LUBBOCK — Motorists might save a few cents a gallon filling their tanks with ethanol, but they could soon be paying more for a burger and a milkshake as a result.
Demand for corn needed to make ethanol is soaring and so are the prices, which have more than doubled within the past year.
That’s bad news for beef and dairy producers who also depend on the grain to feed their herds. Many say that cost will eventually be passed on to consumers, and will likely mean higher grocery bills later this year.
Cattle feedyards like the one Kyle Williams manages in Texas, the nation’s leading cattle-producing state, is one of the first stops on the road to higher beef prices.
About one-quarter of the 30,000 animals at Lubbock Feeders were bought before corn prices began to soar steadily — an added cost he didn’t factor into the price he paid for them. He knows he’ll lose money when it's time to sell.
“One I buy today, I know it’s going to cost more to feed it, so I give you less,” said Williams, who’s been able to get corn for feed but he’s paying more for it - about $8.36 per 100 pounds. “I just pass the buck on down the line.”
By December, corn costs could push the already high beef prices consumers are paying even higher, said Jim Gill, market director for the Amarillo, Texas-based Texas Cattle Feeders Association.
Cattle feeders now are losing as much as $100 per head because of high corn prices, he said.
Last year, association members in Texas, New Mexico and Oklahoma fed 6.7 million head, 30 percent of the nation's supply of fed cattle.
Meat-producing animals eat more than half of all the corn grown across the nation. The U.S. Department of Agriculture predicted in March that ethanol demand would push beef, pork and chicken prices higher.
Corn costs went from $4 per 100 pounds last June to about $8.50 per 100 pounds this month, Gill said. He added that cattle feeders must bid against those buying corn for biofuel.
“There’s a lot of concern among cattle feeders,” he said. “It’s not a money-making proposition right now.”
Ranchers who produce cattle are known as cattle raisers. When the animals are taken to feedyards for fattening — a step closer to slaughter — they are known as feeder cattle.
Cattle raisers can sometimes boost profits by selling already fattened cattle. But that also can be risky, said Kevin Crooks, a producer who runs as many as 10,000 head a year in the Panhandle.
“You’ll get more dollars but you’ve got to deduct your feed cost and interest,” said Crooks, a rancher who regularly monitors the commodities market for feeder cattle. “You’re just gambling that the market is higher when you sell them fat than you’ll get if you sell them today as a feeder.”
Corn costs aren’t the only thing driving higher beef prices. Supply and demand is also a factor contributing to recent record high live-cattle prices, said Hastings, Neb.-based John Harrington of Data Transfer Network Corp, a provider of livestock news and analysis.
Cattle raisers are keeping their animals on pasture longer rather than taking them to feedyards, he said. Also, many mother cows were sold off during several years of drought in Texas and other cattle producing states. That means fewer calves, further reducing the nation's supply.
“So we’re kind of in a double whammy there,” said Williams, the feedyard manager.
The USDA recently reported that the average price for choice beef in May was second highest on record at nearly $4.30, just a couple pennies under the record set in November 2003.
Cattle feeders and producers aren’t the only ones complaining about higher corn prices. Dairy farmers also are feeling the pinch.
“As more acres go into corn it takes out other forages,” Canton dairy farmer Scott Ortiz said.
U.S. farmers who once grew forage crops like alfalfa, milo or grain sorghum are switching to corn. That means fewer forage crops to feed dairy cows, said John Cowan, executive director of the Texas Association of Dairymen.
Milk prices are expected to continue climbing due to higher transportation costs and the increased corn demand due to ethanol.
J. Richard Fleming, the USDA’s dairy market administrator in Dallas, said higher corn prices affect dairy farms in other ways, too.
“As the price of feed goes up, the higher cost of production has a tendency to decrease production of the farm,” he said.
On the Net:
Texas Cattle Feeders Association: http://www.tcfa.org
Texas Association of Dairymen: http://www.milk4texas.org