Cross-Hedging Distillers Dried Grains: Exploring Corn and Soybean Meal Futures Contracts

Ethanol mandates and high fuel prices have led to an increase in the number of ethanol plants in the U.S. in recent years. In turn, this has led to an increase in the production of distillers dried grains (DDGs) as a co-product of ethanol production. DDG production in 2006 is estimated to be near 11 million tons. A sharp increase in ethanol production and thus DDGs is expected in 2007 with an increase with the number of ethanol plants. As with most competitive industries, there is some level of price risk in handling DDGs and no futures contract available for this co-product. Ethanol plants, as well as users of DDGs, may find cross-hedging DDGs with corn or soybean meal (SBM) futures as an effective means of managing risk. Traditionally, DDGs are hedged using only corn futures.

PER UNIT COSTS TO OWN AND OPERATE FARM MACHINERY

Entropy and jackknife estimation procedures were used to find that custom rates are 20.3% lower than the true cost to own and operate machinery for an average size Kansas farm. A method was then developed to estimate a farms total machinery costs with which to benchmark machinery costs.Farm Management,

INFLUENCE OF LAND TENURE ARRANGEMENTS ON GRAZING MANAGEMENT INCENTIVES

Land Economics/Use, Livestock Production/Industries,

The Value of Carcass Characteristic EPDs in Bred Heifer Price

This study used hedonic modeling to assess the marginal implicit value of bred heifer characteristics and of carcass characteristic expected progeny differences of bred heifer calves. Using data for 692 pens of Show-Me Replacement Heifers Inc. heifers marketed over the 2001 through 2004 period, we find heavier heifers are priced higher than lighter heifers, artificially inseminated heifer pens were premium priced, Angus animals received a premium, pens that are expected to calve at optimal period of the year and within a 30-day window received premiums, calf performance EPD birth weight was positive, only marbling carcass characteristic EPD was positive and significant, buyers prefer larger lots to smaller lots, buyers pay the highest price for lots sold during the mid-point of the sale, and buyers pay a higher price for a pen bred to the same sire. It may be that certain post-weaning carcass characteristics are not of value to buyers because they either sell at weaning or due to the co-mingling of cattle certain expected production capabilities are of little value.Demand and Price Analysis, Livestock Production/Industries,

Cross-Hedging Distillers Dried Grains Using Corn and Soybean Meal Futures Contracts

Ethanol mandates have led to an increase in the production of distillers dried grains (DDGs), a co-product of ethanol production that is incorporated into livestock rations. As with most competitive industries, there is some level of price risk in handling DDGs, and there is no DDG futures contract available for managing price risk. Commonly, DDGs are hedged using only corn futures. Our results suggest that cross-hedge risk may be reduced by including soybean meal futures in an encompassing cross-hedge strategy. Further, we also conclude soybean meal futures currently may be slightly more effective at reducing risk than in the past.cross-hedge, distillers dried grains, ethanol, price risk, Agribusiness, Demand and Price Analysis,

FACTORS INFLUENCING OPTIMAL STOCKING RATES FROM A TENANT PERSPECTIVE

The terms of grazing lease contracts potentially influence the tenants incentive to preserve the vegetation resource. Annual stocking rate decisions dictate the degree of overgrazing, which can be cumulative over long periods of time. The objective of this study is to identify the impact the tenants planning horizon and cost structure specified in the lease contract has on his/her profit-maximizing stocking rate. A multi-period nonlinear programming model was developed to identify economically optimal stocking rates each year over a 24-year period. The model was solved under 1-, 4-, 8-, and 12-year leases on a per acre and per head basis. The relative importance of each lease alternative and input variable on the tenants optimal stocking rate was ranked based on standardized ordinary least squares coefficient estimates between input values and optimal stocking rates. Planning horizon and cost structure had a minor impact on optimal stocking rates relative to non-lease factors such as livestock prices and production costs. Holding other factors constant, per acre leases generated a 2% higher average stocking rate than per head leases. Optimal stocking rates were inversely related to the length of the lease. Twelve-year lease agreements generated 18 and 13% lower optimal stocking rater than the 1-year per acre and per head lease agreements, respectively. The optimal stocking rate difference between an 8-year and a 12-year lease was negligible, suggesting the 8-year lease would provide a similar incentive to protect vegetation as a lease with a longer planning horizon.Environmental Economics and Policy, Land Economics/Use,

Effects of fat and/or methionine hydroxy analog added to a molasses-urea-based supplement on ruminal and postruminal digestion and duodenal flow of nutrients in beef steers consuming low-quality lovegrass hay

Five crossbred beef steers (initial BW = 338.6 ± 7.8 kg) fitted with ruminal and duodenal cannulas were used in a 5 × 5 Latin square design experiment to evaluate the effects of methionine hydroxy analog (MHA) and/or yellow grease (fat) added to a molassesurea- based supplement on intake and characteristics of digestion. Steers were fed low-quality hay (long-stem lovegrass Eragrostis curvula: 3.3% CP, 76.8% NDF; DM basis) ad libitum and supplemented with 0.91 kg/d (as fed) of 1 of 4 supplements in a 2 × 2 + 1 factorial arrangement of treatments. Supplemental treatments were 1) control (no supplement, NC); 2) molassesurea liquid supplement (U); 3) U containing (as-fed basis) 1.65% MHA (UM); 4) U containing (as-fed basis) 12% fat (UF); and 5) U containing (as-fed basis) 1.65% MHA and 12% fat (UMF). Total and forage OM intake (kg/d and as % of BW) increased (P \u3c 0.01) with molasses-urea, decreased (P ≤ 0.04) with MHA, and were not affected (P = 0.61) with fat supplementation. Total tract NDF digestibility increased (P = 0.01) with molasses-urea supplementation, and was less (P = 0.01) for fat than for nonfat supplementation. Total and microbial N flowing to the duodenum increased (P = 0.01) with molasses-urea supplementation. Although, total N flowing to duodenum was not affected (P = 0.27), microbial N decreased (P = 0.01), and nonammonia nonmicrobial N (NANMN) increased (P = 0.01) with fat supplementation. Extent of in situ OM and NDF digestibility at 96 h increased (P = 0.01) with molasses-urea supplementation, but were not affected (P ≥ 0.14) by either MHA or fat supplementation. Duodenal flow of total AA, essential AA, and nonessential AA increased (P ≤ 0.02) with molasses-urea supplementation. Total and nonessential serum AA concentration decreased (P \u3c 0.01) with molasses-urea supplementation. Total ruminal VFA concentration increased (P = 0.01) with molasses-urea supplementation, and was not affected (P ≥ 0.14) by MHA or fat supplementation. Fat can be used in molasses-urea liquid supplements for cattle consuming low-quality forage to increase energy intake without negatively affecting forage intake or characteristics of digestion. However, adding MHA did not further improve the response to urea supplementation of cattle consuming low-quality forage. Conversely, the inclusion of MHA on urea supplement decreased forage intake