LANSING, Mich. — This year’s high corn prices are not helping feedlot returns. With corn holding steady at $3 per bushel and higher, Michigan’s cattle growers are feeling the squeeze.

“It’s making us pay attention to our feed costs more,” said John Stoneman, partner in Stoneman Cattle Inc. and Stoneman Farms of Breckenridge.

The Gratiot County feedlot has about 3,500 head of cattle in all stages of growth.

“It’s really hard to decide if the cattle will work - if we can make money on them - because you don’t know what to expect for feed costs,” Stoneman said. “It’s anybody’s guess how high the corn market is going to go. That’s the big question.”

He said it’s especially tough “on a light feeder that you’re going to feed for a year. There’s a lot that can happen in a year’s time if you don’t watch the price.”

Jim Hilker, Michigan State University professor with the Department of Agricultural Economics and an Extension marketing specialist, said the state’s growing number of ethanol plants is fueling the demand for corn.

Thus the reason growers are experiencing the higher price this year - up from about $2 per bushel last year - on the heels of huge corn stocks left over from the 2004 and 2005 corn crops. On top of that, Hilker said the United States is projected to have its second-best corn yield on record this season.

The challenge, he said, will be to grow enough corn to fuel the increasing ethanol market demands while still providing sufficient corn to feed livestock and poultry.

Hilker estimates that it will take nearly 7 million more planted corn acres next year to feed the projected demand nationwide. Michigan grows about 2 million bushels annually, and Hilker estimates the state will experience about a 15 percent increase in corn acres in the next year.

For the cattle market, Hilker said, “the most immediate effect is on feed prices, which cuts profits.”

Distiller’s grain, a byproduct of ethanol production, is being introduced as a feed ration in an effort to replace some of the corn they would normally feed.

“This is going to be cheap because we have a lot of it,” Hilker said. Ernie Birchmeier, livestock and dairy specialist with Michigan Farm Bureau, said the distiller’s grain is just one part of “a huge structural change in agriculture.

“We have the croppers excited with the demand of corn for ethanol, and at the same time we have to feed our livestock industry with something, and that is corn,” he said.

“The good thing from the cattle standpoint is that you can utilize the ddg (distiller’s grain) in a whole lot higher percentage of a ration from a beef and dairy standpoint than you can in the poultry and swine industry.”

Birchmeier anticipates a decrease in corn prices “as we see a scale back in the livestock.”

Hilker said he doesn’t anticipate a sharp decline in the state’s cattle market. He does, however, expect that - in the long run - low feeder cattle prices coupled with droughts this year in some of the nation’s cow-calf producing areas will likely slow expansion.

“Even with sharply higher corn prices, animal numbers won’t likely drop in 2007-2008,” he said.

He also said feeder cattle prices have been pressured by the higher corn prices, with feeder cattle prices running about 15 cents lower, or about $1-$1.05 per pound this fall.

“This may be an advantage to feedlots with their own feed, at least in the short run,” he said.

Hilker also said that cow-calf herds across the country have increased in the last year or two.

“Feeders have been high enough that we wonder why we haven’t expanded earlier,” he said.

“When people feed cattle they know the price they expect to get and they know the price of corn, so they only have so much to spend on feeders,” he said.

In the long-term, Hilker said, corn prices may drive feeder prices to unprofitable levels, but he doesn’t see high corn prices in the next 2-3 years stopping things.

This farm news was published in the Nov. 29, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.