Ranchers, Farmers Battle over Corn
NORTH PLATTE, Neb. — The farmer and the cowman should be friends, according to the lyrics of Oscar Hammerstein and Richard Rodgers musical Oklahoma.
Their famous production was written decades before the ethanol boom, however.
Corn prices spiked from around $2.50 a bushel to more than $4 a bushel earlier this year in response to a surge in ethanol production. Prices have dropped in recent weeks, with corn for September delivery at $3.12 per bushel Tuesday. Higher corn prices mean higher feed costs for cattle, hog and chicken producers. Some ranchers are having a harder time securing grazing land, or are paying higher rents, as farmers convert acres to corn.
The result: one of the bigger shoot-em-ups between growers and ranchers since the 1800s, when farmers fenced in the open range. Rather than firearms, the weapons of choice this time are lobbyists and dueling economic studies.
"Where is our feed going to come from, what is going to happen to our competitive position internationally?" asks Jesse Sevcik of the American Meat Institute, noting that the livestock sector is losing its position to ethanol as the main consumer of U.S. corn.
"How are we are going to respond when ethanol (producers) have a mandate to burn our food as fuel?" Sevcik says.
A recently unveiled website, balancedfoodandfuel.org, sponsored by cattle, beef, dairy, poultry and egg producers, focuses on side effects of the booming ethanol sector, including rising feed and food costs.
The coalition is lobbying to dilute an energy bill passed by the Senate last month that would increase the current mandate for ethanol use. The livestock industry also wants Congress to let a 54-cents-per-gallon tariff on imported ethanol expire.
More than 120 ethanol plants are now in operation, with the capacity to produce over 6 billion gallons a year. Another 76 are being built or expanding, according to the Renewable Fuels Association.
In Defense of Corn
For their part, corn and ethanol producers say the livestock and dairy industries are exaggerating the perils, while giving short shrift to the promise of ethanol in fighting global warming and dependence on foreign oil.
In Nebraska, corn and livestock producers have worked together to minimize price shocks. Nebraska cattle producers have good access to distillate grains, a byproduct of ethanol production that can be used for feed. Ethanol producers are trying to standardize and develop new forms of the distillate grains.
"While we’ve seen some additional acres put into corn this year, I’m not sure that were going to see this onslaught of new acres converted," says Todd Sneller, administrator of the Nebraska Ethanol Board, adding he’s seen ranchers concerns dissipate a bit as corn prices moderate. "In a six-month period we’ve gone from a fairly high level of concern to a significantly reduced level."
Cattle producers more than some other livestock producers can use a greater variety of feed sources. But soybean and hay prices have also risen as farmers have devoted more of their land to corn.
Food Inflation's Cause
The two sides are also battling over how much high corn prices have affected food inflation. The National Corn Growers Association and American Farm Bureau Federation have issued studies arguing that energy prices are the main culprit behind rising food prices. The livestock industry cites data showing corn prices having a big impact.
"Every time the price of corn goes up, people out there say it will cause the price of everything else to go up," says Keith Olsen, who farms near Grant, Neb.
Noting that grain producers had gone through some lean years, Olsen says that "when prices go up and the farmer is making some money, there’s a certain amount of people that are complaining about it." Olsen is also president of the Nebraska Farm Bureau Federation.
Retail milk prices are up nearly 10% since January, beef and pork prices are up 5% and poultry prices are up 6.5%, according to the Labor Department’s consumer price index. Food inflation as measured by the CPI is running 4% in the past year, above the average 2.5% annual rate for food inflation. The factors at play include energy costs, weather and rising export and domestic demand for dairy products.
U.S. Agriculture Department economist Ephraim Leibtag says some of the 1 to 1.5 percentage point rise in food inflation above normal levels has to be higher commodity costs, though there’s not enough data to parcel out how much.
"When a farmer writes an op-ed piece … that there’s only pennies of wheat in Wheaties and pennies of corn in Corn Flakes, that’s true," says Michael Swanson, agricultural economist at Wells Fargo. But on the livestock side, corn and feed costs have a substantial impact on production costs.
For livestock and poultry producers, an increase to $4 from $2 in the price of a bushel of corn and a jump from $120 to $260 per metric ton of soybeans translates into a roughly 30% increase in costs for pork and poultry producers, Swanson says.
He adds that consumers haven’t really seen the full pass-through of higher production prices into the retail side. For consumers, meat, milk, poultry and eggs are more than 20% of the food budget. Cereals and grains account for about 8%.
Making the issue more complicated, livestock producers aren’t advocating eliminating subsidies and tax credits for ethanol. The talk instead is about making sure all producers have a shot at the energy market. The National Milk Producers Federation, for example, says that in addition to corn-based ethanol, Congress should back energy technologies using manure.
More generally, the tensions illustrate a larger point: Congress, through energy legislation, is creating a new agri-industrial policy for much of the rural USA. That has further complicated an agricultural economy already interwoven with subsidies, tariffs and other government mandates.
By Sue Kirchhoff, USA TODAY
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