LEXINGTON, Ky. — Farmers know the agricultural landscape of the country is changing at a tremendous rate.<br>

What they don’t know is what lies ahead for them.<br>

The answer could be revealed by, of all things, U.S. energy policy.
Grain producers are seeing higher prices as the need for new forms of alternative fuels grows, prompting many to increase acreage. This situation is a mixed blessing, according to information from the University of Kentucky College of Agriculture and one of its ag economists, Lee Meyer, as livestock producers – especially those depending on grain – are experiencing increased production costs.
“High prices are a great incentive for farmers to expand crop production, not only in the United States, but around the world,” he said. “The simplest way for this to happen is to take the land out of another crop, like soybeans.<br>

“That happened last year, and the reduction in soybean production led to higher soybean prices. Now, all the crop prices are at or near record levels.”<br>

That may be good for grain producers, but those making a living in livestock are seeing rising production costs and smaller profits. According to Meyer, corn is currently more than $5 per bushel, soybeans are $14 and wheat is around $11 per bushel and, at those levels, crop prices will have an impact outside the grain production system.<br>

Traditionally, the United States’ greatest use for grain has been to feed livestock. Pork and poultry are produced almost entirely on grain and oilseed protein.<br>

“I’ve estimated that the farm level production cost for pork is up 75 percent, with the total cost up about 25 percent,” Meyer said. “The chicken feed index is up 44 percent and so its total cost of production is up to nearly 20 percent.<br>

“Cattle are a little different; most only depend on grain for the last one-fourth of the production process. As a result, the impacts of higher grain production are reduced, but they are still significant.”
With U.S. energy policy placing a large emphasis on ethanol as an alternative fuel, coupled with the fact corn is primarily used in its production, this new demand makes up approximately 24 percent of the 2007-08 crop.<br>

At last week’s International Renewable Energy Conference in Washington, D.C., President Bush told attendees that since the year 2000, ethanol use had increased dramatically.<br>

“In the 2000 campaign, I strongly supported ethanol. In 2008, it’s amazing to think about how far our country has come since the year 2000. Ethanol production has quadrupled from 1.6 billion gallons in 2000 to a little over 6.4 billion gallons in 2007,” he said.
“And the vast majority of that ethanol is coming from corn, and that’s good. That’s good if you’re a corn grower. And it’s good if you’re worried about national security. I’d rather have our corn farmers growing energy than relying upon some nation overseas that may not like us. That’s how I view it.”<br>

Bush, however, went on to say while the increase in ethanol use had created a change in energy consumption here, it also created challenges for livestock producers. “In 2005 the United States became the world’s leading ethanol producer. Last year we accounted for nearly half of the worldwide ethanol production. I don’t know if our fellow citizens understand that, but there is a substantial change taking place, primarily in the Midwest of our country,” he said.<br>

“Corn ethanol holds a lot of promise, but there’s a lot of challenges. If you’re a hog-raiser in the United States, you’re beginning to worry about the cost of corn to feed your animals. I’m beginning to hear complaints from our cattlemen about the high price of corn. The high price of corn is beginning to affect the price of food.<br>

“And so we have to do something about it, and the best thing to do is not to retreat from our commitment to alternative fuels, but to spend research and development money on alternatives to ethanol made from other materials,” he said.<br>

Meyer said the pork, chicken and beef industries may all respond by cutting production, but that will depend upon how consumers respond. Compared to January 2007, beef prices are up by about 5 percent; pork and chicken prices are up 2 percent and 10 percent, respectively.<br>

“If consumers dramatically reduce their consumption, there will be an oversupply and chicken, pork and beef producers will cut production,” he said, citing research that indicates consumer incomes are the most important factor in retail demand. “So, with a stressed economy, consumers are expected to cut back as a response to higher grocery and restaurant prices.”<br>

Something else to consider are the long-term ramifications of higher grain prices. Meyer said as the demand for grains increases, more pastureland could be used to fulfill the need, resulting in increased erosion. “Of course, that puts more pressure on the cattle industry to find feed sources since there will be less pasture and hay,” he said.<br>

Meyer also said farmers may have to look at producing more beef on hay and pasture to minimize the impact of the ethanol-driven corn markets. If producers are willing to make some adjustments, they may be able to capture a greater portion of the overall meat market.

<i>This farm news was published in the March 12, 2008 issue of the Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.</i></p><p>