"The corn surplus will be gone with the 2006 crop, as expected
total corn use may exceed production by about 1 billion
bushels," said Chris Hurt. "Thus, the supply crunch year appears
to be the 2007-08 marketing year.
"Of course, a
weather-related small crop this summer could still bring the
supply crunch and much higher corn prices this summer."
Hurt's comments came as he examined the relationship between
agriculture and the energy industry. Agriculture, he noted, will
be asked to contribute to the energy industry in a much larger
way in coming years.
"Agriculture's traditional role as the foundation of the food
industry will experience increasing competition as more corn is
used for fuel," he said. "One of the largest of the groups this
will impact is animal agriculture, which is among the biggest
users of corn.
"Both crop and animal agriculture will face exciting new
challenges to meet the growing demands that are currently being
proposed. The next decade will be an exhilarating period for
U.S. agriculture as it seeks the balance between food and fuel
As the largest user of corn and soybean meal, the livestock
industry has had the advantage of low-cost feed in recent years.
As an example, U.S. corn prices received by farmers from the
1998-99 through 2005-06 marketing years averaged just $2.05 per
bushel and hi-pro soybean meal just $180 a ton at Decatur.
"The rapid growth of the use of corn for ethanol in the
coming months and years means that the livestock industry has a
new major competitor, at least for corn," he said.
Feed, Hurt noted, is often the largest single cost factor in
the production of beef, pork, chicken, turkey, lamb, milk and
eggs. Livestock feeding has dominated the total uses of corn for
many decades, but that dominance has been reduced over time and
stands to become less significant in the future.
"In the 1960s, nearly 80 percent of the total use of corn was
for feeding animals," said Hurt. "The export boom of the 1970s
added dramatic new demands, and the average feed use for the
decade was 67 percent of total use.
"Further growth of industrial uses of corn in the 1990s,
especially high-fructose corn syrup, drove the average amount of
feeding use downward to 60 percent for the decade. Given the now
rapidly growing corn use for ethanol, feed use is expected to
drop to about 51 percent for the 2006 crop."
Americans, both consumers and politicians, are signaling they
want to use much more corn for fuel. Market prices of ethanol
are currently over $3 per gallon, and ethanol producers could
pay near $7 a bushel for corn and still have positive returns.
[to top of second column]
"Futures prices for ethanol today average $2.58 for the coming
12-month period -- high enough to pay an average of about $6 per
bushel," said Hurt. "Politically, there is support to stimulate the
use of corn for fuel even more. Senators Lugar and Harkin have
recently introduced legislation to move the renewable fuels standard
upward to 10 billion gallons by 2010 and 30 billion gallons by 2020.
"While corn grain ethanol would be the primary source by 2010,
the hope is that cellulose-based ethanol would be a large
contributor by 2020."
Hurt said the recent era of low-priced feed may well be over for
the animal industries, especially for corn prices, but many
"Corn for fuel can currently bid much more for corn than the
livestock industry," he said. "However, ethanol prices in the future
will depend on overall energy prices, on whether federal and some
state incentives continue as well as their level, and on the value
of ethanol as an oxygenate.
"The costs of corn for ethanol plants will likely be higher as
Hurt recalled the scenario that occurred during the time of the
1972-1975 export boom, when corn prices moved from around $1 per
bushel to closer to $3.
"Foreign countries could outbid the U.S. livestock industry for
corn and soybean meal, and reductions in meat, milk and egg
production resulted," he said. "During the 1972-74 period, food
inflation led the general inflation rate by an average of 3.5
percent. Once animal supplies were reduced, by the mid-1970s --
except beef, retail food and farm prices rose sufficiently to
stimulate rebuilding animal production into the late 1970s."
Hurt said that the warning the livestock sector should remember
is that when feed prices move to a new higher level, that likely
will mean an initial period of losses, and sometimes severe losses,
as herds and flocks are reduced.
"Then after perhaps one to two years, varying by species, retail
prices and farm prices will move higher, and positive returns can be
generated even with the higher feed prices," he said.
"The strategic message is that managers in the livestock industry
need to anticipate such a condition in the coming years and, more
importantly, begin planning how to survive the transition years
until product prices can eventually cover the higher feed prices."
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release]