By E. M. Morrison

Today, animal agriculture is the largest U.S. corn consumer. But as ethanol production rises in the coming decade, corn processing for fuel and sweeteners will surpass livestock feed, according to
John Lawrence, Iowa State University livestock economist.

Strong corn demand is lifting prices, which have climbed about 80 percent since last fall. “And when corn prices go up, soybean prices go up to maintain acres,” says Wayne Hansen, AURI project director, “so protein costs rise, too. If you’re in the livestock industry, it means higher costs for you.”

Eventually, Hansen says, consumers will pay more for animal products. “Growers won’t raise livestock for nothing.”

Feed is usually a livestock enterprise’s largest production expense, and corn is typically half that cost. Higher feed expense will hit the poultry industry hardest, says Brian Buhr, a University of Minnesota economist. Since last fall, broiler feed costs have risen 27 percent over the previous five-year average, according to Buhr’s March 2007 estimates. Swine feed costs are up about 18 percent, dairy up 11 percent, and beef-cattle feed up 6 percent.

The increases will cost poultry, swine and beef producers more than $3 billion in annual profits, Buhr projects. Livestock production will shrink as a result, and consumers will pay an additional six billion dollars at the grocery store for meat, poultry and eggs, he estimates.

The cost of alternative-feed ingredients is up, too. Whey prices, for example, “are through the roof,” Buhr says.

Likewise, distiller’s grains have followed corn prices up, despite ever-growing supplies. Values are averaging about 80 percent of corn, says Sean Broderick, a grain merchant with Commodity Specialists Company in Minneapolis, which markets several million tons of DDGS a year.
 

“I don’t expect them to drop lower than 75 percent or so” of corn values, Broderick says. Part of the reason is strong exports, which rose 55 percent from 2004 to 2006, according to a recent CSC report. And Broderick expects future demand for DDGS to stay strong. “Some plants are looking at burning DDGS and picking up carbon credits.”

Other alternative-energy feed sources, such as rendered fats and restaurant grease, will be increasingly diverted for fuel, says U of M livestock scientist Sally Noll. So high livestock feed prices and tight margins are likely to persist. “There’s nothing you can substitute to bring feed costs down to the levels of eight or nine months ago.”