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Ethanol production spikes corn prices
But higher meat costs may come

Andrea Holecek, NWI Times (Northwest Indiana)
SCHERERVILLE | Ethanol production may be a two-headed coin for consumers, lowering the cost of fuel but eventually hiking the price of meat, an agricultural economist said Friday.

Indiana corn farmers are seeing higher earnings with the increasing demand for corn as a feedstock for the state’s ethanol plants, said Corinne Alexander, assistant professor of agricultural economics at Purdue University. But rising corn prices adversely affect the state’s hog and poultry farmers who are being hit by higher feed costs, she said.

Alexander was a member of the panel presenting the 2007 Economic Outlook seminar Friday, an event hosted annually at Tiebel’s by the Lake County Community Development Committee.

“High energy prices are great news for agriculture,” she said, “They’re farming for fuel not just for food.”

…Scientists are seeking other sources of feedstock for ethanol production, but currently plants are being built to produce ethanol from corn because there isn’t a good alternative .

“Cellulosic ethanol has been held out there as the holy grail,” she said. “It’s coming, but it’s been five years away from commercialization for the last 25 years. It’s still five years away from commercialization. The good news is given energy prices and the fact that ethanol is profitable, we are seeing large investments from lots of companies.”
(19 Nov 2006)

Study: Up to 100 million acres needed for renewable energy crops

Duncan Manfield, Associated Press
As many as 100 million acres of cropland and pastures would have to be dedicated to cultivating biomass fuels like switchgrass to support a national goal of 25 percent renewable energy use by 2025, a University of Tennessee study says.

Moreover, new commercial technologies will be needed to turn switchgrass, wheat, rice and forest products into ethanol fuel, now principally made from corn, and their byproducts into feedstock for power generation.

But the rewards could be great. The study projects $700 billion in new economic activity including: a $180 billion growth in net farm income over the next 20 years; creation of 5.1 million jobs to support renewable energy enterprises; and government savings of more than $15 billion in crop subsidies.

‘I think what is important is the change in the mentality of the citizens of the United States to develop the attitude that, ‘We can do it,” lead researcher Burton English told The Associated Press. ‘If we develop that attitude, the goal may exceed 25 percent.’

The report, released this week, concludes that not only could U.S. farmers, ranchers and foresters produce 25 percent of the nation’s energy needs, but they could do it while still meeting the nation’s demand for food, feed and fiber.
(17 Nov 2006)

The Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment
(114-KB PDF)
Amani Elobeid, Simla Tokgoz, Dermot J. Hayes, Bruce A. Babcock, Chad E. Hart;
Center for Agricultural and Rural Development
(Iowa State)

The ongoing growth of corn-based ethanol production raises some fundamental questions about what impact continued growth will have on U.S. and world agriculture. Estimates of the long-run potential for ethanol production can be made by calculating the corn price at which the incentive to expand ethanol production disappears. Under current ethanol tax policy, if the prices of crude oil, natural gas, and distillers grains stay at current levels, then the break-even corn price is $4.05 per bushel.

A multi-commodity, multi-country system of integrated commodity models is used to estimate the impacts if we ever get to $4.05 corn. At this price, corn-based ethanol production would reach 31.5 billion gallons per year, or about 20% of projected U.S. fuel consumption in 2015.

Supporting this level of production would require 95.6 million acres of corn to be planted. Total corn production would be approximately 15.6 billion bushels, compared to 11.0 billion bushels today. Most of the additional corn acres come from reduced soybean acreage. Wheat markets would adjust to fulfill increased demand for feed wheat.

Corn exports and production of pork and poultry would all be reduced in response to higher corn prices and increased utilization of corn by ethanol plants. These results should not be viewed as a prediction of what will eventually materialize. Rather, they indicate a logical end point to the current incentives to invest in corn-based ethanol plants.
(6 Nov 2006)
Similar studies at the Center for Agricultural and Rural Development.

An Analysis of the Link between Ethanol, Energy, and Crop Markets

Simla Tokgoz, Amani Elobeid;
Center for Agricultural and Rural Development
(Iowa State)
This study analyzes the impact of price shocks in three input and output markets critical to ethanol: gasoline, corn, and sugar. We investigate the impact of these shocks on ethanol and related agricultural markets in the United States and Brazil.

We find that the composition of a country’s vehicle fleet determines the direction of the response of ethanol consumption to changes in the gasoline price. We also find that a change in feedstock costs affects the profitability of ethanol producers and the domestic ethanol price. In Brazil, where two commodities compete for sugarcane, changes in the sugar market affect the competing ethanol market.
(1 Nov 2006)
Similar studies at the Center for Agricultural and Rural Development.