ISU found that "expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase." If ethanol demand is such that U.S. corn-based ethanol production grows to over 30 billion gallons a year, then U.S. food prices will increase by at least 1.1 percent as a result.
Perhaps most alarmingly, "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."
The National Chicken Council looked at the report and came away with the headline: "U.S. Near Tipping Point in Corn-Based Ethanol." You can read their thoughts after the break, and the study itself is available at ISU's website.
[Source: National Chicken Council, Iowa State University]
Study: U.S. Near Tipping Point in Corn-Based Ethanol
A major new study finds the United States is near the tipping point when it comes to corn-based ethanol production.
The study, conducted by the Center for Agricultural and Rural Development at Iowa State University (ISU), finds that U.S. retail food prices already have increased $14 billion annually. They could climb $20 billion annually if crude oil prices reach $65 to $70 per barrel and U.S. corn prices reach $4.42 per bushel, compared to $ 2 per bushel in mid-August 2006. At that crude oil price range, U.S. ethanol production could reach 30 billion gallons by 2012, consuming more than half of U.S. corn, wheat and coarse grains, and triggering higher meat and poultry prices for consumers, reduced meat and poultry production, and significant reductions in grain and meat exports.
"This study clearly shows that we are reaching a tipping point, and that over-reliance on corn-based ethanol to meet mandates would further drive up retail food prices, reduce domestic meat and poultry production, and erode our meat and grain export markets," said J. Patrick Boyle, president and chief executive officer of the American Meat Institute (AMI), one of the study sponsors.
The study indicates corn yield gains would be sufficient to moderate grain price increases if corn-based ethanol production peaks at 14 billion to 15 billion gallons annually by 2010 (10 percent of U.S. gasoline consumption), when existing ethanol plants and those already under construction come online. Under that scenario, corn prices peak at $3.43 per bushel in 2009 before leveling off at $3.16 per bushel by 2016.
As for cellulosic ethanol, the study finds that a subsidy of $270 per acre would be needed to encourage producers to convert to switchgrass on land capable of growing corn.
The study also finds that if the United States was producing 14.7 billion gallons of ethanol and experienced yield losses similar to what occurred during the 1988 drought, corn and soybean prices would increase to $4.75 and $8.50 per bushel, respectively, triggering a 60 percent decline in U.S. corn exports and corn stocks, and a 50 percent increase in feeding of U.S. wheat to livestock.
"In addition to diversifying our energy sources, biofuels offer U.S. agriculture a way to diversify its markets," according to Kendell Keith, president, National Grain and Feed Association (NGFA). "But this study clearly shows any supply disruptions in the United States or other major foreign grain-producing countries could trigger major ripple effects on multiple users of grain in the short run, including herd liquidations, higher grain processing costs and steep reductions in U.S. grain and meat exports."
The study projects the following if season-average corn prices over a 10- year period ending in 2016 increased to $4.42 per bushel (based upon $65-$70 per-barrel crude oil), compared to $2-per-bushel corn:
-- Pork: Production declines 9.2 percent. Production costs increase 6.8 percent. Retail prices increase 8.4 percent. Exports decline 21 percent, reversing 15 consecutive years of pork export growth.
-- Poultry: Broiler exports down 15 percent. Turkey exports fall 6 percent. Wholesale broiler prices increase 15 percent. Retail prices increase 5 percent. Domestic consumption down 4 percent.
-- Beef: Retail prices increase 4 percent. Production down 1.6 percent. Significantly, the study projects prices for distillers dried grains with solubles will closely track corn, meaning price increases are nearly as significant for beef and dairy as for hogs and poultry.
-- Corn: U.S. planted acreage increases 44 percent to 112.5 million acres. Corn exports decline 63 percent.
-- Soybeans: Planted acres decrease from 75 million in 2006 to 57.3 million acres. Exports drop 33 percent.
-- Wheat: Plantings decline significantly to 42 million acres. Exports decline to 483 million bushels.
The study also notes acres currently idled in the Conservation Reserve Program (CRP) could play a useful role in "alleviat(ing) some of the financial stress on livestock producers" (during the early years of rapid ethanol growth), as well as mitigate short-term disruptions in grain supplies.
Study funders include AMI, Grocery Manufacturers/Food Products Association, National Cattlemen's Beef Association, National Chicken Council, NGFA, National Pork Producers Council and National Turkey Federation.