PeakOiler wrote:Pops: Do you still raise cattle or animals that eat corn? What will the end of subsidies do to the corn market from your point of view?
Well, it's surprisingly complicated but here goes...
The typical setup is one guy owns momma cows and he raises calves - a cow/calf outfit, then another guy buys them and grows them on forage and grain and finally a feedlot takes the big steers and finishes them on grain to get fat into the muscle. Of course there all all kinds of permutations.
Understand that lighter weight cattle are worth more per pound than heavier weight cattle. The idea being that the cost to add weight is less than the value of the weight added - IOW, the cost of feed is hopefully less than the value of beef so the grower can make a profit. This declining price per pound is called the "price slide".
When feed prices are low there is a big difference in the price per pound between lightweight and heavier steers because the cost of gain is lower - the price slide is steep.
But when feed prices are higher, like after the ethanol boom, the price slide is much less steep and per pound prices for lighter cattle are closer to that of heavies.
To put actual numbers to the pricing scale you gotta work backwards from the eventual price of beef. Here is where you plug in domestic and export demand. As it turns out, high fuel prices were impacting consumers in 07 right at the time of the initial implementation of Bushes corn policy so low demand and high inputs combined.
The effect was lots of cow/calf outfits went teats up and of course with fewer mommas there are fewer calves:
Right now the cost of corn is way up there and the number of cattle is lower than in the 1950s. Because China can still afford beef fed cattle prices are at all time highs.
The upshot is ethanol pretty plainly drove many marginally capitalized small producers out of business further consolidating the industry. Of course we all know that the Cargils and Tysons are cornering the market, raising prices to consumers while squeezing the producer to the bone, the ethanol boondogle only furthered their cause.
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Bush thought ethanol would offset imported oil and in 07 said "By taking these steps, we can help achieve a great goal: reducing the use of gasoline in the United States by 20 percent in the next ten years, and cutting our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East." What happened was the price of corn become linked to the oil market like so:
Gasoline demand did go down some but after correcting for energy content and MTBE replacement it ain't much.
http://americancenturyblog.com/2011/05/ ... re-rising/http://www.noble.org/ag/Economics/2011- ... index.htmlRapier is the Man on ethanolhttp://www.justice.gov/atr/cases/f239900/239919.htmhttp://www.agmanager.info/livestock/mar ... mf2504.pdfThe legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
