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Dairy Focus: Is Ethanol an Economic Shock or Agricultural Shift?

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J.W. Schroeder, NDSU Extension Service dairy specialist J.W. Schroeder, NDSU Extension Service dairy specialist
Changes in Percentage of Corn Use Changes in Percentage of Corn Use
The growing ethanol industry may be changing the face of agriculture.

By J.W. Schroeder, Dairy Specialist

NDSU Extension Service

Editor’s note: This is the first article in a series on the impact of the growing ethanol industry and rising feed and fuel prices on the region’s dairy farmers.

Is the ethanol boom a temporary shock or does it represent a fundamental shift of the basic tenets of U.S. agriculture?

Some naturally hope this is a temporary disruption and markets will return to normal when policies that promote the current boom are eliminated. Others contend that more moderate crude oil prices will hurt corn-based ethanol, turning this boom into a bust.

Either way, most of us consumers are agonizing over the impact ethanol has had on prices of food, fuel, electricity and nearly everything else. From my perspective, many of us derived our profit from cost-conserving measures. With generally limited incomes, controlling costs is where our net income was derived. With escalating costs, many now have lost control of their ability to save for long-term needs.

This phenomenon has been coined as the era of “ethanolization” by C.W. Herndon, dairy economics, Mississippi State University. Emulating past eras such as the “mechanization” of agriculture in the 1940s and 1950s and “industrialization” in the 1990s, a growing number of dairy professionals assert this boom indeed represents a shift and change for U.S. agriculture.

Certainly, climbing crude oil and energy prices promoting the ethanolization of agriculture also have altered conditions and created havoc in the ag inputs and livestock markets. The costs of virtually all of the inputs used in crop and livestock production have risen relentlessly during the past two years, especially for fuel, fertilizer and feed. We all have heard horror stories about the astonishing escalation of fertilizer prices.

Ethanol’s percentage of total corn use is expected to increase 2.5 times in a five-year time frame, swelling from 12.4 percent in 2004-05 to a predicted 31.5 percent by 2008-09. Clearly, mounting ethanol demands on corn use have put pressure on dairy and other livestock producers. Feed and residual use no longer are dominating the corn market. Feed use is predicted to fall from 57.8 percent to only 41.5 percent during this five-year period.

Dairy and other livestock producers are facing extremely dire conditions. Prices for all feed products have skyrocketed and are forcing dairy producers to contemplate how to manage unpredictably high feed costs and whether they will be able to survive. The U.S. Department of Agriculture reports in its Monthly Milk Cost of Production report that purchased feed costs have gone up 50 percent to 75 percent between February 2006 and February 2008 across milk-producing states. Dairy and livestock producers and their supporting agribusinesses are facing a desperate situation and the need for assistance as they strive to endure the ethanolization of agriculture.

The evidence is compelling, if not overwhelming, that corn-based ethanol production and its policy-induced tax incentives and tariff protection, in combination with much higher crude oil prices, has created a revolution in U.S. agriculture. The ethanolization of agriculture has created huge opportunities and challenges for virtually every sector of industry and each taxpayer in America.

Next week I’ll share some discussion of ways dairy producers are coping with unprecedented feed costs.


NDSU Agriculture Communication

Source:J.W. Schroeder, (701) 231-7663, jw.schroeder@ndsu.edu
Editor:Ellen Crawford, (701) 231-5391, ellen.crawford@ndsu.edu
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