It’s probably impossible to overestimate the impact that ethanol subsidies have had on the cattle industry. At a Colorado Livestock Association Seminar this week, a panel that included Mike Thorne, JBS Five Rivers CEO and president; John Maddux, a Nebraska cattle producer; and Brian Irye, West Plains Grain regional manager; emphasized that point even more.
Twelve of the last 14 years have seen liquidation in the national cowherd, an extended liquidation cycle that more than anything else was driven by ethanol subsidies. The bottom line is that with corn nearly doubling in price, we’re going to have a smaller cattle industry.
But it’s not only higher-priced corn; the subsidies have pushed other grains, alfalfa and even grass prices higher, too. The tightest cow numbers since the late 1950s illustrates just how dramatic this impact has been.
While much of the focus has been on downsizing the industry to meet the new economic realities caused by ethanol, the impacts have extended well beyond that. In the beginning, excess capacity in the feeding industry and the significant losses generated the last 2-3 years were the focus, as the marketplace sent the message loud and clear that we need fewer cattle feeders in the post-ethanol-subsidized world.
While those market signals are still being sent and the proper balance is still being sought, we’re now seeing the industry adjust to these differences in other significant ways. For one, the number of calf feds is declining and the number of yearlings being placed on feed is increasing. The feeding industry is focusing even more on conversion, average daily gain and increased growth; compositional endpoint is becoming absolutely critical.
Of course, this directly conflicts with the signal that cow-calf producers were being sent; that is to have more moderate, lower-input cows in order to compensate for the higher-cost feed environment. And, since increasingly more calves are expected to go to grass, calving seasons are being shifted later, and growth is being selected against so that calves won’t be too large to go to grass.
The Choice/Select spread has narrowed and is expected to remain so due to these changes. Maximizing profits on grids is no longer driven by carcass grade, but more by dressing percentage, red meat yield, pounds and feed conversion.
Every segment of the business is readjusting its marketing programs and management schemes to come in line with the new economic realities of ethanol.
On the positive side, cow-calf producers are seeing ethanol byproduct availability increase. With ethanol levels increasing and cattle numbers declining, we may actually see distiller grains almost given away.
This is fundamentally altering the way the cow-calf industry has typically looked at protein supplementation, and will likely dramatically lower mineral costs, with phosphorous being provided via ethanol byproducts rather than mineral supplementation.
Ethanol subsidies appear to be here to stay, and while it will result in a smaller cowherd, it’s also leading to significant changes in economics, marketing and management. Those who adapt to this new environment will be in the driver’s seat.
-- Troy Marshall