Alternative Fuels, Higher Feed Prices


March 2007

by Laurel Scott

 

If feed prices have you digging deeper in your pocket these days, America's booming ethanol industry is partially to blame.

On Jan. 24, President Bush called for stepped-up production of this clean burning, grain-based alcohol, a low-cost fuel additive made from crops such as corn, in order to cut the nation's gasoline consumption. A year ago, according to local feed dealers, corn cost about $2.50 a bushel, a price not especially favorable for growers. But with ethanol production now on a fast track, the demand for corn - as well as speculation on future supply and demand - had nearly doubled its price by press time.

Just ask Martin Adams, equine nutritionist and horse feed sales manager at Southern States Cooperative in Richmond, Virginia. "Diversion of corn into ethanol production has increased the price of corn for horse feeds and increased the prices of other feed ingredients," he said. "We are already about $1 per bag over a 'normal' price on our horse feeds at this point in time."

At The Mill of Bel Air, owner Henry Holloway reported that as of Feb. 14, the price of corn had increased $68 a ton since the same time last year - and where corn goes, other grains are sure to follow. "What happens is, when corn goes up in price and reaches a given level, then other grains start to be used, rather than corn," he explained. "So when the other grains get used, the demand for corn as a feedstuff is reduced somewhat. However, the demand for the other grains increases, so their prices are reflected in that."


Holloway said that oats have increased $62.50 a ton since last year, while barley has increased $46 a ton and soybean meal $50 a ton.

Of course, fluctuations in grain prices are nothing new. "We've seen this before," said Randy Martin, manager of Bowman's Feed & Pet in Westminster. "This is just a cycle that, a lot of times, [the market] runs through."

But as Holloway noted, this jump is somewhat unusual. Nor is it entirely due to the demand for alternative fuels. "There has also been a tremendous export demand for grain," he said. "And we also have large numbers of livestock. You've got to look at total demand."

Still, the market seems to be all about ethanol at the moment. Over at the Farmers Cooperative Association Inc., a Maryland certified grain dealer in Frederick, Specialty Sales Manager Richard A. O'Hara is watching the situation closely. "The ethanol plant situation is definitely a factor that is driving the speculators, but it is not the only factor," he confirmed. "They are speculating the volume of demand that the ethanol plants will create, and the possible effect it will have on the future value of the crop."

At press time, the National Corn Growers Association reported that there was no shortage of corn. However, as Holloway and others noted, that supply could be depleted rapidly if all of the ethanol plants that are projected to come on line actually do so. By the same token, if all of the plants do not come on line, and corn is not purchased at the projected volumes, grain prices could go down significantly.

There are other factors at play, as well. But the bottom line is this: "Are we going to see cheaper horse feed between now and the end of the year? I don't think so," Holloway said.

 

 

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