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US Ag Outlook: Ethanol Consumption Increasing Need for Corn, Pushing Prices Higher

20 February 2006

Collins1
While corn prices will increase due to ethanol demand, total operating costs for corn production will increase as well.

Demand for ethanol is capturing an increasing proportion of the US corn crop, and could become the number one factor driving farm prices higher over the next few years, according to Keith Collins, Chief Economist of the US Department of Agriculture (USDA). Corn is currently the predominant feedstock for ethanol production in the US.

The USDA expects ethanol production this marketing year to account for 14% of US corn production. The agency projects that ethanol will account for 22% of corn use by 2010 and drive corn prices to $2.60 per bushel.

Collins made the remarks in an opening speech to the USDA’s Agricultural Outlook Forum 2006.

By contrast, current biodiesel use remains relatively small, equivalent to 2.5% of soybean oil production—about where ethanol production was relative to corn production in 1983, according to Collins.

Demand for biofuels—specifically ethanol—is one of four primary factors that will shape the economic prospects for the major crop markets over the next few years. The others are:

  1. The divergence in global grain and oilseed markets;

  2. Rising energy and interest costs; and

  3. Disruptive weather.

While high energy prices are creating new opportunities to use crops for energy, energy is also a production input. Supplies of inputs and their prices are increasingly important for global agriculture. In some countries, the problem input is water or seeds or machinery. Our concern this year in the US is energy in the form of diesel, natural gas, propane and fertilizer.

For 2006, the Department of Energy projects that diesel and natural gas will cost another 4-5 percent more on top of the 35 and 20 percent increases, respectively, that these fuels saw in 2005.

For 2006, energy [required for corn production] is expected add 5 cents to national average corn operating costs compared with a year ago and 21 cents, or 45 percent more than costs two years ago. These rising costs will reduce farm income and have some affect on acreage and production in 2006.

The ongoing drought in Illinois and Iowa, and an intensifying drought in the southwest will exacerbate production problems, especially for grain.

Winter wheat in Texas was rated 89 percent poor or very poor as of February 5. The warm January has left much of the nation’s crop exposed without snow cover. Our wheat problems are matched in the Former Soviet Union, an important grain producer, where planted acreage of winter grains are down and they are having a very harsh winter with above average much winterkill expected. These poor starting conditions suggest global wheat production will be down again in 2006/07.

The USDA notes that the surface temperature of the Atlantic Ocean in 2006 is expected to remain on the high side of the temperature cycle, and there is a La Nina, which are both correlated with increased hurricane activity. The multiple devastating hurricanes of 2005 disrupted the central agricultural marketing infrastructure of the country.

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February 20, 2006 in Ethanol | Permalink | Comments (8) | TrackBack (0)

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Comments

Good.

There's a growing body of evidence that a diet rich in high fructose corn syrup is even worse for you than a diet high in other sugars (such as cane). Ever since the peak oil discussions began in earnest, I've been hoping that corn would cease being seen as the cheapest source of byproducts for low-quality snack food.

Can it be any more obvious that ethanol is a farm price-support program, not an energy program?

Every single dollar going to our farmers to supply feedstocks to produce ethanol (preferably cellulosic) would be 1000 times better than buying fossil fuel (oil) from you know where. Our farmers deserve it much more than the A.B.L of this world.

And better domestic corn than biofuel generated on land from deforestation in South America and Asia.

I can think of biofuels sources I'd rather see in use besides ethanol from corn starch (including ethanol from corn cellulose), but it's still headed in the right direction at least.

I am quite unconvinced that ethanol yields the greatest reduction in purchases of products (not just oil but products from natural gas, like imported fertilizer) from the M.E. for the expenditure.

We have processes that can extract ethanol from corn stalks (sugar, cellulose). We have processes that can extract both ethanol and biodiesel from corn seed.

Nobody's applying both together. Nobody's applying both together, AND returning the leavings as fertilizer on the fields where they were extracted. Nobody's doing all three with reasonably optimized bioreactors or enzymatic processes. We could be doing much better with fuel-from-grain than we are now.

(This doesn't change the fact that I think we could be doing even better with fuel-from-sewage, and fuel-from-trash, or that we could get more net megawatts from wind turbines.)

Using ethanol for us as a society could easily be compared to a private person whom starts using Cigarettes with lower amount of nicotine... It seems that theese people in most cases come to the conclusion that the only way to get a healthier life is to quit smoking all the way and there is no other way for our society either. China and India and other high populatet countrys are now starting to reach a better standard of living. If we continue to use gasoline and ethanol (yes, ethanol is also giving out karbondioxide) the earth will soon cook up from the heat staying close to earth instead of going away up in the skyes...

Reguards, Paul Berg, Sweden

Corn ethanol is still such a joke. The use of E85 specifically only reduces harmful emissions by 3%-10%. While that's better than nothing, and is a start for getting Americans used to the idea of using something other than petroleum, it is not a long term solution, or even a short term solution. Also, who ever said that the corn growers would be small independent farmers? It will be gigantic corporate farms raking in the hightened prices of corn from ethanol and from upped consumer prices on their own food products. This will just be another mistake for the economy, especially for localized economies in smaller rural communities in states like Minnesota, Illinois and Indiana. It will be the retun of the ghost town...

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