Dairy producers will know better than I do about rising corn prices. “Higher corn prices forecasted in 2007” and “Highest cost of corn hits dairy farmers” have been headlines in the news during the past three months. Increasing corn prices have pushed a low milk-feed price ratio even lower, down to 2.34 in November 2006.

No article should tell dairy producers how to make changes to their rations. Those decisions are reserved for consultations between a producer and his or her nutritionist. However, this analysis aims to describe the market forces driving an increase in corn prices, and the availability and feeding of distillers grains.

Unfortunately, today’s high corn prices are here to stay, for awhile.
I recently spoke with Rick Kment, a dairy analyst with DTN. Rick, along with others, predict the demand for ethanol will double by 2010. This prediction is attracting increased attention and investment from nontraditional corn buyers. These buyers, known as noncommercial buyers, are not buying corn for animal or human consumption, but rather as an investment. They’ve added both volatility and price support to the market.

A back-and-forth battle between animal feeding, ethanol and export demand for what is becoming a tighter corn crop supply is driving up both short- and long-term prices. Commercial buyers, including those purchasing corn for animal feeding, hope the increases in price will encourage farmers to plant more corn this year to increase supply, thus easing into higher long-term prices. But Kment says price increases are also occurring in the soybean and wheat markets, creating a battle for production acreage.

In summary, traditional corn buyers, including those with animal feeding interests, are no longer the only buyers in the market. In fact, buyers looking for corn for ethanol are currently overshadowing them. As Kment says, the ethanol industry’s demand for corn has taken center stage.

I also recently spoke with Al Harrison, board president of the Distillers Grains Technology Council. He says nutritionists have known for years that distillers grains, both wet and dry, have been very palatable for dairy cattle. Recent increases in the supply of distillers grains have made them a more economical feed in many regions. Harrison suggests dairy producers talk with their nutritionists about the availability and cost of feeding distillers grains.

“In some markets you may be leaving money on the table by not including distillers grains,” Harrison says.

I’d encourage readers to read on page 41 of this issue Dr. Pearse Lyons’ discussion of how the ethanol industry is impacting the animal feeding industry. It’s an eye-opener.

In conclusion, the feed ingredient markets are no longer at equilibrium. And even if they do return to equilibrium following this most recent upheaval caused by the ethanol industry, they may be shuffling again in a few years, if biodiesel production takes off. PD