Impact of Ethanol on Animal Agriculture John D. Lawrence Iowa State University.

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?)

Warren

Boone

Audubon

Pottawattamie

Mills

Fremont Page

Montgomery

Cass

Harrison

Monona

Shelby

Crawford Carroll

Adams Union

RinggoldTaylor Decatur

Clarke

Greene

Adair

Guthrie

Madison

Dallas Polk

Dickinson

Cherokee

Woodbury

Plymouth

Ida Sac

BuenaVista

Sioux

Lyon

ClayO'Brien

Osceola

Humboldt

Calhoun

Pocahontas

HamiltonWebster

Wright

Kossuth

Palo Alto

Emmet

Hancock

Winnebago

Clinton

Keokuk

Wapello

Wayne

Lucas

DavisAppanoose

Monroe

Marion

Jasper

Mahaska

Poweshiek

Louisa

Van Buren

Jefferson

Lee

Henry

Des Moines

Johnson

Washington

IowaScott

Muscatine

Cedar

Howard

Black HawkHardin

StoryTama

Marshall

Grundy

Worth

Franklin

Cerro Gordo

BremerButler

Mitchell

Floyd Chickasaw

BuchananDelaware

LinnBentonJackson

Jones

Dubuque

Fayette

Winneshiek

Clayton

Allamakee

Iowa Corn Processing Plants, 2002

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

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Osceola

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Audubon

Washington

BuenaVista

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Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

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

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Wright Franklin

Floyd Chickasaw

Webster Hardin

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Hancock


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HamiltonGrundy

Buchanan

Delaware

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Mills

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Calhoun

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Henry

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Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

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

PoweshiekPolk


Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock


BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison


Keokuk


Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Osceola

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Washington

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Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

,

PoweshiekPolk


Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock


BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison


Keokuk


Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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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

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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/

Impact of Ethanol on Animal Agriculture John D. Lawrence Iowa State University.

Documents

cwt slide

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ia borders slide

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