Fuel, feed costs squeeze ranchers
By DAVID LOWE Staff Writer

PHOTO BY GABE WOLF James Moore loads corn onto a flatbed trailer at Brown Feed Store. Owner Burke Brown said rising corn prices have not deterred hunters from buying deer feed from him, but increases in grain prices -- along with the high price of gasoline -- can mean less income for cow-calf producers.

Although rising corn prices are not affecting Lampasas County ranchers as severely as they are many Panhandle or Midwestern producers, feed and fuel costs have forced cattle raisers to economize.

Feedlot operators, who often use corn to fatten cattle, are especially looking for ways to balance out their expenses for the grain, which averaged $3.64 per bushel Thursday.

Many ethanol critics argue government subsidies for production account for much of the corn price increase. Current federal subsidies give ethanol producers a 51 cents-per-gallon tax credit for the fuel, considered an alternative to gasoline.

Corn demand likely will continue to increase, said Lampasasbased Texas Cooperative Extension Agent Jason Byrd, as 46 ethanol plants were expected to open across the United States during 2007.

A high volume of corn futures trading also has produced volatile corn prices, Byrd said. Some ranchers and analysts say Lampasas County cow-calf producers have not suffered as directly from increased corn prices as have ranchers farther north. Gasoline costs, however, exact a heavy toll.

Byrd said byproducts like wheat middlings can provide effective supplemental feed once native grasses begin to lose their nutritive quality -- typically in the late fall or early winter. Because wheat grows far north of Lampasas County, ranchers need to consider the high trucking fees associated with the grain.

"The main problem is availability," said Byrd. "The added trucking costs of getting them down here make it a big challenge."

The wheat market has reached its highest point in 20 years, Bend rancher Grady Gibson said, as a bushel of the grain now sells for $7.20. Wheat seed prices for planters have increased as a result.

Gibson grows some corn at his ranch, though not enough to make a significant profit selling to ethanol producers. He grinds corn into feed base for yearlings, and cleans and sells the rest as deer corn.

Hunting-related sales have not suffered much from high corn prices, Brown Feed Store owner Burke Brown said as workers loaded feed into the back of a customer's pickup. Brown sells corn primarily to deer hunters, who he said are willing to absorb higher rates because the hunting season lasts only a few months.

"Recreation has no limit to expense," he said.

Both cow-calf producers and those who sell "fats," or fed cattle, however, sometimes struggle to minimize input costs. Gibson's concerns relate primarily to fertilizer and transportation costs, not directly to corn.

When the rancher travels to Dodge City, Kan., to sell calves, he spends about $200 more in fuel alone than he did just three or four years ago, he said.

Fertilizer, manufactured from many chemicals delivered to Texas from out of state, has doubled in price compared to three years ago, when Gibson could treat his land with a mixed blend for $18 an acre. Transportation costs account for much of the increase, as nitrogen comes from outside Texas.

Most potash comes from New Mexico or Utah, and Florida produces much of the country's phosphate for fertilizers, Gibson added.

To cut expenses, he now runs more no-till operations in his fields than he did when fertilizer cost less.

"If you can save two trips, that's $8 to $10 per acre," said Gibson.

Price increases have motivated the rancher to perform more soil samples. In previous years, he could afford some extra pounds of fertilizer. Now Gibson strictly follows agronomists' recommendations for his fertilizer needs.

"You're not doing any frivolous spending," he said of the changes in area ranchers' budgets.

Like many of his peers, Gibson tries to reduce the number of trips into Lampasas, combining errands and even taking less frequent trips to the auction barn -- but with more cattle than usual. Soil conservation groups and the Farm Service Agency have coordinated meetings on the same days of the week to save ranchers trips into town, he added.

Feedlot owners also are finding ways to absorb high corn prices. Because those who fatten cattle now spend $.30 more for each pound a calf gains, many feed yards are selling cattle at 1,200 pounds instead of 1,300 or higher, Gibson said.

Feedlots also keep cattle for a shorter than normal amount of time, sometimes accepting them after they have gained 100 to 150 pounds eating prairie grass and milo or corn stubble from cut fields.

This initial fattening period means cattle have less weight to gain once they reach a feedlot, which helps feed yard owners limit their corn expenses.

Ranchers do have some good news to console them, Byrd said. Heavy rains during the summer led to successful hay harvests, which allowed round bale prices to drop as low as $35 or $40 apiece.

During last year's drought, hay scarcities drove the price of bales as high as $100, Byrd said.

Prices for "fats" remain high, said Gibson, helping offset rising corn rates. The rancher attributed much of beef's success to aggressive advertising campaigns and to high demand for the meat. Japan and South Korea have grown increasingly hungry for boneless, boxed rounds of beef, he added.

"Luckily our market is really stout," Gibson said, praising beef advertisers' efforts. "They've done a really good marketing effort."

Calf prices, though, suffer when corn costs rise, Byrd said. Calves lose about $6 per hundredweight with every $.25 increase in a bushel of corn, explained the Extension agent, citing beef industry data from Cattle-Fax. As a result, a 500-pound steer will sell for about $30 less than a few years ago as long as corn remains in the mid-$3 range.

Prices for 500-pound calves with a mid-$80s fat cattle market range from $90 to $115 per hundredweight, Byrd said. Before rapid rises in corn prices, 500-pound calves were worth $120 to $130 per hundredweight.

Even though feed bills for Lampasas County ranchers may not change, trends in the corn market may force calf producers to adapt to lower income, the Extension agent said.

Gibson believes veteran ranchers will adapt, while inexperienced producers may panic, selling too early and buying back when calf prices rebound to a high point.

"It's kind of like the stock market," the Bend resident said.

Gibson believes ethanol profits will bypass Central Texas for the Panhandle, which contains most operational or planned ethanol plants in the state.

The State Energy Conservation Office's website, at www.seco.cpa. state.tx.us, shows nine ethanol plants announced or under construction.

BioFuels Energy Corp. opened a cellulosic ethanol plant in 2006 in the Rio Grande Valley city of Raymondville, and four other plants owned by a variety of companies are scheduled to open by the end of 2007.

Gibson believes the rush toward ethanol production prompted more corn planting than biofuel manufacturers can handle.

"They kind of got the cart before the horse," he said. "There's lots of corn waiting to be cut, and there's no place to put it."