Iowa's burgeoning corn-based ethanol industry is creating new challenges for the pork industry and raising many questions about how pork producers can remain profitable. While no one really knows for sure what the future will hold, research is showing that increased ethanol demand for corn may force pork producers to make some tough decisions.

At January's Iowa Pork Producers Association Annual Meeting in Des Moines, one scientist told delegates that high corn prices and greater production costs will be two factors producers will have to get used to.

Dr. Dermot Hayes, Iowa State University professor and pioneer chair in agri-business, unveiled results of a study he and other researchers at ISU's Center for Agriculture and Rural Development conducted on how the ethanol industry will impact grain, oilseeds and livestock.

Higher prices, increased costs
Hayes told delegates that ethanol has already helped increase farm-level corn prices from $1.80 to $3.20 a bushel, and pork production costs have already gone up to 25 percent and could increase as much as 40 percent. "If world energy prices stay high, get used to $4 corn," Hayes said.

Dr. Bruce Babcock, CARD director and an ISU economics professor, provided more research results while speaking at an ethanol forum at the 2007 Iowa Pork Congress.

Corn prices will range from $3.36 to $4.05 a bushel if crude oil prices stay in the $50 to $60 range, Babcock said. Depending on the price of ethanol and the size of the 2007 and 2008 corn crops, livestock producers can expect corn prices to range from $2.65 to $4 a bushel during the next two to three years, he added.

ISU professor John Lawrence maintains a set of estimated returns for typical Iowa pork producers. His current budgets show a $1.85 per bushel corn cost and a total production cost per head of $101.50. If the corn price goes up to $4.05 a bushel, the corn cost per animal jumps from $27 to $58 and increases total production costs by about 31 percent. U.S. pork production will need to decline by 10 percent to 15 percent to allow the industry to pass this cost increase on to the wholesale market, according to the study.

Hayes pointed out that the increased demand for ethanol will likely bring about adjustments in the pork sector. Pork producers can only pass along production cost increases by collectively reducing production, he said. The pork industry is particularly sensitive to production cost increases because it relies on the export market for 15 percent of its sales. Hayes told delegates that the market will have to suffer a long period of losses in order to encourage enough pork producers to get out of the business.

Feed supplies
The U.S. pork industry currently uses about 1.1 billion bushels of corn a year and the entire U.S. livestock industry uses more than six billion bushels annually. Around 10.5 billion bushels were produced in 2006. Former USDA grain economist William Tierney predicts that the ethanol plants will need more than 10 billion bushels a year by the end of 2009 if all of the refineries planned or under construction come on line. According to the CARD study, the U.S. could become a corn importer.

The CARD study estimates that the ethanol industry's appetite for corn would reduce the amount of corn available to feed livestock by 33 percent. This will cause reductions in the size of the U.S. pork and poultry industries.

The research by Hayes, Babcock and others concludes that, with what is currently known, higher corn prices and increased use of corn by ethanol plants will reduce corn exports and pork and poultry production. "The transition to these lower production levels will be painful for most of these producers," the CARD study said.

IPPA fully supports bio-energy
While the ISU researchers paint a potentially gloomy picture for pork producers, there are options. New IPPA President Scott Tapper says there are several things producers can do to minimize the impact of higher feed prices.

"We need to be more efficient," says Tapper. "We need to get back to basic pigmanship, including feeder settings and selling at optimal weights." Tapper says producers should be selling hogs at lighter weights anyway. "In times of high corn prices, our industry has become more specialized and gotten away from sustainability."

IPPA fully supports the development and use of alternative and renewable fuels. Tapper says the two systems can work together, but livestock has to be part of it.

"We need more research dollars at Iowa State to look at the whole bio-energy issue to see how livestock fits in," Tapper says. "Let's fund more unbiased research at ISU so we know how to better use the co-products and deal with this new economy."