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

20 May 2007

Card1
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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May 20, 2007 in Ethanol | Permalink | Comments (29) | TrackBack (0)

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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.

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

"....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.

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.?

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.

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

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.

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?

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?

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.

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!

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!

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.

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.

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.

The physorg article cited by Michael is at best unhelpful. The process cited therein essentially burns aluminum. Aluminum is extremely energy intensive to make.

Gutowski, T. “Design and Manufacturing for the Environment," chapter in the Handbook of Mechanical Engineering, Springer-Verlag:

For example, the production of 1 kg of aluminum requires on the order of 12 kg of input materials and 290 MJ of energy. The energy for this production plus other
processing effects, in turn, leads to about 15 kg of CO2 equivalent for every kg of aluminum produced.

Physorg says:

A midsize car with a full tank of aluminum-gallium pellets, which amounts to about 350 pounds of aluminum, could take a 350-mile trip ...

350 lbs. of aluminum (157.8 kg) at 290 MJ/kg would require approximately 46,000 MJ of energy to create from Al2O3. That is the same amount of energy as is contained in 1323 l (349 gal.) of gasoline, which would take my Accord on 20 such trips.

I read a study that said men and women are different.

Why not just have an air-metal fuel cell rather then the wasted inefficiency of metal to hydrogen reforming? Zinc, magnesium and aluminum fuel cells already exist.
http://www.powerzinc.com/
http://www.magpowersystems.com/
http://www.speedunlimited.com/cgi-bin/webc.cgi/st_main.html?p_catid=3590

To make them easily refuelable all you have to do is run them on metal-electrolyte paste. The metal oxide waste can he recycled via electrolysis and they have already demonstrated zinc recycling at higher efficiencies then conventional hydrogen electrolysis.

Again, this rather obvious report proves we may have sufficient fuel to drive anywhere we want, but have nothing to eat once we get there. Feeding our fuel tanks instead of our bellies is, in my mind, the absolute most stupid approach ever envisioned.

What happens when all these ethanol powered cars are replaced with electric/hydrogen/fuel cell powered vehicles, which are soon to come? You will have all these corn farmers, of these 110 million acres, bankrupting themselves because their "corn ethanol sacred cow" demand is now gone, and their previous buyers for corn chips and cattle feed have either completely evaporated or have been replaced by some other alternative. Then the government will have to bail out all these farmers who invested so heavily in corn producing equipment who will now have no ready market to sell to. Never ever is this going to work out. Dont mess around with our food supply by using our ever decreasing-available productive cropland growing gasohol instead of vegetables and food products!

Mark A:
I can see your fears, however I don't think the situation will be allowed to get that bad. I live in a farming community in PA, and most farmers have the corn producing and harvesting equipment you spoke of already. Most of the farmers are welcoming higher prices for their corn as well as an additional outlet for the "over-production" that occurs every year. By and large, they are planning to plant more acres in corn and soybeans this year to accommadate the pending increase in demand, and seem happy to do so.

Ethanol will have a larger portion of the fuel market than ever before, but I don't see it ever getting so large that it risks a food shortage. First and foremost, people need to eat. Therefore, if a food shortage would occur, then people have bigger problems to worry about then hauling their behinds to the mall, or even going to work. Moreover, I see Ethanol, Bio-diesel, and even Hydrogen, being "local favorite" kinds of fuels. By that I mean, in Farming states, where Ethanol and Bio-diesel are produced, they will be a prime choice for fuel. Hydrogen will be a favorite perhaps in large cities like LA, Chicago, and NYC. All electric vehicles could be popular for suburbs, since they are relatively close to the Cities where they work and shop, and long range wouldn't be so much of a consideration. So as you can see, in my opinion for whatever that's worth, the Ethanol isn't likely to get so big as to cause food shortages. Increases in food prices can be expected however, although we're seeing that already with $3.00 plus gasoline.

Ethanol and fermentation products have places other then fuel that needed them, like industrail solvents, plastics and pharmaceuticals, which make up ~30% of the oil use, so their will not be a major loss in demand if EV take most of the gasoline market: you can't make plastics out of electicity!

Yes I would not sweat too much about the imaginable future misfortunes of American farmers doing crops for bio fuels. In addition to the uses that have been mentioned you may also use bio fuels for aviation and shipping which is growing rapidly globally and batteries will not be energy dense enough for these applications. With shipping (and perhaps even aviation) you may consider using cooled liquid hydrogen but I would think that bio fuels will be cheaper. In any case the next 20 years or so will be very very good times for farmers all over the planet. And if it changes after that they will do what human always do and are better at than any other species. They adapt and do something else. Don’t sweat it.

Let me get this straight. If you take our ever decreasing valuable productive prime farm acreage, and plant more corn on it for ethanol, whether is is for gasohol or industrial solvents etc, and decrease production of food, you guys see NO PROBLEM?? Throw in a Katrina style flood event, or a major drought into our already fragile farm produced food supply, and you still see NO PROBLEM??

Much of our most productive croplands are being paved over to create strip malls and convenience stores, while much less desireable borderline hilly, erosion-suspect lands are being figured in for these high corn acreages. Sane farming practices would never chance using these type of lands, for most crops. Especially tilled crops requiring minimal weed competition with the main crop. And remember corn uses a tremendous amount of water to produce an acceptable crop. Where will this water come from?

The point I am making is that our most productive, easily harvested prime farmlands are being paved over, and/or planted into the most profitable crop, ethanol. Other food crop supplies will invariably be reduced, threatening our relatively cheap food supply. A drought, flood, insect invasion at the wrong time in any single crop's growing cycle ends that years crop. Cant just give it a do over. Corn does not grow under snow. The "growing season" is less than half a year in most areas of the country. So many hazards to create a successful crop.

I'm happy to see a larger portion of the GNP spent inside the country. Have we reached a watershed yet? In 10 years will we look back and see that 2007 was the year we really thought about how we live and what's best for our country?

I hope so.

The ethanol cynics (W's word for critics) are using all their standard canards. It's probably the only time they practice recycling. The funniest thing about this story is the number of ditto-heads saying "Well, duh. We all knew that." Sorry, this is one more thing you know that just ain't so. Check out the "Note on the 'Food vs. Fuel' Debate" in the following link: http://www.ncga.com/ethanol/pdfs/2007/HowMuchEthanolCanComeFromCorn0207.pdf . It explains why these arguments are patently false and cynical ploys.
Most of the so-called studies criticizing ethanol assume that corn must be used either for ethanol or food. Actually, ethanol plants product both at the same time. About 40% or more of the nutritional content in a bushel of corn comes back out of the ethanol process and is used for cattle feed. You never see that reflected in all these hysterical claims about increasing food prices. It is also, funny that the doomsday scenario in this story is that the average price of food would rise 1% in the HIGH SCENARIO! In addition, the corn used in ethanol and that which is fed to cattle is field corn, not sweet corn, which is the type typically eaten by humans. So the idea that it is displacing food is ridiculous. While ethanol does displace some amount of cattle feed, this can be made up for with many substitutes, such as alfalfa, sorghum, etc., which is better anyway, because it is incredibile unsustainable to raise corn-fed cattle. It takes over 20 pounds of grain to create 1 pound of beef. So, you should be demanding more grass-fed cattle (which are healthier and leaner), or just not eating beef at all. Chicken, turkey, fish, etc. are all way more efficient and healthier for you. The above link also estimates that the projected increase in corn yields in the next few years is likely to generate enough additional corn to make 16 to 18 billion gallons of ethanol without increasing the price of corn. And, despite the talk of ethanol increasing corn prices, we continue to produce record corn surpluses, losing massive amounts to waste. Ultimately, though, we could settle all of this nonsensical debate about food vs. fuel by simply using cheap imported grain from the world market to make ethanol. This would benefit both rich and poor nations.

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