Impact of the Ethanol Boom on Livestock and Dairy Industries: What Are They Going to Eat?

Article excerpt

Increased demand for corn for ethanol production has helped push grain prices to record levels. This has increased livestock production costs, and producers have responded with changes to production systems. This paper explores the degree to which costs can be mitigated with alternative feeds, the effect this might have on physical performance, and the impact of alternative feeds on the competitive position of different species.

Key Words: cattle feeding, corn, cost of production, ethanol

JEL Classifications: Q12, Q13

The use of corn in ethanol production has increased dramatically in recent years. As recently as the 2002/2003 marketing year, corn use in ethanol production amounted to less than 1 billion bushels. The most recent U.S. Department of Agriculture (USDA) projections estimate corn use in ethanol production at 3.2 billion bushels in 2007/2008-roughly one quarter of total production. Ethanol production is forecast to claim 4.1 billion bushels of the corn crop in 2008/2009-as much as one third of expected production (U.S. Department of Agriculture 2008).

The dramatic growth in the biofuels industry has created a demand-driven boom in corn (and, by extension, other crop) prices. Although this has been a most welcome development for grain producers, it has created a difficult situation for livestock producers. The livestock and dairy industries are facing higher feed costs as a result of the increased competition for grains created by ethanol demand. For livestock, dairy, and poultry producers, the hope since the beginning of this recent period of high com prices has been that the impact of high grain prices would be offset, at least to a degree, by the increased availability of by-products such as distiller's dried grains (DDGs) and com gluten feed. Although the by-products of ethanol production have surely helped to mitigate the impact of higher corn prices (especially for producers situated close to a plant), the relief provided by by-products to the feed market as a whole has been somewhat disappointing.

The potential of by-products as a feed resource across all livestock and poultry industries is a topic of much research right now. Several key questions remain to be answered. For example, what level of byproduct is acceptable in livestock rations? Even with DDGs (or DDGS to denote "with solubles") in beef rations-a topic with which there is considerable experience-it appears that little consensus exists on this issue. Much less consensus exists with respect to byproducts in rations for other species. What are the effects of feeding larger amounts of byproduct feeds on key measures of animal performance: for example, feed conversion, carcass merits, milk production, etc.? Again, research into these issues is ongoing. In addition to these rather pressing production issues, the cost-effective use of by-products will likely require improvement in the distribution system for these by-products.

Despite these complicating factors, the potential for using the by-products of renewable fuels production, particularly DDG or DDGS, to reduce costs in beef and dairy operations seems great. On the other hand, these by-products present problems for poultry and hogs. How the ongoing impact of biofuel production on grain prices will affect different sectors of the livestock industryand specifically, how the competitive position of different sectors of the livestock industry will be affected by each sector's relative ability to use lower-cost feedstuffs-is a very critical question as the biofuel industry develops.

This paper will discuss several different aspects of the biofuels boom as it relates to the livestock sector, focusing particularly on beef and dairy production. We begin with a discussion of major by-product feeds and a survey of what is known of their nutritional characteristics and other major considerations (e.g., storage/handling requirements) in their use as a feedstuff. …