Web Extra: Feed Fight

The following information is bonus material from the Late Spring issue of Farm Journal. It corresponds with the article "Feed Fight" by Charles Johnson.

Ethanol's role in gasoline and corn markets

Ethanol accounts for a large and growing share of corn use, but by 2016/2017, it will double

FSI: Food, Seed & Industrial

Source: USDA .....................................................................

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More Distillers' Grains for Feedyards

Three ethanol plants plan to deliver wet distillers' grains to Texas Panhandle feedlots.

"We're selling at a discount to corn, so feedlots will be saving money on some of their rations," says Omer Sagheer, vice president of White Energy, which runs two new plants in Hereford and Plainview, Texas, and the Russell, Kan., plant that has been in operation for more than a year.

The plants will run on a combination of corn and grain sorghum.

"There's not much corn grown in that area now. As there's a local need, maybe more farmers will grow more and milo," Sagheer says.

"As the corn industry continues to refine drought tolerance, we think that will play out big and potential will open up in those areas, based on natural rainfall."

The company decided to build plants near its ethanol markets, rather than locate in the Corn Belt.

"We felt strongly a destination model would work best, a non-grain belt model. Being closer to Dallas, Houston and southern California offsets the ability to bring in local grain. Our plan is to bring in the corn, use the distillers' grains locally and make the shipment to market much closer," Sagheer says.

Noting that there now are a couple other ethanol plants in the Panhandle area, Ted McCollum, Texas AgriLife Extension beef specialist, says the byproduct produced could have a positive impact on feedlots.

"The distillers' grains will help feeders. It will give them a feedstuff. The wet distillers' grain is being contracted at 85% of corn on an equalized moisture basis. It increases the supply of a commodity that could replace corn in feedyard rations," McCollum says.

"It's still relatively new here, though. It will take some change in the finishing systems. Our feedyards also import dried distillers' grains on trains from the Midwest. We're going to go through a period of price discovery. What's the value of wet and dried distillers' grains and how to best work them into rations?"

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Feedlots Want Heavier Cattle

High feed costs mean feedlots want to buy heavier weight cattle, says Ted McCollum, Texas AgriLife Extension beef specialist in Amarillo.

"We're seeing more in the 800-lb. range and fewer placed at lighter weights. The advantage is they get that lower cost of grain on pasture before putting them in the feedyard," he says.

"The cattle feeder looking at high cost gains in the feedlot is going to pay less for cattle going on feed. In the last year or so, we've seen a softening of yearling prices for feeder cattle."

The situation makes all feeders reevaluate their business.

"We have the lowest cattle numbers on feed in decades," McCollum says.

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Hard Years For Feedlots

Southern Plains feedlots have been money-losers since 2003, says James Robb, director of the Livestock Marketing Information Center, Lakewood, Colo.

"It's just been exacerbated by high feed costs the last two years," he says.

"We've seen a doubling of feedstuff costs. The Midwest can get attractively priced feedstuffs."

Still, he doesn't foresee a big increase in Corn Belt feeding.

"There are a lot of manure disposal issues in the high rainfall area of the Upper Midwest. I do see possible increases in feeding in western Iowa, eastern Nebraska and central and eastern Kansas. But moving to Indiana, Michigan and Ohio? No," Robb says.

This year, livestock producers should put hopes on a big U.S. grain crop.

"If we have a short corn crop in the U.S., it will take calf prices down, and there will be massive liquidation in hog and cattle numbers. We no longer have a cushion. What we're seeing is fundamentally different from past years. There's a new source of demand for corn, and it's growing still. If there's a short corn crop now, $10 per bushel corn rallying in the futures market is clearly reachable. We're going to spend all summer watching moisture and the corn crop," Robb says.

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Squeeze on Cow-Calf Producers

Tough times just keep getting tougher for Southeastern cattle producers coming off a disastrous 2007 drought.

"It's particularly hard. Everybody ran out of hay this winter. The byproduct feeds are high-priced. High corn prices are wrecking havoc," says Warren Gill, director of agriculture at Middle Tennessee State University.

"A lot of cow-calf producers culled heavily. Numbers are down. We'd like to hold cattle on grass longer, if we could get the grass to make it work. But you can't make grass without water, so we'll see what happens this summer. We had farmers wanting to keep calves back for stocker/backgrounder programs but they didn't have the forage resource to do it."

If pastures can handle the pressure, though, he expects producers to hold calves longer.

"Where there's enough moisture, it does look like a good time to get calves to heavier weights. The trick is pulling that off we don't break out of this drought," Gill says.

The dry weather pattern of recent years encourages planting more drought-tolerant forages like Bermuda grass and summer annuals, he says.