Wednesday, June 1, 2011

Corn and Corn prices and feed

There's a lot of flooding happening in the midwest right now, and if you watch carefully, quite a bit of the land that is being flooded is covered with crops.  You can tell because you see the tops of corn stalks sticking out of the water. 

This matters to you as a farmer, or you as a consumer, because we're currently consuming over 40% of our nations total production of corn as ethanol.  40% of the corn that we grow in this country is being used for fuel. 

5 years ago the amount of corn left over from the year before was around 15% of the harvest.  That means, that about this time of year, 15% of the harvest was unconsumed, and typically that corn was  then consumed as animal feed.

This year the amount of corn left over from last years harvest is about 2%. 

The recent flooding, and cool, wet weather is destroying more than 2% of our corn this year.  What I'm seeing is pretty much a setup for a disastrous game of musical chairs.  Someone who wants corn isn't going to get it this year, or at least as much of it as they'd like. 

This is reflected in my current feed prices, which are hovering around $400/ton -- up from $260/ton a couple of years ago.  And going up. 

Expect higher prices for food this year - and think about it when you look at the sticker on the pump that says "ethanol".

The last time that this happened there were food riots in poor countries all over the world. 

Ethanol is evil.  Ethanol is killing people. 


Bill Gauch said...

I don't see ethanol as evil or wrong. It would be ideal if it were produced from a non-food crop though. It would also be good if we eliminated the subsidies which pay people not to grow corn as a price inflation mechanism. I think what it comes down to is the market commodity should be grown, used and sold at the market rate allowing the price point to seek its own equilibrium.

On a side note, I only purchase chicken feed at a retail rate, but with high grain prices and high fuel prices the feed price has only gone up 4% in the last year. I'm curious who is eating that loss.

Rich said...

"...Expect higher prices for food this year...The last time that this happened there were food riots in poor countries all over the world...Ethanol is killing people..."

If ethanol production is killing people, then the pet food industry is killing people and the improved diets of India and China are killing people. (an improving diet in China and India means an increased demand for corn, soybeans, wheat, etc. which typically increases the price of those commodities)

Most of the food riots a couple of years ago occurred in countries that try to keep the price of food down through government subsidies (aka welfare states).

Governments around the world are broke and don't have anymore money to keep giving their citizens cheap food. When the cheap subsidized food goes away, the riots start. Producing less ethanol in the US isn't going to give bankrupt countries more cash to buy or subsidize food to calm the rioters.

Corn production has risen to meet the demands of ethanol production. Without the demand due to ethanol, corn production would be lower and the price would be at about the same current level.

Therefore, if there wasn't an ethanol industry, corn production would be lower, the price of corn and food would be at the same levels, and we would still have food riots.

Bruce King said...

Bill: Retail feed prices is an interesting topic. People don't consider a price rise of $1 or $2 on a 25lb bag of feed to be out of line, but when you look at what it does to the cost-per-ton, it's pretty dramatic. $2 more per 25lbs is an additional $160 a ton in cost. Since most animal feed around here is $300-400 a ton, that's a huge increase in price, but it looks small.

Bruce King said...

Rich: Best information I have is that ethanol costs more energy to produce than it saves by being consumed. So we're spending a lot of resources for a net negative result. It's only possible to do corn ethanol because of subsidies.
I think that there are plenty of people or animals that provide a good market for that corn without the huge waste of effort that I consider ethanol as fuel to be -- our version of ethanol, that is.

Brazil produces ethanol from sugar cane, and that ethanol actually does produce more energy than is consumed in production.

it's not ethanol that is evil; if we could make it out of non-foodstock items (switch grass or corn stalks or something) and do so without using more petroleum to do it than we gain by producing it, I'd have a different opinion. I really feel strongly that we should not be using food for fuel.

And yes, food crops are subsidized in various countries. Of all the things that governments spend money on, is feeding people really that bad? I like it a lot better than moving rocks with bombs -- which is what we're doing in afganistan for vast sums of money.

farmnwife said...

I enjoy reading your blog. Especially the post about your hiring a farm hand.

I do disagree with the idea of corn food vs fuel. While production of ethanol using corn is not very efficient, the production of ethanol will eventually be taken over by other biomass.

The following are points made by John Block about why ethanol is not to blame for high price of food with which I agree.

"First, U.S. ethanol production uses only about 3 percent of the world's grain supply. Moreover, that 3 percent consists of feed grains, largely corn for livestock. The food grains that people actually eat — mostly rice and wheat — aren't affected by biofuels production.
Second, about a third of the corn used for ethanol becomes a co-product: livestock feed for cattle, poultry and hogs. Last year alone, the U.S. exported 9 million metric tons of these distillers grains, corn gluten feed and corn gluten meal to nations around the world, including Egypt.

Third, volatile energy costs are the real drivers of all consumer prices including for food. Energy impacts every facet of food production from growing the crops to processing the food to transporting it to market. These factors explained why food prices soared in 2008 and are rising right now. Imagine where oil and gasoline prices might be were it not for ethanol comprising 10 percent of the gasoline market today.
Fourth — and most important — American farmers are increasing their productivity. Ethanol's demand for corn has grown dramatically during the past decade. But so has the crop of corn produced by American farmers."

We all have our points of view. And I do enjoy reading yours.


Bruce King said...

Farmwife; one thing to keep in mind is just because someone said something on the internet doesn't make it accurate, or true.

quoting from your response:
"First, U.S. ethanol production uses only about 3 percent of the world's grain supply. Moreover, that 3 percent consists of feed grains, largely corn for livestock. The food grains that people actually eat — mostly rice and wheat — aren't affected by biofuels production"

The price of one type of grain, barley, for instance, are absolutely changed when the price of another commodity goes up or down, corn for instance.

From an animal-feeding perspective, there are many things you can use to produce good animal feed, and when the price of something goes up, you can reformulate your feed to get a lower price. There are some standard mixes that are very popular, but when it gets expensive, people will switch from a corn and soybean to other grains, eventually driving up the demand for (and the price of) those grains.

Feed for livestock is people food. I'd rather see us feed livestock than feed cars. Yea, there's a lot of byproduct from brewing, but the net value of the energy produced even considering the byproducts is less than what is consumed in its production.
We use more fossil fuels producing ethanol than we save by producing it. And if the byproduct is used for animal feed, wouldn't the grain we use be even better?

We're consuming 40% of our corn harvest now, and that percentage is increasing. Sure, american farmers have increased production, but we're not making more farmland. The increase in corn is at the expense of either fallow areas (farmland set aside or leased for environmental reasons) or switched to corn from other crops.

Anonymous said...

"First, U.S. ethanol production uses only about 3 percent of the world's grain supply."

Ethanol made with 'grain' is made with corn which is a small part of the total 'grain' production. By switching the discussion from corn to grain they change the number scheme. This is classic bait and switch tactics used to lie with statistics.

Lee said...

I don't understand why so many people are so infatuated with corn ethanol. It's not pro-environment and it's not pro-free market either. It's a product of the corn lobby. An artificial market was created by making a gasoline/ethanol blend required by law in most states, and the scheme is kept afloat by government subsidies to the distillers.

It's a business model that basically converts a gallon of oil into a gallon of ethanol and along the way ties up some useful farm land and wastes some money.

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