Impact of Ethanol on Animal Agriculture

John D. Lawrence

Iowa State University

Higher Corn Prices Came at a Good Time

• Hogs: extended period of positive returns• Feedlots Near record weekly prices and new

record annual• Cowherds: profitable since 1999 and

contracting• Dairies: rough 2006, but record prices in 2007 • Eggs: prices higher in early 2007 following 3+

years of lower price• Turkeys: expanding after record prices in 2006

Omaha Corn and Decatur SBM

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Expanding U.S. Ethanol Industry vs. 2005-06 Corn Feeding

2005-06 U.S.Corn Feeding

Potential Cornfor Ethanol

Other underconstruction

07-08 Ethanol

Current Corn forEthanol

2005-06 U.S.Corn Feeding

Proj. Corn ethanol2011-12

'06-07 Corn for Ethanol

Proj. cornFor ethanol 07-08

Other under Constr’n.

Implication for Pork Producers

• Cost of production impact–1997-2006

• Omaha corn = $2.09• Decature 48% SBM $188• ISM barrows and gilts live weight $42.18• ISU farrow to finish cost estimate $39.92

–12 bu/head, 270# live weight• $1 higher corn = $4.44 = $44-45/cwt• $2 higher corn = $8.88 = $48-49/cwt

Impact on Feedlot Cattle Cost and Returns

• 1997-2006 Price BE Cost– Calf $101.96 $71.69– Yearling $90.35 $72.00

– Fed $74.18 • 60 Bushels and 1250# pay weight

– $1 higher corn = $4.80/cwt, $8.50 on 7cwt– $2 higher corn = $9.60/cwt, $17 on 7cwt

Cost of Corn as Percent of Total Retail, Hide, and Offal Value

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Beef Pork1991-2006 7.4% 7.1%

Jan-Jun 07 9.0% 9.6%

Example U.S. DGS demand by 2011-12

•COF @ 30% of corn 13.2 mil. T.•Dairy @ 25% of corn 8.3 mil. T.•Hogs @ 10% of corn 3.0 mil. T.•Poultry @ 7% of corn 1.4 mil. T. Total 25.9 mil.

T.Potential production at 5.5 bil. bu. for ethanol 46.8 Mil. T.

Midwest DGS Inclusion Rates Percent of Diet

• Enterprise Range Realistic Adoption• Swine 0-20 10 60• Poultry 0-10 5 40• Feedlot 0-40 30 85• Dairy 0-30 15 50Still need corn for beef and dairy cattleStill need corn and SBM for poultry and hogs• For each 1 bushel process to DDGS you

need 2 more bushels to feed

Chicago DDGS:Corn Price Ratio

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NW Iowa Price of Dry, Modified, and Wet Distillers Grains with Solubles Divided by the Price of Corn

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Wet Modified Dry

Converting Fiber to Ethanol

• 6/27/2007, POET produces cellulosic ethanol from corn cobs

• “… First, the fiber that comes from our fractionation process will provide 40 percent of our cellulosic feedstock from the corn kernels that we are already processing in our facility. “

Corn Basis to Chicago Cash for Cattle Feeding Regions

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IowaElevators

OMAHA SWNE Dodge City NECO TX N ofCanadian

TX Triangle

91-95 96-00 '01-05 '06-07

Monthly average of daily prices'06-'07 is Jan '06 - May '07

Corn Price Difference, Average Ethanol Bids Minus Elevator Bids, Northeast and Northwest Iowa

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Northeast Iowa Northwest Iowa

http://www.card.iastate.edu/ag_risk_tools/

Risk Implications• Physical control• Enough for ‘08, what about ‘09

– Ethanol expansion continues– Other crops try to buy back acres

• Basis volatility– 20% more corn to harvest and store– Carry in the market– Location basis variability

Rural Communities Needs Both Ethanol and Livestock• 100 million gallon ethanol plant

– 37 million bushels of corn– 50-60 people directly employed

• 37 million bu corn Direct jobsFarrow-finish 800Or Wean-finish 242Or Beef feedlot 278

• Further processing employment??

Take-home points

• Much tighter feed energy supply than in past

• Increased supply of medium-protein DGS

• Soy meal: tighter supply & higher cost• Differential economic impacts by species of Differential economic impacts by species of

livestock & poultrylivestock & poultry• High risk to livestock industry in short-crop High risk to livestock industry in short-crop

yearsyears• Feed price volatility affected by govt. fuel

mandates• 2nd generation ethanol plants to tighten DGS,

forage supplies (8-10 years out?)

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Mills

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Montgomery

Cass

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Monona

Shelby

Crawford Carroll

Adams Union

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Clarke

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Guthrie

Madison

Dallas Polk

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Iowa Corn Processing Plants, 2002

Iowa corn processing & ethanol plants, current & planned, 10/26/06

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Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

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66 Planned + current in Iowa

11 Just across the borders

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Figure 1.

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Iowa corn processing & ethanol plants, current & planned, 11/20/06

63

Capacity: 129% of 2006 cropCapacity: 142% of 2006 Crop

Iowa Corn Processing Plants, Current & Planned, 5/30/07

71 Potential Iowa Plants 11 Just across IA Borders

Take Home

The world in which you operate had fundamentally changed.

How have you changed

your business???

Thank you!

Any Questions?www.econ.iastate.edu/faculty/lawrence/