Ethanol plants, petroleum and speculation driving corn costs

Ethanol plants, petroleum and speculation driving corn costs

COSHOCTON – Like every livestock farmer these days, Larry Stahl is worried about how much it’s going to cost to feed his herd of dairy cows in the near future.

Stahl, who works on his family’s Adams Township farm, Rocky Point Farms, has planted about 150 acres of corn this year to help feed his 75-head herd of Holstein, Brown Swiss and Red Holstein dairy cows.

But with the cost of corn per bushel rising higher that it has since 1996, livestock farmers are bracing for the worst.
“It’s definitely going to eat into any profit we’ll have,” Stahl said.

Since the buzz about how much corn would be needed to operate the new ethanol facilities that are under construction, the speculated cost of corn – which is the main component in the making of ethanol – continues to climb. The price of petroleum, which is used to fuel farm machinery and used to make pesticides and fertilizers, is also affecting corn costs.

Dwayne Siekman, executive director of the Ohio Corn Growers Association, estimates that more corn will be planted than any year since 1944.

“There will be 90.6 million acres planted in the U.S.,” Siekman said. “In Ohio this year, there will be 3.6 million acres, up from 3.1 million acres that went into corn production last year.”

Siekman said livestock farmers, consumers, export demands and ethanol facilities will boost the demand for corn this season and likely many seasons to come. He did not foresee a shortage in corn, however, for any of those markets.

Siekman said if the weather conditions are tolerable for a productive growing season there will be 12.5 to 13 billion bushels of corn harvested this year.

“The price will be volatile because the one factor no one can control is the weather,” Siekman said.

Lynn Elliott operated a dairy farm in eastern Muskingum County for 35 years but sold his cattle two years ago. His daughter, who is a veterinarian, and her husband are currently looking into restarting the family operation so Elliott recently began planting corn and soy beans that could possibly feed the 30- to 40-head operation.

“I’m very well aware of the corn pricing situation,” Elliott said. “Up until mid winter, I was looking into planting corn as a cash crop.”

Now that there’s talk about restarting the dairy farm, Elliott is concerned with how much it’s going to cost to feed the cattle.

“The one good thing about it is that these cows would graze at pasture for six months or so,” Elliott said.

He said pig farmers will also face larger feed costs because corn makes up the majority of the livestock’s feed.

Rod Mercer, manager of Gerber’s Feed Sack, a feed dealer located on Vine Street in Coshocton, said the speculated high demand for corn, as well as the rise in fuel prices, have both played a role in raising the store’s feed prices.

“For the past five or six months, the prices of feed have gone up for us and I think it’s a culmination of both (the rising fuel cost and the demand for corn) that’s caused it,” Mercer said. “From what I’ve heard from Baltic (where Gerber’s is based), it doesn’t look like there’s going to be much of a relief as far as feed prices go.”

The Coshocton location of Gerber’s has been open for 16 years. Mercer said that between 70 and 80 percent of his 1,100 customers are farmers.

“I think it all depends on what happens with ethanol,” said Bill Huston, executive director of the USDA Farm Service Agency that covers Muskingum and Morgan counties. “In the long term, I don’t see it as having a negative effect at all…For the short term, it is a concern that inputs are going up.”

Inputs are costs that are incurred when growing a crop. The top inputs for growers are the cost of seed, fertilizer, fuel and land, according to Siekman.

“Fertilizer went through the roof, diesel prices are up again, chemical prices are high – it’s not like the local (grain) elevators are going to make that much,” Huston said. “The problem is, the higher prices are coming from every direction. (Local corn growers) aren’t going to make any more profits at $3.80 (per bushel of) corn than they are at $2.80 corn when they have to pay more for seed, fuel and chemicals.”

Kari Burkey, organizational director for the Muskingum, Morgan, Perry and Washington County Farm Bureau, said most farmers are not changing what they’re planting because of the costs.

“I know that beef farmers aren’t too happy with corn costs but corn growers are very excited,” she said.

Though the ethanol industry has not even made a hefty corn purchase, it’s the speculation of the demand that’s apparently driving the cost to more than $4 a bushel by late summer.

“I think it’s just the hype that’s driving the cost right now,” Burkey said.

Siekman said though corn prices are rising, corn growers won’t likely see boon times as a result because corn growers will still have to pay for rising fuel, seed, fertilizer, pesticide and land costs.

“Over the last eight years, corn farmers have seen their margins at 23 percent below the cost of production. This is the first year they’ll see a market above the price of production,” Siekman said.

Siekman said the government won’t have to make up the difference in the corn industry this year because forecasters see a profitable future in the near horizon for growers. He added that a profitable U.S. corn industry would save the government $8 billion this year.

But the forecast isn’t so clear for other farmers who rely on corn to feed their crops.

“Corn prices are a cloud looming on the horizon over the livestock industry,” Elliott said.

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