8 February 2008

4 minute read

Speaking at the National Cattlemen's Beef Association annual convention in Reno Nevada, Dr Mintert warned producers to expect higher feed and corn prices in the future.

He also warned that the national US beef herd is likely to contract as feed production costs rise and more farms go into liquidation.

One of the major drivers for the rise in corn prices is the Energy Act signed by President George Bush in December last year.

The energy act has called for 15 billion gallons of ethanol to come from the corn sector to enable the country to reduce its dependence on foreign oil.

"The mandates are going to drive this industry, not the margins," Dr Mintert told the convention.

"We are going to see a significant expansion in production."

Dr Mintert showed that the ethanol industry in the US is growing rapidly with the number of plants producing ethanol rising from 97 to 137 between 2006 and 2008. In 2006 there were 35 plants under construction and this year there are 70.

In all 97 per cent of the ethanol that is produced in the US comes from corn and since 2002 the country has seen the amount of corn that is devoted to ethanol production rise from one billion bushels to about 3.2 billion.

"Transformation has taken place rapidly," said Dr Mintert.

"There has been a dramatic change in the corn usage for ethanol."

In 2002 just 10 per cent of the corn produced in the US went for ethanol production. This year the amount has risen to 30 per cent.

At the same time the amount of corn that is being sent for use as animal feed has fallen from 62 per cent to 45 per cent.

Dr Mintert added that the trend in growth of production has been continually on the rise over the last 30 years. However, while there has been a steady rise in production over the years, in the last two years the rise has been increasingly steep.

However, technology helps to keep improving yield to help production to keep up and according to Dr Mintert, the industry is going to have to rely even more on technological changes to ensure sufficient supplies.

One way to improve production will be to release more land. Last year 16 million acres were released to help increase production, but Dr Mintert said it was doubtful that this could be continued. He said he could see a situation where the acreage that has been devoted to corn production will reduce.

It is predicted that this year will see the US's second largest corn crop on record, but by the end of the year corn stocks could be severely reduced because of the amount being sent for ethanol production and this in turn will see a rise in prices.

Dr Mintert warned that the country could also experience a drought, which will also hit the yield. He said that drops of 30 per cent in yield as were seen in the drought of 1987 would be insupportable for the corn industry with knock on effects to prices. Even lower cuts in yield would force prices up, which are already at record highs of $5 per bushel.

The high prices that are being paid for corn, forced by the demand for grain for ethanol production is also having repercussions on the prices that are being sought for by-product feed products.

He concluded that the shortage of feed for feed as more and more goes to ethanol production, which is forcing fed prices up together with other production costs.

He said that there was no real economic incentive to expand the beef herd and this is likely top force more farms to go into liquidation and this in turn will see beef prices rise.