Cattle Today

Cattle Today



by: Eric Grant

Part one of two

Colorado's South Platte River pushes its way from Denver, across the high plains, before it spills into Nebraska. Its path anchors the western edge of one of the world's largest corn-producing regions, which stretches from the Ohio prairie to the edge of the Rocky Mountains.

At one time, most of the corn produced here was fed to livestock. Now, much of it will be used to produce ethanol for an increasingly energy-hungry planet.

For Mike Konkel of Evans, Colo.-based Great Western Ethanol, it's a good thing for both America and its livestock producers that ethanol production has finally gotten traction.

“We've already transferred $1.16 trillion to other oil-producing countries,” he says. “In four more years, we will transfer another $1 trillion. It's time to use our home-grown resources to produce energy.”

Great Western Ethanol is one of 50 new bio-energy plants across the country that will begin producing fuel-grade ethanol in the next few years. About 100 other plants are already producing it.

Konkel's facility will churn out about 110 million gallons of ethanol annually, he says. At a 10 percent fuel blend with gasoline, that's enough to fill up 120,000 cars every day.

“The total, local economic impact of this single plant will be $303 million each year,” he says. “A total of 580,000 head of cattle are fed in feedlots within 60 miles of the plant. It's our intention to service the livestock industry by providing the industry with alternative feeds. We won't be viable without it.”

Many within the livestock industry remain cautious, however. Already smarting from last summer's high fuel prices, many ranchers got caught this fall when calf prices took a plunge – the result of higher corn costs.

There doesn't appear to be any end to high corn demand, either.

In 2004, five percent of corn production went into ethanol production. Today it's 20 percent. Ethanol plants currently have capacity to produce 4.87 billion gallons this year. Capacity to produce an additional 2.9 billion gallons is under construction. Under the Renewable Fuels Standard (RFS), production should reach 7.5 billion gallons of ethanol and biodiesel by 2012.

“We should be well ahead of schedule,” says Tony Frank of Rocky Mountain Farmers Bureau.

Generally speaking, one bushel of corn produces 2.7 to 2.8 gallons of ethanol. Nationwide, more than 80 million acres of farmland are devoted to corn production each year; with the average production per acre being 200 bushels of corn, says Frank.

“We need to keep in mind that we've had periods of corn shortages in the past,” says Frank Padilla, of North American Limousin Foundation. Padilla managed a feedlot in Nebraska for nearly 25 years. “I don't think you should under-estimate the American farmer and his ability to produce. If there's more money in corn, we'll see farmers devoting a much bigger portion of their land to meet that demand. And, ag technology is moving ahead very aggressive. We could see new varieties of corn that could increase overall production in the next few years beyond what we even imagine today.”

What's fueling ethanol demand?

The increased demand for corn-based ethanol is being driven by several domestic and international factors.

Increased energy demand from China and India, combined with political uncertainty in the Middle East, sent oil prices skyrocketing last summer. The increase in price for a barrel of oil made ethanol production economically feasible. The breakeven for ethanol is $40 a barrel.

“Our analysis concludes that the RFS will displace more than two billion barrels of oil through 2012, reduce the outflow of dollars to foreign oil regimes by as much as $100 billion,” says Bob Dinneen of the Renewable Fuels Association. “The RFS will create $6 billion in new investment, require $70 billion in spending for goods and services, add $200 billion to GDP between 2006 and 2012, increase household income some $43 billion and create more than 234,000 jobs.”

Other factors fueling ethanol demand include the fact that many major cities have Oxyfuel programs in place to reduce emissions and air pollution. Denver, for instance, requires a 10 percent ethanol blend on all gasoline purchased within its city limits during the winter months.

There are also federal tax credits in place for ethanol blenders, who receive a 51-cent tax credit for every gallon their produce. And there are federal tariffs imposed on imported ethanol, which bolsters the competitive position of U.S. producers.

In addition, many state governments – particularly in the Cornbelt -- also offer tax incentives, infrastructure grants and offer tax credits for ethanol and biodiesel blends.

The rise of Flex-fuel vehicles, which can run on either 80 percent ethanol (E85 ethanol) or straight gasoline, will also propel heightened demand for ethanol-based fuels. GM, Ford and Chrysler recently signed a memo that by 2012, half of their vehicles – about two million cars—will be flex fuel vehicles. Brazil is getting close to 100 percent of being flex-fuel vehicles.

“A lot of people who own flex-fuel vehicles today,” says Frank. “They don't even know their cars can run on E85 fuel. Once there are more stations where people can buy this fuel, people will take greater notice. In Colorado, there are only 11 stations where E85 fuel is available.”

New technologies also promise to reshape the biofuels landscape in the coming years. For instance, there are new processes that will be able to convert organic products like switchgrass, wood pulp, forest paste and corn stover into cellulosic ethanol.

Currently, it costs about twice as much to produce a gallon of cellulosic ethanol as it does regular ethanol. But industry experts expect this costs to drop by half to about $1.07/gallon in the next six years. It's at $2/gallon now, says Frank.

“What we need to keep in perspective,” adds Konkel, “is that ethanol has been around for as long as gasoline. Henry Ford was the first to design a vehicle – his Model T -- to run on ethanol. Since that time, ethanol has taken a back seat to gasoline. It's finally come full circle.”

Konkel points out that production of ethanol won't be limited to corn-producing regions as it has been in the past. In fact, many of the new ethanol distillers are located in corn-deficit regions of the country where corn will need to be transported in – in coal-train fashion –by locomotives.

States that historically have been net exporters of corn to other states soon could see demand to bring corn back into their states to fuel ethanol production.

“Ethanol plants that can produce 100 million gallons a year will soon be the norm for the ethanol industry,” Konkel says. “And most of these plants will be located near large urban centers.”

“The rise of ethanol production will be third behind hybrid corn and the plow in its impact on agriculture,” adds Dr. Barry Dunn of Texas A&M University. “We don't know where we're going to be, or what all the specific impacts of it will be. But producers today will be responding to these signals and creating a brand-new agriculture in the future as a result of it.”

The low-down on distillers grain

There's no doubt that the emergence of a viable ethanol energy will create an abundance of feedstuffs – called distillers grains – that can be fed cheaply and inexpensively to livestock.

There are four primary types of distillers grain:

• Wet corn distillers grains with solubles (WDGS) -- WDGS can be added to corn-based rations for finishing cattle at levels ranging from 10 to 40 percent of total ration dry matter. WDGS is palatable and readily consumed by cattle. Because the concentration of starch is less than that of corn, WDGS is less likely to cause sub-acute acidosis in cattle fed low-roughage rations.

• Dry distillers grain with solubles (DDGS) can be fed to finishing cattle to replace protein supplement and corn. DDGS has an apparent energy value equal corn grain when fed to finishing cattle at levels ranging from 10 percent to 20 percent of total ration dry matter.

• Condensed Distillers Grain (DDS) is a liquid that typically contains 30 percent dry matter. When fed to feedlot cattle at 10 percent of dry matter, its energy value is equal to or somewhat greater than that of corn.

• Corn Distillers Dried Grain (DG) is most efficiently used as a creep feed for calves, supplements for grazing cattle and as a supplement for low-quality forages such as crop residues that might be fed to growing calves, wintering beef cows, or developing bred heifers.

“Today the beef industry is commonly using 10 percent to 30 percent DGs in finishing rations. With increased demand for corn and significantly greater ethanol production, we will see rations containing 60-percent DG as commonplace,” says Mark McCully, director of supply development for Certified Angus Beef (CAB). “The growth in the ethanol industry will force the largest structural changes seen in the beef industry in the last 50 years due to demand for corn. There are currently 108 ethanol plants in the US producing 32 billion pounds of distillers grains. That number is projected to triple in five years.”

Research seems to indicate that feedlot gains on distillers grains are fairly comparable to those of corn.

But there are data that suggest that cattle don't quality grade as well when fed distillers grain, and that has some in the industry worried that the cattle industry may continue to see a decrease in cattle that grade Choice or higher.

At the same time, when price of distillers grain is low compared to grain, greater profits from feeding it at higher levels can be achieved, says Allen Trenkle of Iowa State University.

WDGS can be added to corn-based rations for finishing cattle at levels ranging from 10 percent to 40 percent of total dry matter,” says Trenkle.

Wet distillers grains, he adds, need to be fed fresh and not stored, while dried distillers grain can be mixed and stored for longer periods of time.

“You should make appropriate changes in the ration to account for the nutrients lacking distillers grain, namely protein and phosphorous,” he says. “And you need to maintain adequate quantities of fiber in rations for finishing cattle.”

Dick Carlson, a feedlot nutritionist for Greeley-Colo.-based Producers Feedlot, recently completed a study of 2,000 head of Brahman X British cattle that were fed wet distillers grain as part of their finishing ration.

Preliminary results show that the cattle fed a higher percentage of DG (25 percent as-fed basis; 15 percent dry-matter basis) had lower quality grades and higher yield grades when compared to cattle fed lower amounts of DG.

At the same time, the cattle fed a high DG ration also generated more profit, a function of their lower cost of gain; the DG blend cost less than the rations consisting of a higher-percentage and higher-priced corn.

“I'm not convinced that feeding DG is going to negatively impact quality and yield grades as much as people think it will,” says Carlson

A recent evaluation of 14 separate studies conducted by Chris Reinhardt at Kansas State University earlier this year concluded that marbling levels decreased by 20 points on a 1,000-point scale when rations included more than 29 percent dried distillers grain (DDG) compared to rations that included no DG at all.

The study also showed a correlation between feeding increased levels DG with increased percentages of undesirable yield grades.

Research also shows that feeding condensed distillers grains (CDG) and wet distillers grain solubles (WDGS) did not negatively impact marbling.

While data are limited on sensory attributes like tenderness and color of DG-fed, work conducted by the University of Minnesota and the University of Nebraska indicate that there is no effect on flavor profile or tenderness when feeding up to 50 percent DG. However, research also indicates that DG can negatively influence the color stability of steaks, making the fat more yellow in color.

Dick Carlson is concerned of the possible environmental implications of feeding DG. Because it's high in nutrients like phosphorous and sulfur, feedlot operators will need to keep a close eye on how DG impacts their nutrient-management practices.

“We need to conduct a lot of research on this,” Carlson says. “We need to know if the higher-levels of phosphorous and sulfur in DG are going into the manure.

“I'm not convinced that feeding DG is going to negatively impact quality and yield grades as much as people think it will,” he adds. “But that doesn't mean we don't need to learn everything we can about feeding it.”

Strategic implications

China's oil consumption is growing by 7.5 percent a year, driven by a 20 percent annual increase in automobiles. China has gone from a net exporter of oil to the second-largest importer (second behind the U.S.) in just 10 years. China currently imports about a third of its energy needs, which are expected to double by 2010.

India's oil use rose 11 percent in 2004, and continues unabated. India is now the world's 4th largest gasoline importer.

Hugo Chavez, president of Venezuela, one of the world's largest producers of oil, frequently uses oil as a weapon to advance his foreign policy goals, building relations with nations that are hostile to the U.S.

The bulk of U.S. oil production and gas-refining infrastructure remains concentrated in the vulnerable Gulf Coast, and meteorologists predict the volatile weather we saw last summer will likely continue.

Sixty-six percent of the world's oil reserves are located in the Middle East. International oil supplies are placed at risk because of uncertainty in Iraq and Iran's ongoing efforts to produce nuclear weapons. – Source: Renewable Fuels Association


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