Study quantifies impact of ethanol production

by Keith Nunes
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AMES, IOWA — A study conduced by researchers at Iowa State University’s Center for Agricultural and Rural Development estimated increased corn prices driven by expanding U.S. ethanol production have increased U.S. retail food prices by $14 billion annually.

Further, the study found the increase in U.S. retail food prices could reach $20 billion annually under a scenario in which crude oil prices range from $65 to $70 per barrel and U.S. corn prices reach $4.42 per bu, compared to the $2 per bu that existed in mid-August 2006.

Under the high-price crude oil scenario, the study projected U.S. ethanol production could reach 30 billion gallons by 2012, consuming more than half of U.S. corn, wheat and other coarse grain production and triggering higher meat prices for consumers, reduced production across-the-board for all segments of the meat sector, and even greater reductions in grain and meat exports.

"We recognize the importance of the United States diversifying its energy sources to enhance energy security," said J. Patrick Boyle, president and chief executive officer of the American Meat Institute, one of the study sponsors. "But this study clearly shows we are reaching a tipping point, and that over-reliance on corn-based ethanol to meet stringent government mandates would further drive up retail food prices, reduce domestic meat and poultry production, and erode our vital meat and grain export markets."

The study indicated corn yield gains ultimately would provide sufficient additional corn stocks to moderate grain price increases if corn-based ethanol production peaks at 14 billion to 15 billion gallons annually by 2010, when existing ethanol plants and those already under construction come online. The study projected that under this scenario, corn prices would peak at about $3.43 per bu in 2009 before leveling off at $3.16 per bu by 2016. Ethanol production at that level would equate to approximately 10% of U.S. gasoline consumption.

"From a grain and feed sector standpoint, we support the goal of greater U.S. energy security, and of using biofuels as a partial means to attain that goal by diversifying our energy sources," said Kendell W. Keith, president of the National Grain and Feed Association. "Biofuels also offer U.S. agriculture a way to diversify its markets. But this study shows that any supply disruptions in the United States or other major foreign grain-producing countries could result in major ripple effects on multiple users in the short run, triggering some herd liquidation, higher costs for grain processing sectors (such as corn refining, oilseed processing and flour milling) and steep reductions in U.S. grain and meat exports."

The full study is available from Iowa State University’s web site at: www.card.iastate.edu.

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