US ethanol boom changes landscape for corn producers

A boom in ethanol use in gasoline in the United States has led to a surge in corn prices and changed the landscape for farmers now producing for both food and energy markets.

Corn is the main crop used for ethanol, which is used as an additive in most US gasoline (petrol) and in the “E85″ fuels that some vehicles use, which have 85 percent ethanol and 15 percent gasoline.

The Renewable Fuel Association said it projects total corn used for ethanol production to increase from 1.6 billion bushels in 2005 to nearly three billion bushels by 2015.

The industry group said the ethanol boom has led to the creation of 150,000 jobs in refining and related companies.

The higher prices resulting from the increased demand are a blessing for farmers.

“In one year, corn prices have more than doubled and I saw my profits surge,” said Ken MacCauley, a Kansas farmer who is president of the National Corn Growers Association.

“The ethanol boom is bringing money to the real America,” he said, arguing that this is revitalizing struggling farm communities.

MacCauley said next year, acreage devoted to corn is expected to increase 10 percent, thanks to surging demand for ethanol.

Since mid-September, corn futures are up some 50 percent, with analysts citing the increased competition from ethanol refiners.

But the shifting use of corn is a problem for others, including livestock producers who face higher feed costs.

Joe Victor, an analyst at the research firm Allendale, said that as a result of higher corn prices, “It’s no longer profitable to raise cattle.”

Other analysts say the changing landscape may shut down cattle ranches and hurt food producers.

“Tightening grain supplies, especially those of corn, indicate the high cost of grain-based foods,” Credit Suisse Research said in a research note. “A company like (cereal giant) Kellogg could be vulnerable here.

“If corn prices go higher (due to ethanol) in the United States, but not elsewhere, this would exacerbate the shift in livestock and poultry production to countries such as Brazil,” Credit Suisse said.

Environmental campaigners argue that ethanol is no fix to US energy problems.

It takes 30 percent more energy to make ethanol than the fuel gives out itself, while US farmers receive billions in federal subsidies that keep prices high and shut out cheaper ethanol imports from Brazil.

Lester Brown, president of the Earth Policy Institute, an activist environmental group, said the increased demands on grain for energy pose a threat to “world food security and political stability.”

Brown said this year’s global grain harvest of 1,967 million tonnes lags the estimated consumption of 2,040 million tonnes — the largest shortfall on record.

By the end of 2007, US ethanol refineries will consume 39 million tonnes of grain per year, nearly all of it corn, according to Brown.

“In some corn-growing states such as Iowa, Indiana, and South Dakota, completion of the (ethanol) plants under construction and those planned means distillery requirements would take virtually the states’ entire corn harvest,” Brown said in a research paper.

“The milk, eggs, cheese, chicken, ham, ground beef, ice cream, and yogurt in the typical refrigerator are all produced with corn and their prices could go up in the months ahead,” he added.

Brown also told AFP: “Cars are now competing with people for the same agriculture commodity.”