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Report: US Ethanol Production Will Cause Long-Term Rise in Crop Prices

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Under a high-oil price scenario ($64/barrel in 2016), ethanol production zooms up to account for 60% of utilization of a corn crop that itself will expand 48% to more than 18 billion bushels. Click to enlarge.

A new report from the Center for Agricultural and Rural Development (CARD) at Iowa State University projects that ethanol demand will cause a long-term increase in crop prices.

The report’s baseline projection sees corn ethanol production essentially plateau in 2011 at 14.8 billion gallons, with only a slight increase to 14.9 billion gallons by 2016. Under this scenario,  corn acreage will increase to almost 94 million acres with a concomitant reduction in soybean acres. The report estimates season-average corn prices of approximately $3.40 per bushel, and soybean prices averaging about $7.00 per bushel.

Currently, July 2007 corn futures are trading at around $3.70 per bushel and July 2007 soybean futures are trading at around $8.00 per bushel. In response to what they forecast as permanently higher feed prices, the CARD staff assumes that livestock producers will eventually reduce production to allow their higher production costs to be passed onto consumers.

If, however, oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, the authors forecast that corn-based ethanol production could increase to 30 billion gallons per year by 2016—twice the production in the lower oil price scenario. The report authors used a projected decline in oil prices down to $54/barrel by 2016 in their baseline scenario.

Under the high oil scenario, corn acreage increases to 112 million acres with production of 18 billion bushels of corn—up 48% from 12.2 billion bushels.

The magnitude of the expansion will depend on the future makeup of the US automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to over 30 billion gallons per year with the higher oil prices. US corn acreage would increase to more than 110 million acres—largely at the expense of soybean and wheat acres—with 60% of the crop going to produce fuel alcohol.

Equilibrium corn prices would rise to more than $4.40 per bushel. The direct effect of higher feed costs is that US food prices would increase by more than 1.1% over baseline levels. Beef, pork, and poultry prices would rise by more than 4% and egg prices would rise by about  8%.

The authors also cast doubt on the prospects for energy crops such as switchgrass for use in cellulosic ethanol production in the Midwest.

Cellulosic ethanol from switchgrass and biodiesel from soybeans do not become economically viable in the Corn Belt under any of the scenarios. This is so because high energy costs that increase the prices of biodiesel and switchgrass ethanol also increase the price of corn-based ethanol.

So long as producers can choose between soybeans for biodiesel, switchgrass for ethanol, and corn for ethanol, they will choose to grow corn. Cellulosic ethanol from corn stover does not enter into any scenario because of the high cost of collecting and transporting corn stover over the large distances required to supply a commercial-sized ethanol  facility.

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Comments

Neil

As grim as all this sounds, I have to wonder if the increase in crop value might actually help third world farmers who currently suffer from low priced caused by European and US export subsidies.

Lakewood90712

Looks like it's time to invest in Conagra, ADM , and John Deere. The farmers also will be seeing good profits very soon!

Schmeltz

"....Ethanol production will cause long-term rise in Crop prices".

Really??? Do you think??? I guess while we are reporting the obvious, I'll add that studies show that the sky is blue, and also smoking can be bad for you.

dan

Wonder if "long term rise in crop prices" will produce a long term fall in taxpayer subsidies to "struggling family farmers" like ADM,ConAgra,etc.?

Michael

This might be "obvious" and it may help third world poor farmers, but what about third world non-farmers?

Managing it is not so simple in a complex world of competing interest and warring factions. I'd like to see third world farmers get a boost. But rapid increase in cost might harm third world countries. Much of Africa is fed off of cheap subsidies by charity orgs purchased for areas of famine and war in corrupt countries. Either way, subsidies will be made up front, or at the end. Charity orgs often are more efficient in getting aid to such regions. Higher cost limit their purchase power which means less are fed in the end.

OT: New process generates hydrogen from aluminum alloy to run engines, fuel cells

http://www.physorg.com/news98556080.html

Interesting research out of Purdue. Curious what engineers think about the technicals on this approach, how feasible it is and problems.

Heiko Gerhauser

Interesting, it does rather sound like corn ethanol might be capable of achieving the President's 35 billion gallon target by 2017.

Paul

I think we all knew that and that is why we are trying to get to cellulosic ethanol. Straw grass, switch grass, forest waste and on and on.

For now, put the farmers back to work and stop the subsidies.

Mark R. W. Jr.

Well duh! But why does this chart not taken into account the effects of cellulosic ethanol? And what of electric vehicle technology? Or how about ethanol's sister fuels, methanol and butanol?

C Harget

What about Manure? It seems like the big efficiency of making ethanol at feedlots and dairies is that each cow is an enzyme factory breaking down the cellulose into methane and fermentable manure. The project in Arizona estimates it can make 54 Million gallons of ethanol per year. Are there enough feedlots and dairies that we could get a significant fraction of our alternative fuels from them?

Henrik

This analysis seems to have at least one major error. Look at the graph of the picture it shows corn for feed decreases a little. This is consistent with “the CARD staff assumes that livestock producers will eventually reduce production to allow their higher production costs to be passed onto consumers.” The problem is that it appears that this study completely forgets that corn ethanol also produces a lot of distiller products that should lead to a much larger reduction in corn for feed than the one depicted. To be more specific, corn for ethanol increases from about 4 to about 11 billion bushels or 7 billion bushels. These 7 billion bushels would result in an increase in the more nutritious distiller products of 7*0,339 = 2,373 billion bushels equivalents or 59,3 million tons of distiller products. Maybe I miss something, they are the experts, but that figure seems to greatly underestimate the necessary drop in corn for feed.

To those who think higher corn prices will make anybody hungry take a look at the economics. You can buy all the corn that one adult human can possible eat in a hole year for 3,8*10 bushels = $38. Even the poorest can afford that.

ejj

The Simplot company (www.simplot.com) headquartered in Boise, ID is a livestock and agricultural empire that no doubt will become a player in this somehow. I've seen some of their cattle operations - massive amounts of manure!

ben

The report does not take into account potential improvements in cellulosic ethanol. It assumes present day conversion rates of 70 gallons per ton, not laboratory and future industrial rates of 125+ gallons per ton. It’s oil and gasoline prices do not even try to attempt a peak oil situation, which is not today’s value of $60-$70 per barrel but more like $150+ per barrel and going up not down!

Of course corn will be most profitable in the "corn belt"! But as we all know there is not enough viable land in the "corn belt" to produce enough ethanol to replace even a moderate fraction of oil. Switch grass will be more profitable everywhere else, which in the long term is far far more land then corn can be grown on. So producers can't "choose" between feedstocks, they will use corn up and then have to add in cellulosic feedstocks to continue increasing ethanol production. In a peak oil situation we are going to be trying to make fuel out of everything really really fast of course corn will be the first to go, but it will not be able to replace much oil (20% max), cellulose, gasification and EV will have to cover the rest!

Jack

The govenrment should focus on perfecting the electric vehicle! We have the technology. "We the people" of the USA should be outraged with our government for allowing big oil to have their way. If you are an electric vehicle junky, you know that people are making electric vehicles in their garages. You know of the EV1 program. If people are making functional plugin electric motorcyles/cars in their garages just imagine what a vehicle manufacturers can do.

What we really need, is a group of wealthy individuals to create a new motor company. This motor company must be formed by a group whose primary focus is not to give in to "Big oil", and government incentives to "play ball". Secondly this new company should produce one or two or three reliable, economical & most importantly affordable plug-in long range electric vehicles. Like the model T Ford, it should be marketed to the average middle income family. Not only would these vehicles be great for our country, but the owners of this company would MAKE HISTORY!!!! Think about it.

rexis

Henrik,
Those one year worth of corn can't even fill up a single tank of SUV. And the fact is, most people do not earn corn, they eat corn related stuff, like chicken, beef, etc, which each would take many times more corn to grow, that multiplies the cost.

They said this is too obvious.

wintermane

Over here our meat producers are mostly immune from yjis because shock of shocks.. the grow thier own feed and sell thr excess.

As for corn what EVERYONE is forgetting is that thy have yet to change corn to extract more ethanol per acre. As they do ALOT more ethanol will result.

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