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March 2007

Release Date: March 19, 2007

Increased Ethanol Production Hurting Texas Cattle Feeders

President Bush’s mandate to increase the production of ethanol may be a tremendous boon to the nation’s corn producers, but it is already having a negative effect on Texas cattle ranchers, according to Dr. Brian May, associate professor of agriculture at Angelo State University.

During his 2007 State of the Union Address, President Bush called for a 15 percent annual increase in ethanol production over the next five years as an alternative to fossil fuels. On the heels of that came new government subsidies for existing ethanol plants and for new plant construction. As a result, speculation on corn futures rose to new heights and the cash price for corn has nearly doubled.

Feedlot owners in Texas are being hit hard by the higher corn prices, which have caused the cost of gain on the lots to go up by 60 to 75 percent, May said. With more money going out for feed, it has put feedlots in a loss position.

“Right now the only alternative is to pay less for the feeder calves coming off ranches or being weaned off their cows,” May said. “Other things are being looked at to hopefully substitute corn with some other type of grain or forage that will attain the same kind of gain, but this industry is based on corn and corn prices, so we’re really kind of limited in our options.”

One option being touted by government officials is distiller’s grain, a by-product of the ethanol production process. However, May says other aspects of distiller’s grain keep it from being a practical replacement of corn as a main source of feed.

“It is a wet substance, so when you haul it you are essentially hauling a lot of water, which is inefficient,” May said. “It also molds very quickly, so you can’t buy it in bulk or keep a large supply on hand. It’s just not cost-effective. To dry it is also not very cost effective.”

While the cattle industry frets over them, the higher corn prices are good for the federal government, as they will reduce the need for subsidies to corn producers. However, it remains to be seen if that will offset the new subsidies being paid to ethanol producers.

"The cattle feeder is the one who will foot the bill for ethanol because they are going to pay for the higher feed costs,” May said. “Cattle feeding, right now, is unprofitable.”

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