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"However, for hogs and poultry, the question is whether the
increased price of corn will be offset by added value in the
feed product that is returned," said Chris Hurt. "If not, this
could mean some restructuring of the location of the U.S. and
world animal industries. "This appears to be particularly true
for the eastern Corn Belt and the southeastern United States,
where hog, poultry and dairy are more dominant."
Hurt's comments came as he reviewed what he termed the
"ethanol revolution." He said that while the future has many
uncertainties, it is clear that a sufficient number of ethanol
plants are currently being built already to call this a
revolution that will change the nature of corn demand and corn
price relationships.
"While the western Corn Belt continues to build the most new
facilities, the Renewable Fuels Association currently lists nine
new facilities east of the Mississippi River under construction
or expansion," said Hurt. "These include one in Wisconsin, two
in Illinois, three in Indiana and three in Michigan.
"In addition, these states plus Ohio have a number of
additional plants that have been announced but are not yet under
construction."
In the animal industries of the eastern Corn Belt and the
southeastern United States, the ethanol revolution has raised
concerns. In particular, how much will corn prices rise as a
result of these large new corn demands, and can animal
industries get enough value back from the feed product to offset
the potentially higher corn prices?
"Those answers are not easy to derive at this point, but some
light can be shed on some of the factors that will be
important," he noted. "First, the new corn demand will compete
with current uses for corn, and/or corn supply must increase
substantially through greater production, which probably means
many more acres of corn and fewer soybean acres.
"The new demand could be met from the supply side. As an
example, a shift to 60 percent corn acreage and 40 percent
soybean acreage in Indiana could meet the current feeding
demands, current corn processing demands and the new growth in
demand for ethanol expected by 2008. However, this also has
major implications for the soybean sector."
Hurt added that there are interesting dynamics on the corn
demand side as well. For the 2005-06 marketing year, U.S. corn
consumption is expected to be 55 percent fed in the United
States and 17 percent exported. The largest portion of exports
is destined for feeding animals as well. The new corn demand for
ethanol may compete heavily with animal feeding in the United
States and in foreign countries.
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 "The highest value use of the distillers dried grains (DDGs from
dry mills) is in cattle feeding and dairy rations, where it
primarily substitutes for soybean meal," Hurt explained. "The value
in hog and poultry ration is much lower, where it substitutes more
for corn.
"As an example, with current corn and soybean meal prices, DDGs
are worth about $170 per short ton in beef and dairy rations but
only $84 per short ton in poultry and hog rations. The production of
DDGs will be so large that supplies will most likely force DDG
prices down to their lowest value, which means they will be similar
to, or just above, the value of corn."
Cattle feeders in particular may be able to purchase a low-priced
product that has considerably more value in the ration.
"But the dilemma for the eastern Corn Belt is the low number of
cattle on feed," he said. "Currently, only about 8 percent of the
U.S. cattle on feed are in a region that is roughly east of the
Mississippi River -- including Arkansas and Louisiana. In contrast,
38 percent of the market hogs, 47 percent of the dairy cows, 53
percent of the turkeys, 59 percent of the layers and 80 percent of
the U.S. broilers are in this region."
In contrast to the western Corn Belt, which has been able to move
much of its DDGs to on-feed cattle, the eastern Corn Belt will have
to move that product into hog, poultry and dairy rations or export
large amounts.
"In Indiana, for example, in-state usage of DDG production may be
about 40 percent by 2008, but the rest will have to be moved to
other regions or exported," said Hurt. "Problems with DDGs in
rations of hogs, poultry and dairy include high phosphorus levels,
the impact on fat deposition in milk and meat, as well as concerns
about concentrations of mycotoxins. Much more research is needed to
answer these and other concerns.
"While there remain many uncertainties, it is clear that the
impact of corn ethanol is a 'big event' that could influence animal
industries, perhaps for years to come."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]
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