Date of this Version
Presented at Range Beef Cow Symposium XXII, November 29, 30, and December 1, 2011, Mitchell, Nebraska. Sponsored by Cooperative Extension Services and the Animal Science Departments of the University of Wyoming, Colorado State University, South Dakota State University, and the University of Nebraska–Lincoln.
The ethanol industry in the United States has expanded very rapidly and is a major user of feed grain, especially corn. In 2011, some 40% of US corn production is expected to be used for ethanol production. At the same time as the ethanol industry was expanding, other market events were also occurring that collectively resulted in corn prices more than doubling from 2006 to 2010. Corn price increases, all else constant, directly reduce calf and yearling prices as these animals become more expensive for feedlots to feed. The result, cow-calf producers realize lower returns on their cow enterprise.
The purposes of this discussion are to:
1) Illustrate and assess the nature of trends in the United States ethanol industry
2) Overview the impacts of the trends on corn prices
3) Discuss the impacts of the ethanol industry expansion on cattle producers
4) Summarize implications
Ethanol Industry Trends
The United States ethanol industry was relatively small during the 1990s and early 2000s with annual production typically between 1.5 and 2 billion gallons (Figure 1). The industry began rapid expansion during the early 2000s, doubling from 2002 to 2006, doubling again by 2008. By 2010, ethanol production exceeded 13 billion gallon – a more than six-fold increase from 2002 – and industry expansion was continuing.
The reasons behind expansion of the ethanol industry are interesting and multi-faceted. Though details are well beyond the scope of this discussion, review of some of the expansion drivers is important. Ethanol industry growth was spurred by substantial economic profits during the early 2000s especially in 2005-062. Crude oil prices were high and rising, supporting ethanol prices; corn prices were low; and margins for ethanol production were strong. US policy supported ethanol expansion by providing credits to ethanol-fossil fuel blenders, placing tariffs on ethanol imports, and establishing an upward ratcheting ethanol blending mandate. The economic and political environments strongly supported the ethanol industry into the mid 2000s. Times were good for ethanol producers.