Livestock production costs increase

What's cause for celebration in one farmer's circle is cause for crying and gnashing of teeth in another, according to one Alabama Cooperative Extension System economist.

When Walt Prevatt made this observation, he had the nation's beleaguered livestock farmers in mind.

Indeed, agricultural historians may reflect on 2007 as a tale of two farming sectors — the fat and happy corn sector, driven largely by the seemingly insatiable demand for corn for ethanol production, and the hard-pressed livestock sector, whose bottom line has been deeply affected by corn price spikes.

There is one straightforward reason for this mixed picture. Corn producers have prospered, while corn feed-dependent livestock farmers have watched the cost of their production escalate.

Alabama beef producers' fate has been especially cruel of late. In addition to the corn price hike, cattle producers are receiving less for the feeder calves they produce. This comes at a time when producers are contending with a chronic hay shortage — only half of what's normally available.

The numbers speak for themselves, Prevatt says. “In a sense, corn producers already have had their farm bill,” says Prevatt, describing an industry that has moved from about $22 billion last year to about $35 billion over the past year.

Compare that to the plight of beef producers, “who lost between $130 and $170 a head in market value from Jan. 2006 to Jan. 2007.”

No one can be certain where this growing demand for corn ethanol will take U.S. farming, particularly the livestock sector, says Prevatt, adding that “the next several years should be interesting.”

What is certain is that there will be a “steep learning curve” for everyone involved, Prevatt says.

Challenges abound. Corn price increases already are raising rental rates and land value — one of many market effects that likely will follow these price spikes.

Also, as interest in corn increases, more acreage is diverted from other food and fiber crops — peanuts, soybeans and cotton. Even some pastures are being taken out of production to appease this growing demand for corn.

“Additionally, corn requires lots of nitrogen fertilizer,” Prevatt observes. “A 10 percent increase in corn acreage this year is certain to bid up the price of nitrogen fertilizer that cattle farmers use to fertilize their pastures.”

The important point to bear in mind, he says, is that farmers increasingly are being called upon to produce not only food and fiber, but also energy — and the mere addition of energy to this mix holds major implications for every facet of farming. This holds true both for beef producers and for their counterparts in the swine and poultry industries.

The swine and poultry producers are being hit especially hard, at least for the time being, not only because of the price spike, but also because their animals are unable to fully utilize the feed by-products associated with corn ethanol production.

“They can use between about 8 percent and 10 percent of these by-products, while cattle can utilize up to 40 percent,” Prevatt says.

And a result of the government support for ethanol production — tax credits of 51 cents per gallon of ethanol.

“With 2.8 gallons of ethanol produced from each bushel of corn, that equals $1.42 a bushel,” he says.

Consequently, corn farmers are receiving significantly higher prices for their products, while livestock producers are paying significantly higher input costs and, as a result, are becoming less profitable, he observes.

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