# Cattle and Corn Prices



## Tim/South (Dec 12, 2011)

Just some winter pondering.

I keep watching corn futures influence cattle prices. That is nothing new.
I always like it when anyone in the farming industry makes money. I know the corn growers need to make money while they can. We all do. I know supply and demand should always be what drives any free market.
While the government mandates for ethanol are good for corn farmers it is beginning to bother me that our food and feed prices go up and the ethanol industry has a blank check to buy 40% of the corn.
The national cow herd is lower than any time since 1952. Those who have been able to keep a few head of cattle should be getting top dollar right now and for some time down the road. While cattle prices are still good, they are not setting record prices as compared to last year.
The cost to fatten cattle is inflated due corn being used for ethanol. The American consumer can not afford to pay any more for beef at the store.
Am I wrong for being upset with the ethanol mandates?
Can corn farmers make money if corn drops to $5 or $6?
Will there ever be a time when a cow/hay farmer will make good money like the corn farmers are doing?


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## rjmoses (Apr 4, 2010)

It's not too much different than what bank robber Willie Sutton said when asked why he robbed banks. He replied, "Because that's where the money is."

Many people, especially the uneducated or under-educated, tend to do what is in their short term interest, not what is best in the long term for them. Recognizing this, a lot of our government sponsored programs are supposedly intended to help steer the nation and the economy in particular directions.

Ethanol is a good example. On the surface, it is intended to steer us towards a more self-sufficient and cleaner energy program. Whether it does or not, remains to be seen. But, like many other programs, it has been implemented with only little consideration towards its other impacts, such as food prices.

Our economy is much too complex to be micro-managed through programs like ethanol. There are just too many factors to take into consideration AND too many vested interests looking for their piece of the pie. The more effective economy management tools, education and personal responsibility, are difficult to implement and way too threatening to the powers that be.

While I understand my statements above and believe them whole-heartedly, I am drifting away from hay and cattle production and towards the corn/beans cycle 'cause "that's where the money is". When things change, I'll drift back.

Just my thoughts.

Ralph


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## Vol (Jul 5, 2009)

Ralph Moses....that was a very thoughtful and 100% right on response. I too can feel Tim's concerns....all I can say for sure is that things will change sometime in the not so distant future. I must be truthful about the corn situation....I am so thankful how it has helped many ag folk that deserve good things.....but high $ corn has hurt this country overall..... more than it has helped.....that's just a heartfelt response but I would NEVER blame the cropper for this event.

Regards, Mike


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## rjmoses (Apr 4, 2010)

Thanks, Mike.

Ralph


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## NDVA HAYMAN (Nov 24, 2009)

So what do you think will have when corn and bean prices take a dive? I would say that there will be a lot more ethanol made in this country. It's hard to get away from it.


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## Tim/South (Dec 12, 2011)

This is my understanding of the ethanol requirements.

When the government wanted to push ethanol as a new source of fuel, few wanted to venture in. The risks were too great. Ethanol does not provide affordable competition as a fuel when corn is over $5. Supply and demand always pushes the price over $5 when corn is being converted to fuel.
Our government guaranteed the 10% quota would remain intact. This allowed corn prices to find an inflated ceiling and since the ethanol was mandated, would guarantee a profit for those who had invested in the government notion.
Ethanol can be $20 per gallon and the oil companies are forced through regulation to buy it.
What I do not believe anyone accounted for was foreign competition.
Brazil and some other corn producing countries have recently began to play and are able to make and sell ethanol to the U.S. at a more competitive rate.
I have never been much on world trade. Always figured we needed to spend more time taking care of our own. This is one time I can see where an import, ethanol, may be good for the American economy.


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## rjmoses (Apr 4, 2010)

NDVA HAYMAN said:


> So what do you think will have when corn and bean prices take a dive? I would say that there will be a lot more ethanol made in this country. It's hard to get away from it.


My guess, and keep in mind that my crystal ball sometimes gets foggy, is that somewhere in the next 2-10 years, probably around 3-4, things will tank big time.

This is totally a gut feel.

But I think the key factors:

1) The baby boomer generation, who has worked and carried much of the past tax load and has a pretty solid work ethic, technical knowledge, etc., is retiring! One report I read stated that the average boomer ONLY HAS $37,000 saved towards retirement!

2) Over 50% of federal spending is on entitlements and programs that are either not on the budget or cannot be changed by Congress either because of laws or political suicide.

3) According to another report I read this weekend estimated that the total Federal debt and obligations to be approximately $100 trillion! A lot of Fed debt has been moved off the books.

4) All Fed insurance programs, such as SS and the FDIC, are restricted by law to investing their excess funds only in Fed Treasury bonds. This means that the money received by the Feds has really been spent because it was loaned to other government programs.

5) Similar issues exist at the state level.

These factors, and there are others, mean that "something" will happen. We just don't know what. Strong leadership could lead us out, but that's pretty low probability. The most likely event I see will be a re-occurrence of stagflation. Probably very high inflation, which is a politically acceptable way of dealing with the debts because it makes the dollar worth much less and nobody has to take the heat!

To get to your question, I'm guessing that crop prices will tank in 2014-16, and this is largely dependent on the weather. Ethanol price supports are to be phased out this year so that should cause corn prices to drop. Cattle herds have been thinned a lot because of high grain prices and the drought and this should lower demand But a dry 2013 will keep prices up. When we have a bumper year, all hell will start to take place in grain prices.

The next thing that will probably happen is that land prices will dropped like a lead balloon. Land prices have doubled, or more, largely because of speculation and an expectation that grain prices will continue to be at least in today's range. Those who have large mortgages on newly acquired land will go belly up. The Feds will probably not be able to come up with any bail-out programs this time. And there has been noise to that effect about farm support programs already.

It's kinda like the weather: When you hear thunder rumbling in the distant, you can be pretty sure that there's a storm coming. How bad? Your guess is as good as mine. In his inauguration speech, Obama put us on notice that "He.ll fight for robust entitlement programs". I take this as a pretty loud thunderclap.

Just more thoughts. And this time I hope I'm wrong.

Ralph


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## NewBerlinBaler (May 30, 2011)

Wow! Very interesting discussion thread. Reminds me that Hay Talk members are an intelligent bunch.

I largely agree with Ralph's comments about government ethanol mandates: good intentions with unintended consequences. But... politics are at play here also. Congressmen & Senators from corn belt states pushed hard for this and will fight hard to keep it going. As long as it brings $$$ into their districts, they won't be any discussion about the consequences.


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## sethd11 (Jan 1, 2012)

Ralph, That is so well written, I'm thinking you may be an economics teacher. That being said, the only thing we can count on in such an event is that there wil be more useless government intervention. The only reason we even have this situation of high prices, is because of government deciding that we need to be greener. In their infinite wisdom they decided that raising food prices and starving americans is ok, because america is greener. They don't care that some countries rely on low corn prices to feed their populations. All they can think about about is environmental impact and saving frogs...Every year it gets harder and harder to farm because of more regulations and higher prices.. How long before we just cannot make it without government help? I just don't understand how they can create a false price with regulations and raise the price of gas and still think they are doing right.


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## Tim/South (Dec 12, 2011)

NewBerlinBaler said:


> Wow! Very interesting discussion thread. Reminds me that Hay Talk members are an intelligent bunch.
> 
> I largely agree with Ralph's comments about government ethanol mandates: good intentions with unintended consequences. But... politics are at play here also. Congressmen & Senators from corn belt states pushed hard for this and will fight hard to keep it going. As long as it brings $$$ into their districts, they won't be any discussion about the consequences.


It is not just the the corn belt states. There is an entire ethanol industry tied into this as well. Ethanol was huge financial supporters of our President during his reelection campaign.
The blank check given to the mandated production of ethanol can be written to include a lot of job security and a bright future.
As per norm, the common man ends up paying the tab.


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## sethd11 (Jan 1, 2012)

NDVA HAYMAN said:


> So what do you think will have when corn and bean prices take a dive? I would say that there will be a lot more ethanol made in this country. It's hard to get away from it.


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## sethd11 (Jan 1, 2012)

Nvda, when corn and bean prices tank, which they will eventually, land prices will fall. Also if the ethanol industry loses its federal mandate OR if we are allowed to import ethanol, it will collapse because out is not self sustaining or competitive in they private sector. On the land prices, they wil balance out between all crop prices instead of inflating on corn and bean prices like they did.


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## swmnhay (Jun 13, 2008)

sethd11 said:


> Nvda, when corn and bean prices tank, which they will eventually, land prices will fall. Also if the ethanol industry loses its federal mandate OR if we are allowed to import ethanol, it will collapse because out is not self sustaining or competitive in they private sector. On the land prices, they wil balance out between all crop prices instead of inflating on corn and bean prices like they did.


Main reason ethanol is added to gasoline is so it burns cleaner.It replaces MTBE which was found to be highly toxic.EPA wants it to cut down on pollution.

There are ethanol imports,always been allowed but they had a .54 tariff which expired a yr ago.IIRC.

I believe the grain markets are more from the weather then ethanol.Give us 2 yrs of normal rainfall threw out the US and we could see $2.00 corn.


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## rjmoses (Apr 4, 2010)

swmnhay said:


> Main reason ethanol is added to gasoline is so it burns cleaner.It replaces MTBE which was found to be highly toxic.EPA wants it to cut down on pollution.
> 
> There are ethanol imports,always been allowed but they had a .54 tariff which expired a yr ago.IIRC
> 
> I believe the grain markets are more from the weather then ethanol.Give us 2 yrs of normal rainfall threw out the US and we could see $2.00 corn.


From what I've read, MTBE was some nasty stuff, so replacing it with ethanol was probably a good idea.

I was not aware that ethanol import tariffs had expired.

Here's an interesting report: http://www.ethanolproducer.com/articles/9387/u-s-ethanol-exports-down-from-2011-imports-continuing . Makes me wonder why we are importing and exporting at the same time?

I agree: Given 1-2 years of good weather and $2 corn is likely.

Ralph


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## swmnhay (Jun 13, 2008)

There was also a blenders credit that expired.I think it was .45 per gallon.It was paid to the blender not the ethanol plant.So basically the tank farm owned by Big Oil.

IIRC they are now paying subsidy $1.00 for cellulostic ethanol.Not sure if it is going directly to the plant??


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