An agricultural economist says hog producers are now able to compete with ethanol producers for corn.
“This is an amazing difference from just five years ago,” said Purdue agricultural economist Dr. Chris Hurt. “The hog industry was largely set up with $2-2.50 corn going into 2006. After that we saw major increases in those corn prices.” Dr. Hurt spoke to swine veterinarians on the topic of “Global Feed Economics in a Biofuel World” during seminar in Denver on Friday.
Hog producers initially absorbed those higher costs by reducing margins, which meant big losses and ultimately resulted in reduced supplies. “You reduce the supply enough, you bring those hog prices up. That’s where we are today. Hog producers can pay $6-7 for corn with the prices they’re getting for hogs,” he said. “That up to $7 is higher than ethanol plants can pay for corn and still cover all their costs.”
Dr. Hurt is certain that the days of $2 corn are over, but he does expect prices to moderate around $5-5.50 a bushel. While he does believe that livestock producers have adjusted over the past five years to living in a “biofuel world,” he’s hesitant to say there is “equilibrium” between ethanol and livestock production. “Obviously, equilibrium is the ‘golden state’ where everybody is covering their costs but often times we’re in dis-equilibrium,” he said. “I think as we look back on this era, we’re going to say that ultimately the renewable fuels program was a very, very aggressive program. Had corn farmers had ten years to build that up, it would have caused a lot less trauma for other sectors, like our livestock sector.”
Listen to an interview with Dr. Hurt here: Dr. Chris Hurt