Ethanol production from corn is in the Ag. news*. There has been a lot of talk about the use of corn for fuel and also the tax credits. Usage has increased each year and some grain farmers have been concerned that if the credits are removed corn prices will drop substantially. Here is a good graph of usage and trends.
http://www.extension.iastate.edu/agdm/crops/outlook/cornbalancesheet.pdf . Usage is over1/3 of corn crop but 18 lbs of each bushel is fed to livestock as by product (DDGS) that converts to 3.8 billion of 13 billion, or slightly less than 1/3. The credit is 45 cents /gal. one bushel produces 3 gal. (when blended with gasoline it is only 4.5 cents per gal.) If all of the credit was removed plants would reduce production, and in turn that would lower corn prices. If corn prices go lower livestock producers and other corn users would be more competitive and buy more corn thus increasing corn demand and prices. With oil prices high I don't think we can reduce ethanol production without harming the economy but I do not think ethanol is the only cause of high corn prices. Neither do I believe reducing the credits to produce ethanol would have the effect of lowering the price more than 13%. $6.80 corn to $5.90 at current prices. Every time corn has gone over $5.00 corn use for livestock begins to drop as livestock producers feed less animals. Livestock numbers are extremely low right now. Any reduction in feed prices would encourage rebuilding of the beef and pork herds. I think we need a balance of demand from livestock and ethanol plants for stable corn prices.
*the national pork producers have sought for the end of the ethanol blenders credit, my blog was to cover how that would impact the FRB farm partners in my opinion. http://www.1011now.com/news/headlines/Repeal_of_Ethanol_Incentive_Will_Raise_Gas_Prices_117827198.html for pro ethanol article
Remember St. Marks chili cook-off for FRB. this Sunday March 13, from 4:30- 6:00 in Aurora Il.
Kurt Larson said... ( I have included Kurt's comment and thanks for the info. Dean)
I don't think the removal of the $.45 blender's credit would make much difference in the price of corn in the long run as long as the blending requirement stays in place. Today about 7.5% of our gasoline supply in the US is the ethanol that is blended with gasoline. As farmers we understand the wide swing in commodity prices caused by supply and demand. Many of our city friends may not realize that when a commodity, whether it is gasoline, corn, soybean oil, or orange juice, is being consumed at a rate near 100% of production small changes in supply or demand can make a huge change in the value of that commodity. Removing ethanol from gasoline would require the equivalent gallons of gas be refined. If we import 70% of our crude oil, this would equate to a 10% increase of imported oil. Our corn prices have doubled in the last 6 months on a 5% reduction in supply! What would our energy costs increase with a 10% rise in imported oil? Also note that by my purely unscientific survey, about 70% of our corn crop has been sold for $4 or less........certainly much less than the high prices we currently see.
A couple additional thoughts. The averge income in China and India has risen about 35% over the last few years. This has certainly influenced food prices. Also, I just read that Illinois alone has lost over 600,000 acres of farmland to urban sprawl in the last decade and other midwest states has similar losses. How much grain production is now under concrete?
