Ethanol projected to consume more corn than livestock

Monday, August 22, 2011 | 10:58 a.m. CDT; updated 12:00 p.m. CDT, Wednesday, May 2, 2012

COLUMBIA - Pigs and chickens aren’t the only ones with an appetite for corn these days. Cars gobble the stuff up, too, and this year, vehicles are projected to consume more corn than livestock for the first time in U.S. history.

Gene Danekas, Missouri director of the National Agricultural Statistics Service, said the USDA estimates that 5.1 billion bushels of corn will be used to make ethanol this year, while 4.9 billion will be used for feeding livestock.

“Ethanol is taking a larger and larger share of production,” said Seth Meyer, an MU agricultural economist with the Food and Agriculture Policy Research Institute. “I know it’s been overtaking feed for a long time.”

The number of bushels of corn consumed by the ethanol industry began spiking in 2006. Joe Parcell, an agricultural economist at MU, said the shift in corn use toward ethanol was inevitable.

“We knew it was going to occur. It was a question of when. Next year it could teeter back the other way," Parcell said. "Ten years ago, ethanol was a blip on the map. That it’s even close, that’s a big deal.”

Complex forces have driven the demand for corn by ethanol producers and have contributed to ethanol’s projected outpacing of feed demand. 

Government mandates for biofuel production, as well as ethanol tax subsidies, have in part supported the demand for corn, according to a USDA report from June 2011.

Along with government initiatives, oil prices have also pushed ethanol demand and, with it, demand for corn. As oil prices rise, Meyer said, gasoline manufacturers use more ethanol in their blends since it becomes cheaper relative to oil.

Even when oil prices drop, government mandates ensure a minimum level of ethanol consumption.

“Sometimes ethanol is supported by mandates; sometimes it’s supported by high oil prices,” Meyer said.

Exports of corn also affect overall demand for the commodity.

According to the USDA, developing economies such as China and India are helping to accelerate worldwide food consumption. As global incomes rise, consumers in other countries eat more meat, which is produced partly using U.S. corn exports as feed.

Gary Marshall, CEO of the Missouri Corn Growers Association, calls it the Chinese factor: “They’re buying more and more corn.”

The end effect of this rise in global demand for corn is that exports increase more than researchers thought possible, Parcell said.

Parcell calls it a perfect storm, this combination of ethanol-boosting government policies, jumps in oil prices starting in 2007 and a world economy that wants more meat. All these factors contribute to the exploding global demand for corn, which has significantly increased in price.

Higher corn prices provide incentives for farmers to grow more corn. They have also forced the livestock industry to reconsider its options.

“Livestock producers are looking for lower-cost alternatives,” Danekas said.

These alternatives include the distiller grains created during the production of ethanol.

Gary Marshall believes the USDA should include distiller grains in its total estimates for feed corn since the grains can be fed to livestock.

“We don’t think that we are going to use more corn for ethanol than for cattle feed or hog feed,” Marshall said. The Missouri Corn Growers Association has an ongoing dispute with the USDA over how it does its accounting, he said.

Marshall said that 1 billion to 1.5 billion bushels of “feed equivalent” were made this year through ethanol production that should be taken into account by the USDA’s projections. Including feed equivalent totals would discount the USDA's projection that more corn will be used in ethanol production than to feed livestock. 

Even with these alternative feeds available, livestock numbers in the U.S. have decreased. Part of this has occurred because farmers have bred larger animals to produce more meat, but Parcell said some is also due to the high prices for corn, which ethanol has helped drive up.

“It’s been interesting, this ethanol-animal confluence,” Parcell said.

Parcell said the burgeoning ethanol industry and the higher corn prices that have accompanied it have been "a big boon” for rural America. However, he does not think that the number of jobs created by ethanol production has replaced the jobs lost in the livestock industries.

“Corn farmers have neighbors that are hog farmers or poultry farmers—I’m sure there’s some angst there,” Parcell said.

Parcell himself grew up on a hog farm and today owns a farm in Iowa where he grows soy and corn.

“As a farmer, it’s sure fun to see $7 corn," he said. "But I know $7 corn isn’t good for society in the long run. It’d be better for everybody if corn was a little cheaper.”

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