Ethanol Co-Products: Who, What, Where and Why Not?

USDA released its first-ever report about ethanol co-product use in the livestock sector.  Last winter, the USDA interviewed more than 9,000 dairy, cow-calf, feedlot and hog producers across 12 north central states ranging from Ohio to the Dakotas to establish baseline data about this increasingly important part of both the ethanol business and livestock production.  Nearly 40% of the dairy and feedlot operators surveyed reported using ethanol co-products during 2006, while just over 10% of cow-calf and hog producers reported using these products.  Over half of the cow-calf and hog producers reported that they were unlikely to ever use co-products, while only 40% and 30% of dairy and feedlot operators, respectively, reported not considering using co-products.

Who is using co-products?  The short answer is that these operations were relatively large and, with the exception of hog producers, had been using co-products for quite a while already.  For example, feedlots that reported using co-products were 3 times larger than those who did not, and those feedlots had been using co-products for more than 5 years – well before the current ethanol boom.  Cow-calf and dairy farmers also had considerable experience using co-products (4.7 and 9.2 years, respectively) and were roughly twice as large as those not using co-products.  Hog producers using co-products were the most recent adopters – the average producer had been using co-products less than 3 years.  But only the biggest hog producers had adopted – adopters were 5 times larger than non-adopters.

Where are livestock operators getting the co-products?  It depends on the type of operation.  The majority of feedlots (52%) are getting co-products directly from the plant, while the other types of livestock enterprises chiefly work through feed companies or other middle men to obtain co-products.

What are the terms of trade for buying the co-products?  More than half of operators in all four categories work through the spot market to get co-products, though there are some operators that work off of monthly or annual contracts as well.  For a majority of feedlot and cow-calf operations, the price of co-products is based on the prevailing corn price.  For hog and dairy operations, however, co-product pricing is just as likely to be based on both corn and soybean meal prices.  The smallest percent of producers price co-products from the price of beanmeal alone.

The form of co-products can range from wet to coarse meal to fine meal to pellets – the popularity of each form differs by livestock sector.  Feedlots currently using co-products relied upon wet forms the most – 64% used some wet distillers co-products during 2006, while fewer than 20% of other livestock operators using co-products tried wet forms.  The most popular form among dairy and hogs producers was dry, fine meal – at least half of those using co-products used this form.  Cow-calf operators relied slightly more on pelleted and cubed forms of co-products, though at least 20% of producers who used co-products had used at least some wet and some dry forms of co-product.

So, what is keeping operators from trying ethanol co-products?  The biggest reason stated by those who have yet to try them is availability – about one-fourth to two-fifths of producers in each livestock group cited this reason.  The next biggest reason for all the cattle-based producers was a lack of infrastructure and storage/handling facilities to deal with this type of feed.  The second most important reason for hog producers was a concern about the nutritional value of ethanol co-products for their operation.  Only about 5% of all producers claimed that a lack of knowledge was holding them back from trying co-products (though who wants to admit being unknowledgeable on a survey).

USDA should be commended for taking a first step in documenting the current status of co-product use among US livestock producers.  One hopes they will expand the reach of the next survey into other key livestock states and furthermore ask producers who have recently incorporated co-products into their rations about difficulties they suffered during the transition so that non-adopters interested in trying this increasingly available feedstuff can learn from the experience of others.

To help guide in issues surrounding the price of co-products, I have updated a spreadsheet on my web page (http://aede.osu.edu/people/roe.30/livehome.htm ).  The spreadsheet includes weekly Eastern Corn Belt feed price series, including several ethanol co-product prices, from the past several years.

Credit Reports and Agriculture

Over the past year we have touched on a variety of topics related to credit and agriculture. Credit reports are used by lenders to evaluate your credit worthiness and the likelihood that you will repay debt if it is extended to you. A credit report documents your history of managing debt. This includes both consumer loans and credit cards that are reported to the company generating the report. Information on a credit report includes balances on loans and credit cards, timeliness of payments, missed payments and relevant public records, such as records of bankruptcy proceedings.

There are many companies that generate credit reports, but three companies are typically used by lenders to 1) report credit information of their customers, and 2) evaluate credit worthiness of potential customers. These three companies are (listed alphabetically):

Equifax    http://www.equifax.com/home/

Experian    http://www.experian.com/index.jsp

Trans Union    http://www.transunion.com/

A standard recommendation is that a person should check their credit reports several times a year to check for accuracy and any indications that their identity is being used fraudulently. Loans or credit cards listed that were not initiated by you would indicate that someone is fraudulently using your information. It is not likely that that person would make timely (if any!) payments. Your credit history and subsequently your credit score would be adversely impacted.

Each company is required to provide an individual with one free credit report per year. A report requested from one of the 3 major companies every 4 months would allow an individual to monitor their credit reports periodically through the year at no charge.

Credit reporting companies use the information included in the credit report to generate a credit score. Lenders also use these scores to evaluate credit-worthiness. This includes not only answering the question “Should we lend this person money?”, but also “What interest rate does this person qualify for?” Typically, higher (better) credit scores qualify loan applicants for lower interest rates.

Credit scores are not available for free. Each company charges for this information. In addition to the numerical score, ranging from 300 to 859, there will be a summary of strengths, concerns, and strategies for improving the score. While interesting, unless you are preparing to borrow money and want to be sure you have a strong credit score, it is not usually necessary to purchase credit score information when checking your credit report.

When checking your credit report, you may not find all of your loans or credit cards listed on each report. Not all lenders or credit card companies report to any or all credit reporting services. When applying for loans, it is important to fully report your existing debt (loans or credit card balances), whether you think the prospective lender will find it on your credit report or not.

Your local Extension office is a resource for information about credit. Early and thorough education about smart use of credit is particularly important for young people. As a group, young people are exposed to offers of credit very early. Mistakes in use of credit can follow a young person on their credit report for many years. The internet site http://www.myfico.com/ also has information about credit and credit scores that may be useful for both young people and established businesses interested in using credit successfully.

Adoption of Genetically Engineered Crops in the U.S.

The Economic Research Service of the USDA has just release information about the adoption of new seed technology.  U.S. farmers have adopted genetically engineered (GE) crops widely since their introduction in 1996, notwithstanding uncertainty about consumer acceptance and economic and environmental impacts. Soybeans and cotton genetically engineered with herbicide-tolerant traits have been the most widely and rapidly adopted GE crops in the U.S., followed by insect-resistant cotton and corn. This story summarizes the extent of adoption of herbicide-tolerant and insect–resistant crops since their introduction in 1996.
Herbicide-tolerant (HT) crops, developed to survive application of specific herbicides that previously would have destroyed the crop along with the targeted weeds, provide farmers with a broader variety of options for effective weed control. Based on USDA survey data, HT soybeans went from 17 percent of U.S. soybean acreage in 1997 to 68 percent in 2001 and 91 percent in 2007. Plantings of HT cotton expanded from 10 percent of U.S. acreage in 1997 to 56 percent in 2001 and 70 percent in 2007. The adoption of HT corn, which had been slower in previous years, has accelerated, reaching 52 percent of U.S. corn acreage in 2007.

Insect-resistant crops containing the gene from the soil bacterium Bt (Bacillus thuringiensis) have been available for corn and cotton since 1996. These bacteria produce a protein that is toxic to specific insects, protecting the plant over its entire life. Plantings of Bt corn grew from 8 percent of U.S. corn acreage in 1997 to 26 percent in 1999, then fell to 19 percent in 2000 and 2001, before climbing to 29 percent in 2003 and 49 percent in 2007. The recent increases in acreage share may be largely due to the commercial introduction in 2003/04 of a new Bt corn variety that is resistant to the corn rootworm, a pest that may be more destructive to corn yield than the European corn borer, which was previously the only pest targeted by Bt corn. Plantings of Bt cotton expanded more rapidly, from 15 percent of U.S. cotton acreage in 1997 to 37 percent in 2001 and 59 percent in 2007.

Use of Bt corn will likely continue to fluctuate over time, based on expected infestation levels of European corn borer (ECB), and the corn rootworm which are the main pests targeted by the Bt corn. Similarly, adoption of Bt cotton depends on the expected infestation of Bt target pests, such as the tobacco budworm, the bollworm, and the pink bollworm. Adoption appears to have reached the low-growth phase, as adoption has already occurred on acreage where Bt protection is needed most. Insects have not posed major problems for soybeans, so insect-resistant varieties have not been developed.

These figures include adoption of “stacked” varieties of cotton and corn, which have both HT and Bt traits. Stacked cotton reached 42 percent of cotton plantings in 2007. Plantings of stacked corn made up 28 percent of corn acres in 2007.

Adoption of all GE cotton, taking into account the acreage with either or both HT and Bt traits, reached 87 percent in 2007, versus 91 percent for soybeans. In contrast, adoption of all biotech corn was 73 percent.

Whole Farm Planning Model

(click here to view PDF version)

Planning is one of the most important aspects of managing any business. This is especially true for farms and agribusinesses due to their complexity and to the inherent uncertainty (i.e. weather, commodity prices) associated with agriculture. Farm families are encouraged to adopt a whole farm planning approach as they develop strategies for the future success of their business. This approach allows families to examine the internal structure of their business and then develop business, retirement, transition, estate, and investment plans. Click here to read the full article on farm business planning:

Become More Energy Efficient and Earn Tax Credits

In 2006, and now in 2007, a person can earn up to a $500 Income Tax Credit for the cost of energy efficient home improvements.  The 10% tax credit is for items in your main home: exterior windows, insulation systems, exterior doors and metal roofs that meet the Energy Star requirements.  The law also provides for a $50 credit for such things as an eligible main air-circulating fan and  a $150 credit for a qualified natural gas, propane or oil furnace or a hot water heater.   The maximum credit per tax year is $500, but no more than $200 can come from window expense.

There is also a credit for adding qualified soar panels, solar water heating, or a fuel-cell power plant for the main home.  Taxpayers are allowed a credit up to 30% to a maximum of $2000 for these qualified investments.  Use Form 5695 for the Residential Energy Efficient Property Credit.  Remember, these items must be placed in service before January 1, 2008.

IRS has a list available of Alternative Motor Vehicles , placed in service after 2005, that may qualify for a tax credit..  Also, there is a newer credit for a Qualified Hybrid Motor Vehicle.  The credit varies with each one as fuel efficiency is compared with the 2002 models. The full credit amount is $2,600 for the highest qualified vehicles.  For more information, check out the web site:  www.IRS.gov .  The Hybrid Vehicle credit is good through 2010 for passenger cars and light trucks, and 2009 for other vehicles.

Zoning in Support of Agriculture in Ohio: What are are the Options? and Agribusiness Retention and Expansion

OSU’s Center for Farmland Policy Innovation, a research based, local policy change organization, has recently made available a new series of policy briefs. These briefs are designed to address timely topics relevant to issues faced by Ohio agriculture, and supplement the Center’s roundtable series. Topics covered are Zoning in Support of Agriculture in Ohio : What are the Options? and Agri-Business Retention and Expansion (http://cffpi.osu.edu/policybriefs.htm ) . The zoning brief is presented along with additional resources on agricultural zoning in Ohio , including a white paper on the topic, and PDFs of select Ohio zoning resolutions which support agriculture.

You can also check the Center website for updates on this year’s 8 th Annual Farmland Preservation Summit of which the Center is a co-organizer (http://cffpi.osu.edu/summit.htm). The expected date for this event is November 1, 2007 and the location is the Ohio Department of Agriculture in Reynoldsburg , Ohio .

If you would like to learn more about the Center and stay updated on our projects and efforts to enhance the viability of Ohio agriculture, become an affiliate by contacting Jill Clark at 1.614.247.6479, or emailing us at cffpi@osu.edu .

Linked Deposit Programs Provide Small Business Low Interest Loans for Job Growth or Retention

Every small business is faced with a decision at one time or another to either invest more capital for growth, or risk falling behind. Considering tougher competition and evermore demanding consumers it is important for small businesses to remain competitive in the current market place.

To help Ohio’s small businesses, and in recognition of their contributions to the economic growth of the state, Ohio Treasurer Richard Cordray is ramping up a new initiative to help those who need help from the bank to remain competitive and survive in the marketplace.

Cordray’s Small Business Linked Deposits Program is making more than $500 million available in linked deposit loans. Essentially, a linked deposit lowers the interest rate on bank loans by three percent for small businesses that are creating jobs or preventing layoffs for Ohioans.

For entrepreneurs who are creating or expanding your business, a three percent reduction on a loan could provide the necessary infusion of cash flow that could make job growth or job creation possible and in turn enhance Ohio ‘s economy.

A number of small businesses have come through the program already and represent a varied background of industry, such as, the service industry, manufacturers, retailers and distributors, financial industry and agricultural.

Here are the qualifications to receive a Small Business Linked Deposit and lower a loan’s interest rate:

  • your business must employ less than 150 people, and the majority of them must be Ohio residents;
  • your business must be organized for profit and have offices in Ohio ;
  • the operating facilities must exclusively be in Ohio ;
  • one full-time equivalent job must be effected for ever $25,000 requested;
  • a maximum of $250,000 may be requested.

Additionally, in order to receive the interest rate deduction, the lending bank must be qualified as a state depository. For the full list of eligible banks that qualify as state depositories, go to ohiotreasurer.gov.

The rate reduction on a loan is passed along to the small business, for a two-year time period. But, if the loan arranged through the lender is for more than two years, the loan will return to the agreed-upon rate after the linked deposit expires.

Funding decisions come on a first-come, first-served basis, and there is no application fee. For more information on Ohio Treasurer Richard Cordray’s Small Business Linked Deposits Program, or to download application forms, visit the Web site at www.ohiotreasurer.gov and click on “linked deposits.”

Web Site Focuses on Environmental Regulations with Potential Impact on Agriculture

EPA has created a new web site containing an easy and succinct look-up tool listing federal environmental regulations that could potentially apply to agriculture. Knowing the regulations beforehand will allow farmers to address these issues before they become problems. More information on the agriculture regulatory matrix is available at http://epa.gov/agriculture/llaw.html