The number of American feedlots leaving the business increased by 9,900 percent in the last year — a mass exodus prompted by the rising cost of feed.
The catastrophically high price of corn has been attributed largely to last year’s severe drought, which was certainly a factor. But the man-made — or rather Washington-made — causes often get short shrift, though they contribute significantly to the growing cost of feed.
Feedlots have two main inputs: corn and livestock. Take beef: Ranchers raise calves then pass them on to the feedlots, where they are “grown.” The Department of Agriculture reports that “corn is the primary feed grain in the United States, accounting for more than 90 percent of total feed grain production and use” for animals. From the feedlot, the cattle go to the slaughterhouse, then to the grocery-store aisle and finally to the steakhouse or your kitchen table.
These feedlot owners have preciously small operating margins, and the price of corn can make the difference between their making a profit and suffering a loss. For the past couple of years, it’s been looking grim.
The price of corn broke record highs last year. It has since decreased, but the highs nonetheless had a severe economic impact: A staggering 2,000 feedlots ceased to operate in the past year, compared with only 20 that had closed the previous year, the Wall Street Journal reported earlier this month.
But the price of corn, caused by scarcity, has as much to do with politics as nature. In 2007, under the Energy Independence and Security Act, Congress established renewable-fuel standards with hefty requirements for biofuel usage. Over the next quarter century, according to Congress, Americans must use 36 billion gallons of ethanol to fuel their vehicles, even though the biofuel is expensive and yields lower mileage than traditional gasoline.
In the past year, the government has directed more than 40 percent of the American corn crop to ethanol production. To meet the mandate next year, Americans will be required to use 16.6 billion gallons of ethanol — “requiring farm land roughly equal to the size of Kentucky,” as USA Today recently noted.
Biofuel’s advocates like to claim that because some “distiller grains” are salvageable as feed for animals after the ethanol process is complete, it’s actually closer to 31 percent of American corn used for ethanol.
But that mathematical dithering doesn’t hide the fact that a huge portion of the corn harvest in the U.S. goes not to feeding people or animals — directly or indirectly — but to a fuel that wouldn’t be in use except for government mandates.
When such a significant portion of corn is removed from the market, what remains becomes dearer. Mike Brown, president of the National Chicken Council, recently noted that the renewable-fuel standards have resulted in 275 percent spike in corn prices.
Feedlot operators are especially vulnerable to ethanol’s influence on the cost of corn.
“We’re trying to take an animal at a price and the ingredients at a price and create a finished product with a margin in it,” says Jeff Rudolph, general manager of Hi-Gain Feedlot in Cozad, Neb. “Obviously, in a commodity market, if you change the supply or demand for a commodity, you influence the price, and to the extent that ethanol affects the demand for corn, it has a price.” That added cost is perhaps bearable when brought on by drought. But leave it to politicians to create shortage in years of plenty.
— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.