Agari News, MN

01-30-07

Pork producers will have to adjust to higher feed costs

By Jean Caspers-Simmet

Agri News staff writer

DES MOINES -- Pork producers will have to get used to higher corn prices and increased production costs.

That's the assessment from Dermot Hayes, Iowa State University's Pioneer Chair in Agribusiness.

He shared the results of a study he and other researchers at ISU's Center for Agriculture and Rural Development completed on how the ethanol industry will impact grain, oilseeds and livestock at last week's Iowa Pork Producers Association annual meeting.

If ethanol subsidies remain and crude oil, natural gas, and distillers grains prices stay at current levels, the break-even corn price for ethanol plants is $4.05 per bushel, Hayes said.

At this price, corn-based ethanol production would reach 31.5 billion gallons per year, or about 20 percent of projected U.S. fuel consumption, Hayes said. This would require 95.6 million acres of corn. Total corn production would be approximately 15.6 billion bushels, compared to 11 billion bushels today.

The CARD analysis shows a 9-million-acre reduction in soybean acreage, which can be achieved if half of corn-soybean producers switch from a corn-soybean rotation to a corn-corn-soybean rotation. Corn exports and production of pork and poultry would all be reduced.

Current corn-importing countries won't face a scarcity of corn, but they will get their corn from countries such as Argentina, which has a large production capacity, Hayes said.

Ethanol industry researcher William Tierney estimates that if all the plants that are planned are built, then total ethanol production will reach 26 billion bushels by August 2009, Hayes said. If oil prices remain at $60 or more, CARD research indicates that most of these planned plants will be built. As many as 5 billion gallons of new capacity will be announced and come online after August 2009.

The CARD study shows corn used for U.S. livestock will fall by 33 percent, Hayes said. Some of this adjustment is made possible by an increased use of dried distillers grains with solubles, especially in the beef and dairy sectors, and increased use of wheat, hay, and pasture. However, part of the reduction will be achieved by reductions in the size of the U.S. pork and poultry industries, which are less able to switch to DDGs-based diets.

As U.S. corn prices rise, world corn prices will also increase. U.S. livestock producers will experience higher feed costs and some will leave the industry, Hayes said. Reduced production will cause an increase in market prices, and domestic and international consumers will pay higher prices for U.S. livestock products.

ISU livestock economist John Lawrence has calculated that a $1 increase in corn prices will result in $4.44 per hundredweight increase in hog production costs. The U.S. pork and poultry sectors will lose international competitiveness, and exports will fall, reducing the size of these sectors.

"Specialized pork and poultry producers who do not own shares in ethanol plants will lose, as higher corn prices, and eventually reduced international competitiveness, cause a reduction in production levels," Hayes said.

Construction and profits from ethanol facilities will stimulate rural communities, but reduced livestock production will occur in these same areas, which will eventually offset this advantage, Hayes said.