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Wednesday, January 24, 2007

Quote of the day

The ethanol industry is a freight train going down the tracks. Hardly anybody knows where it's going, they're laying the tracks as they go and pulling them up behind because there's little chance we're going back."

Barry Dunn - executive director of the King Ranch Institute for Ranch Management at Texas A&M University-Kingsville


What does this have to do with the price of beef? Just about everything. As ethanol demand (by the market and the government) pushes up the price of corn, the price of cattle falls:
Using a Cattle-Fax projection that fed cattle will average $84/cwt. in 2007, Dunn said corn prices at $3.50/bu. puts a 550-lb. feeder steer at $99.25. Corn at $4 puts that steer at $87, and $5 corn puts him at $62.71.
In the cobweb model, what happens next is that the supply of cattle is cut short as farms move to more profitable areas, perhaps growing corn. As the supply of cattle falls in the United States either the price of beef increases or the U.S. market goes beyond our borders, perhaps to Brazil or other countries, to purchase our beef.

In the end, while we don't like the Japanese and the Koreans putting restrictions on imported U.S. beef because of fears of contamination, it is likely the U.S. will be doing the same in the not-so-distant future.

On the flip side, those who blame cattle for contributing to the global warming problem should be smiling.

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