Pfitzenmaier of Summit Commodities told The Des Moines Register for a Tuesday story.

Corn prices have risen to $5.55 a bushel after reports from farmers of decreased yields due to moisture damage to corn plants. Corn traded at around $3.60 in mid-June. The rise means Iowa’s corn crop’s worth has gone from $13 billion in mid-June to more than $18 billion this month.

The rise looks to be good for farmers who can buy more farm equipment and bid up the price of farmland. Iowa bankers say the strong grain prices also will prop up their farm loan portfolios.

“Farm loans have been strong and have helped us through some tough times,” said President Gary Kahn of First Newton National Bank.

But rising corn costs have made ethanol prices surged from $1.70 over the summer to $2.15 on Monday.

The higher corn prices also aren’t as positive for cattle and hog producers who buy feed. Jason Golly, a buyer for Lynch’s Livestock of Waucoma, said rising corn prices will end anyone’s expansion plans.

“With feed costs so high, a producer who had planned to feed a hog up to 280 pounds will quit at 260 pounds and take it to market,” Golly said. “The packinghouse doesn’t get that extra 20 pounds of meat and so supplies will be tighter and prices will go up.

It may take a few months to happen, but it will.”

Duane Gangwisch, chief executive officer of the Iowa Cattlemen’s Association, said declines in demand and price for feeder cattle will discourage more cattle production and tighten herd and beef supplies.

“Higher corn prices put pressure on the cattle industry, especially on feeder cattle,” Gangwisch said. “Feedlot operators become more reluctant to buy cattle to put on feed.”

Rick Brehm, president of Lincolnway Energy in Nevada in central Iowa, said ethanol draws the most profit when it sells at prices less than gasoline.

“Two months ago we sold ethanol at a 60-cent discount to gasoline,” Brehm said. “That discount is disappearing and that’s a concern.”

Brehm said another concern is an industry tax credit that acts as an incentive for oil companies to blend their gasoline with ethanol. The 45-cent-per-gallon credit expires Jan. 1.

“The higher corn prices make the renewal of that tax credit all the more imperative,” Brehm said.

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