Ethanol Subsidies – The Gift That Keeps On Giving

Friday’s USDA report put the upward trending corn market into full gear, with bulls moving their projections from $6 to some even predicting that new price records could be set with $7.50 prices this fall. USDA lowered its yield estimate by 4.1% to 155.8 bu./acre.

Troy Marshall 2, BEEF Contributing Editor

October 15, 2010

2 Min Read
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Friday’s USDA report put the upward trending corn market into full gear, with bulls moving their projections from $6 to some even predicting that new price records could be set with $7.50 prices this fall. USDA lowered its yield estimate by 4.1% to 155.8 bu./acre.

What had been setting up to be a great fall for cow-calf producers is increasingly looking suspect, as rising inputs and demand concerns (driven by the slow economy) conspire to lower calf prices. Many people are beginning to question whether yields can go any lower, with what was believed to be nearly ideal growing conditions, until harvest began with disappointing results across a wide spectrum.

The declining value of our dollar is also helping out U.S. corn on the world export market, and people are beginning to contemplate the reality of the marketplace with domestic supplies now projected to be the lowest in 15 years.

It is hard keeping perspective in this market – a crop at 12.66 billion bu. is still in record-high territory, but the reality is we have to have new records every year as long as ethanol is subsidized. The bottom line is that despite the downsizing of our industry, the longest cattle cycle in our history may be extended yet again, as it struggles to discover just how much smaller our industry has to be to deal with higher corn prices and increased price risk moving forward.

It’s a tough conundrum for beef producers. The actual fundamentals may have never looked better, but the prospects for one of our industry’s most significant inputs and for the overall economy have seldom looked as bleak.

Never have the fortunes of grain production and livestock production been more divergent. The price spread we should be talking about is the value of an acre of farm ground vs. a calf, because it does more to explain the fate and future of our industry as anything.

In 2000, the average price for farm ground in Iowa was $1,857/acre; in 2009, the average price rose to $4,371/acre. Meanwhile, USDA’s national average price for calves in 2000 and 2009 was $96.80/cwt. and $93.30/cwt., respectively. It used to be that it took two bred cows to buy an acre of corn ground; today one better figure closer to four cows to buy an acre of corn ground.

Critics of ethanol subsidies like to point out the cost of the program to consumers, but the brunt of the impact has been felt by the cattle industry.
-- Troy Marshall

About the Author

Troy Marshall 2

BEEF Contributing Editor

Troy Marshall is a multi-generational rancher who grew up in Wheatland, WY, and obtained an Equine Science/Animal Science degree from Colorado State University where he competed on both the livestock and World Champion Horse Judging teams. Following college, he worked as a market analyst for Cattle-Fax covering different regions of the country. Troy also worked as director of commercial marketing for two breed associations; these positions were some of the first to provide direct links tying breed associations to the commercial cow-calf industry.

A visionary with a great grasp for all segments of the industry, Troy is a regular opinion contributor to BEEF Cow-Calf Weekly. His columns are widely reprinted and provide in-depth reporting and commentary from the perspective of a producer who truly understands the economics and challenges of the different industry segments. He is also a partner/owner in Allied Genetic Resources, a company created to change the definition of customer service provided by the seedstock industry. Troy and his wife Lorna have three children. 

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