Ohio Beef Letter- Ethanol issue

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March 7, 2007




Ethanol and Animal Agriculture: Opportunities, Challenges, and Issues - Francis L. Fluharty, Ph.D., Department of Animal Sciences, The Ohio State University

The ethanol industry is expanding at an ever-increasing rate as the demand for renewable fuels accelerates. The consequences of this expansion have both positive and potential negative impacts on animal agriculture. Therefore, rather than focusing on how to feed distillers grains or corn gluten, I am going to focus on explaining the history of the ethanol expansion, the situation as it exists, the nutritional problems that are commonly encountered, and the consequences and long-term issues facing animal agriculture. For excellent reference materials on the use of distillers co-products in beef diets, and the optimum diet inclusion levels and research, go the University of Minnesota's web site at: http://www.ddgs.umn.edu/

Ethanol has been produced in this country for over 40 years, and distillers grains have been used very successfully in ruminant diets for that entire time. Therefore, the obvious question is what's the problem with more ethanol. The answer is not with ethanol, but to what extent the corn markets, animal industries, and the environment are impacted by rapidly, ever-increasing ethanol production. An issue that has gained much attention as ethanol production has expanded is the implication for animal feed supplies. Corn used for ethanol does not go directly to animal feed, but the co-products such as corn gluten feed and corn gluten meal, from wet milling, and distillers grains, from dry milling (the most commonly used technology) are animal feeds. About 17 pounds of distillers dried grains with solubles (DDGS) with 13 percent moisture are produced per bushel of corn used for ethanol. Distillers grains are sold one of three ways: wet distillers grains and solubles (WDGS) with approximately 67 percent moisture, modified distillers grain with 45-50 percent moisture, or dry DDGS. Generally, dairy diets may include up to 40-45 percent DDGS and fed cattle diets may include up to 35-40 percent DDGS, although inclusion rates above 30% have been found to reduce marbling, and the upper tolerable limit for sulfur is .4% of the diet. Distillers grains have a highly variable sulfur level, because sulfuric acid (H2SO4) is often used as a catalyst in the production of ethanol, and varies by the technology used. Reports of sulfur levels in distillers grains range from approximately .4 to 1.8, so knowing your source of distillers grains and having an analyzed sulfur level is highly recommended. Poultry and hog rations can include up to 5 to 10 percent DDG, however product variability and the high fiber level of DDG limits its widespread use in those industries.

On August 8, 2005, President Bush signed the Energy Policy Act of 2005 (H.R. 6) into law. The comprehensive energy legislation included a renewable fuels standard aimed at doubling the use of ethanol and biodiesel by 2012, and was backed by economic incentives. By all accounts, the Act was highly successful in increasing ethanol production. According to Keith Collins, Chief Economist for the USDA in testimony before the U.S. Senate Committee on Agriculture, Nutrition, and Forestry on January 10, 2007, in 2006, approximately 5 billion gallons of ethanol were produced in the U.S., which accounted for 20% of the 2006 corn crop. However, the U.S. consumption of gasoline was near 140 billion gallons, so 20% of the corn crop was diverted to produce less than 5% of our gasoline. Mr. Collins further states 'Renewable Fuels Association data indicate there are now 110 ethanol plants with total capacity of 5.4 billion gallons and another 73 ethanol plants under construction and another 8 facilities expanding. When construction and expansion are completed, ethanol capacity in the United states will be 11.4 billion gallons per year, which is likely to occur during 2008-09.' (Source: http://www.usda.gov/oce/newsroom/congressional_testimony/Collins_011007.pdf)

The ethanol industry will have a huge impact on the availability of corn for animal production in the future. Mr. Collins also states that 'For 2006/07, USDA forecasts the total use of U.S. corn will be equivalent to the production on 85.6 million acres. Yet, only 78.6 million acres were planted in 2006.' Then, 'Looking ahead to the 2007 crop of corn, it is quite likely, based on current ethanol plant construction, that corn used in ethanol production will rise by more than 1 billion bushels from the 2.15 billion bushels of the 2006 corn crop expected to be used for ethanol. Use of 1 billion bushels, at a trend yield of 152 bushels per acre, would require an additional 6.5 million acres of corn, if corn consumed in other uses remains unchanged from this year's projected levels.' (Source: http://www.usda.gov/oce/newsroom/congressional_testimony/Collins_011007.pdf) According to the USDA, the 2006 corn crop was 10.5 billion bushels, down from the projected 11.1 billion bushels, and the estimate of the 2006/2007 ending stocks was reduced from 935 to 752 million bushels, an 11 year low. (Source: http://www.usda.gov/oce/commodity/wasde/latest.txt) Historically, maintaining year-end stocks above 1 billion bushels has been considered necessary for price stabilization, in the event of lower than average production the following year.

According to the U.S. Department of Energy, projected energy prices and recently enacted public policy help to support greater use of alternative fuels, such as ethanol, biodiesel, and coal-to-liquid (CTL). The Annual Energy Outlook 2007 reference case released by the Energy Information Administration (EIA) in the U.S. Department of Energy projects that ethanol use will grow from 4 billion gallons in 2005 to 11.2 billion gallons in 2012 and 14.6 billion gallons (about 8 percent of total gasoline consumption by volume) in 2030. Based on current production, and ethanol plants planned to be in production, projected ethanol consumption in 2012 will far exceed the 7.5 billion gallon requirement of the Renewable Fuel Standard enacted as part of the Energy Policy Act of 2005 (EPACT 2005). Source: http://www.uspolicy.be/Article.asp?ID=68E3538A-9A6A-43E8-AD1F-8FF76DDCAC30

The desire for more energy self sufficiency has led to a proposal called 'The Bio Fuels Security Act by Senators Tom Harkin (D-IA), Dick Lugar (R-IN) Barack Obama (D-IL), Joe Biden (D-DE), and Byron Dorgan (D-ND). Proposes a new renewable fuels standard (RFS) that calls for 60 billion gallons of ethanol and biodiesel to be included in the United States motor vehicle fuel supply annually by the year 2030 by boosting ethanol and biodiesel production to 30 billion gallons annually by 2020, and then doubling that quantity over the following ten years to 60 billion gallons by 2030.' Source: http://harkin.senate.gov/news.cfm?id=267188 Compare these proposed production levels to the 5 billion gallons produced in 2006, and the resulting consequences in the animal industries, and the potential for a dramatic impact on animal agriculture is evident. A major portion of the expansion in ethanol production is expected to be due to the development of the cellulosic ethanol industry. As opposed to grain sources, cellulosic ethanol production could use cellulose from silages, forages, or trees. However, controlling the yeasts and enzymes for cellulosic ethanol has proven to be much more difficult than with grain-based ethanol, due to the variability of the feedstuffs, and due to the presence of lignin. In this regard, it is very similar to ruminant digestion, where more variability occurs in forage digestion than with grain digestion. Expecting scientific developments to keep pace with political agendas is very tricky when developing the technology necessary for an infant industry. A final thought on cellulosic ethanol is that care must be taken to not remove ground cover from areas that are switched to annual forage production, or wind erosion could occur due to nearly barren land during winter months.

As I write this article, I am concerned about the impact that our renewable energy policy will have on animal agriculture in the United States, as well as the impact on the protein nutrition of the human population on low, fixed incomes. At the same time, I see that developing sustainable renewable fuels as crucial to the long-term survival of society. To some, food can easily be imported from elsewhere, and crop production in this country should be devoted mostly to the production of feedstocks for renewable energy technologies. The fallacy that I find in this argument is that we have not known hunger in this country on a large scale for nearly 75 years, since the Great Depression, we have the world's safest meat supply thanks to the Food Safety and Inspection Service through USDA (http://www.fsis.usda.gov/), and I do not wish for my children to live in a land without the infrastructure or critical mass of knowledgeable people necessary to raise livestock on the vast pasture and ranch lands that exist in this great country for the simple reason that the lack of food can more quickly be used as a weapon against a country's citizens than can fuel, and ruminants are uniquely suited to convert cellulose and hemicellulose from forages into animal protein. At this point, you may be asking yourself why I have these concerns. After all, the beef cattle and dairy industries benefit from distillers grains. Let's look at the current situation, and then look at the issues that must be faced and resolved in order to not disrupt animal production.

Whatever the outcome of the increase in ethanol production, there are a few issues that need to be discussed. First, there is a myth that higher corn prices will automatically cause feeding cattle to be unprofitable. In fact, currently the reverse is true, in some situations, as feeder cattle prices have fallen to a degree that offsets the increase in corn. This may not hold true at higher corn prices, but the cow-calf segment of the beef industry is currently the segment dealing with a negative impact of higher corn prices. Therefore, in order to maintain profitability in the cow-calf sector, it may be time to identify value-added management and marketing opportunities. The supply of distillers grains is variable, however, with an over-abundance during the summer, and shortages during the winter. One of the main areas of research necessary to be able to use WDGS is ensiling technology, as the high fat content of WDGS can cause rancidity problems. The high fat content also limits the amount of distillers grains that can be fed, because ruminants cannot efficiently digest feeds if the diet contains more than 6% ruminally available, ether extractable fat (or oil), and after that point total metabolizable energy intake actually declines. This is probably one of the main culprits for the reduction in marbling with cattle consuming diets that contain greater than 30% distillers grains, because distillers grains can easily contain 10 to 14% fat, and corn grain contains 4 to 4.5% fat, so a finishing diet that is 30% distillers grains and 70% corn could contain over 7% fat .

The larger issues with an expansion of the ethanol industry center on environmental concerns. As more cattle are fed in the Midwest, near ethanol plants, there is an increase in the amount of N, P, and S concentrated in the manure and urine. If nearly closed-loop waste handling systems, such as anaerobic digesters, are not developed, there could be severe implications for nutrient management plans. The reason this occurs is that corn is approximately 75 to 80% starch, and this is removed during ethanol production with the other constituents of the corn being concentrated in the distillers grains. Therefore, when 1 pound of distillers grains is fed, it is the equivalent of 3 to 4 pounds of corn based on the other components of the grain. This is also one of the reasons why a mineral supplementation plan for cattle being fed co-products needs to be specific for the products being fed, as well as their level of inclusion in the diet.

The movement of corn from the swine and poultry industries into ethanol production has potentially devastating implications for those industries, because they do not benefit from having distillers grains replacing a high proportion of the diet. Therefore, the cost of production in those industries has and will continue to increase. As more demand for corn continues, there will be a huge incentive to move a portion of the nearly 37 million acres currently in the Conservation Reserve Program (CRP) into row crop production. This has major implications for the CRP acreage, as well as much of our marginal lands that are better suited to forages due to runoff and erosion potential. Along those lines of thought, the movement to cellulosic ethanol brings up the potential for more wind erosion as ground cover is removed in the fall, and the transfer of grasslands from cattle grazing to cellulosic ethanol feedstock production could take away a significant amount of grazing lands. Therefore, even more burden will be placed on the land owner or operator to make decisions that are not only economically, but environmentally, sound. In the Southwest portion of the U.S., there is debate related to ethanol production from the standpoint of water use from aquifers. Currently, the Texas Panhandle has only 1 plant producing approximately 30 million gallons of ethanol annually, but by the end of 2007, there is expected to be nearly 230 million gallons of production, with a total of nearly 600 million gallons of production planned due to new construction. There is very little corn in this area, so the corn will be transported by truck and rail. Already, there are reports of the transportation infrastructure being stressed by the movement of grain away from established routes. The problem is not for 2007, but for later years as expansion continues. In 2007, Iowa is expecting to be a corn importing state for the first time. As Dr. Carl Zulauf, Professor of Agricultural, Environmental, and Development Economics at The Ohio State University wrote in the summary paper for his presentation to Ohio Federation of Soil and Water Conservation Districts on January 17, 2007, 'The only option this author can think of that can increase access to food by the poor, allow for a viable U.S. livestock industry, create an economically viable market for industrial uses of farm products, and increase environmental services from farming is to enhance the rate of increase in the yields of crops.' While I agree with this thought, I believe the political will for increased renewable fuels, and the economic incentive of grain producers to increase acreage will occur at a faster pace than advances in corn yield. I am concerned that we are coming off of three years of record corn yields, and I hope that we do not have a drought in the major corn producing states in the near future, or the pressure on the cost of corn will have an even greater negative impact on livestock than is currently occurring in the cow-calf, pork, and poultry industries. Currently, 'a $1 per bushel increase in the price of corn would raise the cost of producing hogs by about $6 per hundredweight,' and 'would translate into about a 3% increase in the price of pork.' (Source: http://www.usda.gov/oce/newsroom/congressional_testimony/Collins_011007.pdf)

In summary, ethanol production will continue. I am hopeful that individual land owners and operators will make wise decisions regarding land use, because the economic incentives for maximizing production acreage will surely be in place for the short-term. I am hopeful that technologies will become economically available that allow a reduction in the amount of sulfur in distillers grains so that higher inclusion rates become possible, and that corn yields increase quickly. With proper planning for the future, and coordination between the different segments of the agricultural and renewable energy industries, these challenges can be overcome to create opportunities for many business that do not exist currently. However, I admit that the current situation, coupled with the rapid rise in the price for corn and a seemingly increasing desire for ethanol production at the expense of many animal industries makes me think of the lessons I learned in high-school history. The Seven Sages of Greece (620 BC to 550 BC) had two mottos that seem appropriate today: 'Nothing in Excess' by Solon of Athens, and 'Forethought in All Things' by Periander of Corinth.


Distillers Grain Notes - Brian Roe, Associate Professor AED Economics, Ohio State University, March 2007

The price of corn and soybean meal relative to dried distillers grain (DDG) has increased dramatically since the beginning of the year, though it is still slightly lower than all-time highs observed in the fall of 2006 and the summer of 2005.

Specifically, I have been tracking the cost savings from substituting 31.8 bushels of corn plus 190 pounds of soybean meal with 1 ton of dried distillers grain (all priced in central Illinois). I chose these numbers as it is one feed ration substitution I have seen mentioned in the proliferating literature about how to use dried distillers grains into livestock rations.

The cost savings from this substitution was calculated at $19.63 for the third week in February, which is among the highest 10% of values in my data (which goes back to 1999). This 'cost savings' I calculate does not account for differences in transportation costs that might arise if one actually switched from corn and beanmeal to dried distillers grains, nor does it account for any differences in spoilage that might arise. Nonetheless, it is indicative that ethanol byproducts continue to look more attractive, particularly as soybean meal prices have appeared to join corn's upward march in prices.

These transportation costs can very well eat into the possible savings associated with making this switch, however. For example, in Ohio, where DDG must be brought in from Indiana or Illinois (at least until Ohio's ethanol plants start full operations) while corn and bean meal are available locally, the additional costs of rail or truck transportation appear to negate the possible savings associated with a switch to DDG. Several Ohio producers suggest that the additional transportation costs associated with DDG make incorporating it into rations a break-even proposition at best. Nonetheless, these are figures that producers will need to monitor as ethanol plants proliferate over the next few years and as corn and bean prices stabilize at higher levels. Furthermore, as ethanol production continues its escalating pattern, it will be wise for producers to investigate how DDG may fit into their rations and feeding regimen.

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Can We Afford to Feed $4 Corn? - Dan Frobose, OSU Extension Beef Marketing Educator, ABE Center

During the past 40 years we have been schooled on the inherent advantages that the Great Plains has in feeding cattle (environment, proximity to corn and harvest facilities). For the most part this has been a fairly accurate scenario. However, with the current focus on renewable fuels the wind may be changing course to the north and east.

I am not going to say that large scale cattle feeding is going to come back to the eastern corn belt. But I would like to point out that there is opportunity to feed cattle as a part of your farm production plan. I crunched a few numbers, feeder calf prices, hot carcass prices and corn prices for the eastern corn belt versus the Great Plains/Midwest. I did not look at historical data over several years but current prices in February. Why, well right now I think we are seeing history making some shifts based on renewable fuels.

Let's compare feeder calf prices from the Midwest and NE United States to the main feeder calf production regions of (Kansas, Nebraska, Dakota's). A 650 pound steer calf sold for $100.78/cwt the 1st week of February. The same calf sold for $91.87/cwt in our eastern region of the corn belt. That's a +$58 difference in favor of the eastern feeder.

Now let's also look at hot carcass prices paid that same week. A steer harvested in the 5 state area (Kansas, Nebraska, Iowa, Colorado, Illinois) brought $139.69 for a base with 80% choice or higher. That same steer in the eastern corn belt brought $1.48/cwt based on a Ohio Signature Beef base bid. The difference is $63 in favor of the eastern market.

Next let's look at corn. The average price of a bushel of corn in Iowa on February 27th was $3.78/bu, in Ohio it was $3.98/bu, that's a 20¢ spread. If we put 65 bushel of corn into that steer it equals a difference of $13/hd in additional grain costs for the eastern feeder. Add up the differences and the eastern feeder has a net advantage in these areas of $108/hd.

Times may be changing. Will the southwest be able to compete for grain and water from the traditional production regions? Will renewable fuels change the dynamics of supply and demand that redirect cattle finishing economics? Keep your pencil sharpened and your calculator handy, we may be charting a new direction in cattle finishing in the U.S.



Seven Breed Sales Featured at 20th Ohio Beef Expo March 17

The Ohio Cattlemen's Association invites you to attend the 20th anniversary of the Ohio Beef Expo March 16-18, 2007, where over 1,300 head of cattle are expected to participate in breed shows and sales and the junior show. The Expo will be held at the Ohio Exposition Center located in Columbus, Ohio. The theme for the 20th anniversary is "Celebrating 20 Years of Beef Industry Excellence".

Twelve breeds representing over 500 head of top quality beef cattle will be a part of the breed displays, shows and sales scheduled for Friday and Saturday. They will feature show heifers, bred heifers, cow-calf pairs, herd bulls and embryos.

The Ohio Beef Expo always hosts some of the nations top cattle sales and 2007 will be no exception. On Saturday, March 17 seven seedstock sales are scheduled with the first ones beginning at 10:00 a.m. If you are unable to attend the sales on Saturday, make sure to check out www.LiveAuctions.tv and register to bid online for many of them. Several of the sales will also have their complete sale catalogs available on the Ohio Beef Expo Web site at www.ohiobeefexpo.com.

In the Expo's Genetic Pathway, that features some of the country's best genetics, approximately 20 live bulls and females will be on display between the hours of 10:00 a.m. - 1:00 p.m. and 3:00 p.m. - 5:00 p.m. daily, at a minimum.

In addition to the regularly scheduled events, there will be several special 20th Anniversary events scheduled throughout the weekend. The Expo's Trade Show has been expanded for 2007 and even with the additional space, is once again completely sold out for this year.

For additional information on the Ohio Beef Expo breed shows and sales and the Genetic Pathway, visit the Web site www.ohiobeefexpo.com, or contact Bill Doig, Beef Program Specialist at the OCA office at 614-873-6736.




 

knabe

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Feb 7, 2007
Messages
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Hollister, CA
excellent article.  in my town, phosphorus and nitrogen fertilizers are a problem for drinking water as homes and farms compete for what's left of flat ground for high value crops and property tax revenues pushed by each other to a death spiral fanned by the need for revenue enhancements for social programs which are basically bankrupt at current support levels.  successful organisms have more than one foodsource, and if we overspecialize, we eliminate flexibility in the marketplace of ideas. The article points out there are opportunities for fattening cattle, which, just like corn will need to be improved upon.  to me, the problem is our inablility to deal with an economic model that doesn't require growth to excel and to reward that.  some call it sustainable, but to me the code word for sustainable is higher profit for less inputs and more variable availability of commodities.  ah, the word commodity, the bane of agriculture, remove it and prosper.  the reason government is motivated to control food (commodity) prices, is so they can give it away at a predicatble cost every year as mandated.  if it was unpredictable, taxpayers (er, recipients and their supporters) would revolt, just like they are about to do over health care.  more taxes and more subsidies are on the way.  soon, my homestate will impose taxes on businesses out of state to support their pet recipients.  they are already doing it with energy by restricting power from coal.  again, taking away flexibility.
 

Telos

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Feb 4, 2007
Messages
2,267
Location
Dallas, Texas
Thank you Red, for the informative article. I hope the "brilliant minds"  have enough foresight to figure out how we are going
to take care of our society in the long run.  It appears our energy needs will always come with a huge price.

 
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