Transcript Ethanol and Livestock: Synergies or Competition?

Ethanol and Livestock: Synergies or
Competition?
Chad Hart
Center for Agricultural and Rural Development
Iowa State University
September 14, 2006
2006 Iowa Poultry Association Fall Festival
Okoboji, Iowa
E-mail: [email protected]
Ethanol-Livestock Synergies
A 50-Million Gallon Ethanol Plant …
• Uses roughly 18.5 million bushels of corn
– In Iowa, corn from 116,000 acres
• Produces 315 million pounds of distillers
grains
– This could feed approx. 60,000 dairy cattle or
17.26 million layers
• Utilizes natural gas in plant operations
– Manure from 60,000 dairy cattle could produce
enough methane to meet 25 percent of the ethanol
plant’s needs
The 2 Keys to the Food-Fuel Debate
• The ability of U.S. corn production to match
demands from ethanol, livestock, and exports
• The ability of U.S. livestock to utilize ethanol
co-products as a partial substitute for corn in
feed rations
An Exploratory Look at the Food-Fuel Debate
The Corn Market before the Introduction of a new Ethanol Plant
Price
Supply
P
Demand
Q
Quantity
The New Plant Shifts Corn Demand
Price
Supply
Pnew
Pold
Demand
Quantity
Qold
Qnew Qtrans
Projection Scenario
• Look at possible effects from a doubling of
U.S. ethanol production from 2005 to 2009
– Source: FAPRI July 2006 Baseline Update
• Impacts both crop and livestock markets
• Higher corn prices may not make the U.S.
livestock industry less competitive in world
markets
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Billion Bushels
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3.50
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3.20
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2.90
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1.70
Marketing Year
Production
Farm Price
$ per Bushel
Corn Production and Prices
Feed
Ethanol
Exports
Marketing Year
Other
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Percen
Projected Corn Utilization
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Marketing Year
Feed
Ethanol
Exports
Other
World Corn Exports in 2005/2006
7%
15%
8%
7%
63%
Argentina
China
EU New Member States
United States
Rest of World
So With a Doubling of Ethanol Production…
• Corn prices rise
• U.S. corn feed and export demand falls on a
percentage basis
• But the U.S. is still the largest exporter of corn
and the U.S. corn price is the benchmark world
corn price
• Livestock producers throughout the world feel
the impact of higher U.S. corn prices
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$ per Ton
Million Tons
Distillers Grains
30
160
20
130
10
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70
Marketing Year
Production (Dry Equivalent)
Price
Pork
Beef
Year
Broiler
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Billion Pounds
41
U.S. Meat Production
37
33
29
25
21
17
Some Summary Thoughts
• The doubling of U.S. ethanol production by
2009 is likely a conservative scenario given
the current pace of investment in the industry
– In Iowa, announced expansions and new
construction of ethanol plants will more than
double capacity
• Livestock impacts will depend on the ability of
species to adapt to ethanol co-products
– Cattle have an advantage over hogs and poultry?
Some Summary Thoughts
• Corn production shortfalls will pressure both
the ethanol and livestock industries
– Could squeeze the corn export market and affect
the competitiveness of the U.S. pork and poultry
exports
• Ethanol’s corn demand is linked with energy
prices and government policy; Livestock’s
corn demand is linked with meat prices
– Currently, corn is worth more as ethanol than as
feed