Over the course of the last several months, as I've moved cattle and fixed fence, I've tried to sort out the impact the ethanol boom is having on the beef industry. My formal training is in the area of ruminant nutrition, although I've been a full-time cowhand for more than 10 years.
I think the net effect of ethanol on the beef cattle industry is going to be positive, but I want to float some mental meanderings in the hope of generating discussion.
For years I've complained about grain subsidies, primarily due to their effect on lowering the market price of program crops by reducing the cost of production. As a producer of feeder cattle, I like cheap corn. However, my competition, Tyson and Smithfield, absolutely love cheap corn.
In beef production, appreciable quantities of feed grains aren't part of the diet until after weaning, and possibly not until at least 120 days prior to harvest. Conversely, the pork and poultry industries rely almost solely on feed grains for the breeding female herd and in every production segment until harvest.
Cheap corn helps poultry
I ran through some calculations several years ago. My numbers suggest a reduction in corn prices was about 50% more beneficial to the pork and poultry industries than the beef industry. Of course, the inverse would be true about an increase in corn prices.
Consequently, if $3/bu. corn is here to stay, it will cause some pain for the beef industry and force some readjustments in how we do business. However, it will absolutely clobber pork and poultry.
The second and equally important consideration is the byproduct generated from the ethanol-production process. The chemical and physical properties of distiller's grains will allow it to price into beef cattle diets more effectively than in poultry or swine diets.
Corn and soybean meal diets work extremely well for non-ruminant species because the mix of amino acids effectively matches the needs of the animal for maximum growth and production. However, the amino acid profile of distiller's grains requires the addition of synthetic amino acids in the diets to attain a similar level of production as that generated with corn/soybean meal diets.
Of course, it's also a requirement that the distiller's grains be dried if they are to be moved through bins and augers. To be used in beef or dairy diets, this byproduct can be fed wet without impairing production, and even improving production in some cases. Of course, if plants can sell the product wet, they don't incur the expense of drying it. Thus, they can sell it for a lower price.
The defining rule of biological systems is the individuals that flourish are the ones that can best adapt to the environment. A similar statement would seem equally applicable to an economic system.
While grain subsidies and the inexpensive feed-grain supply it provided wasn't the sole reason the poultry industry flourished over the last 20 years, its ascent couldn't have happened without them. While the government didn't mean to discriminate against the beef industry by implementing these subsidies, that's exactly what happened.
If $3+/bu. corn is here to stay as a result of a government policy encouraging ethanol production, I don't think it's a problem for the beef industry. It's an opportunity to further regain the retail market share the poultry industry stole from us.