Ethanol Not the Source of Pain for Ailing Beef Industry

Cattlemen’s organizations like the National Cattlemen’s Beef Association (NCBA) continue to make it clear they blame ethanol as a big contributor to their current economic woes. Most recently they took aim at increasing the ceiling on ethanol blends to 15%, despite having access to record supplies of feed as corn and DDGS.

The NCBA arguments ring hollow given the current corn and ethanol environment. Corn production remains at record levels. USDA projects U.S. corn production at a record 13.2 billion bushels. Immediately after their public comment the latest figures from the Energy Information Administration (EIA), were released showing U.S. ethanol production hit a record high in November 2009 of 761,000 barrels per day (b/d). That is a 93,000 barrel increase from the previous year.

If you look at the numbers it becomes clear the continued blaming of our critical ethanol industry for the current economic plight of the nation’s cattlemen is inaccurate and unfortunate as well as being counterproductive for agriculture.

Over the last decade corn available for all uses has remained constant at nearly 10.6 billion bushels. We continue to meet all corn demand despite a seven-fold increase in corn for ethanol use. Add in the 1 billion bushels corn equivalent represented by distiller dried grains (DDG) and available feed supply is actually greater.

In 2009, after new corn demand for ethanol was met, there was still an additional 200 million bushels of increased production available for livestock feed. There is no conflict between food and fuel or feed and fuel.

Numerous factors are putting economic pressure on the profitability of livestock producers including weak export demand. Between 2008-09 U.S. beef and veal exports have declined 8%. U.S. per capita consumption of beef also declined for the first time ever. Global beef industry demand declined 5% last year.

Beef producers also see a challenge to beef production profitability coming from higher energy costs due to our increasing dependence on volatile and expensive imported oil. That is just the very thing ethanol is helping address. On a deflated basis, beef prices have increased much faster than corn prices. (As seen in the attached chart beef slide ) Beef producers have no room to call for lower corn prices.

For the first time, DDG availability will displace more than 1 billion bushels of corn this marketing year, providing a high-quality, high-value feed product for livestock producers, both in the US and abroad. At approximately $120 per ton this provides the corn equivalent protein and nutrients for livestock feed at the price equivalent of just over $1 per bushel.

Corn farmers cannot return to the days of $1.80 corn, just like cattlemen can’t continue to produce beef at the low price being fetched today. The livestock industry provides much needed protein for the U.S. and the world. It is also one of the largest markets for the nation’s corn crop and as such it has immense value. The livestock industry uses 33.5% of the U.S. corn crop annually with beef and dairy accounting for 14.5%.

The U.S. Meat Export Federation President and CEO Phil Seng sees tremendous trade opportunities for beef in the coming year and expects double digit growth in beef export markets. Let’s hope he is right. We have a great deal at stake in the future fortunes of our beef brethren and stand ready to work on real solutions.