By Kristin Nierengarten
When deciding if corn ethanol is a viable alternative to other biofuels or gasoline, it is important to take into account the overall economic impact on using corn for ethanol. The United States is the largest corn producer in the world and up until the advent of corn based ethanol, this product was primarily used for animal feed domestically and exported for various uses including animal feed.
Quick Corn Facts:
- More than twice as much corn is produced in the US than any other crop and it makes up 80% of the world’s corn
- Corn is measured in bushel
- o One bushel of corn weighs 56 pounds
o This weight is only the cornels, not the husk or cob
- Corn output is estimated by the acre
- o One acre is 43,560 square feet (about the same size as a football field)
o Average yield in 2006 in the U.S. was 149.1 bushels per acre
- Corn is used nationally for numerous purposes, including:
- o Animal feed (approximately 50% of total corn)
o Exports (23%)
o Ethanol (13%)
o Corn syrup, which is used in a wide variety of foods (8%)
o Starches (4%)
o Plastics (2%)
- One bushel of corn produces about 2.8 gallons of ethanol.
- Almost all corn produced today is genetically modified to increase yields.
- Industries will often contract with producers ahead of or during planting season to purchase their corn at a set price per bushel, this is called corn futures.
Similar to the price of stocks, the price of a bushel of corn fluctuates daily based
on supply and demand, as well as speculation. It is notable, however, that the average price of corn increased from about $2.17 in January of 2006 to close to $3.70 in December of 2006. This increase in price can be attributed to an increased demand and a somewhat lower yield than expected. The total yield for 2006 was 10.535 billion bushels, which was 579 million bushels less than September forecast estimated. This is a relatively common occurrence in the crop industry, because output is so dependent upon the weather, thus this does not explain the sharp increase in price. The increase in demand is the driving force behind the new, much higher prices. This high demand stems from pressure to find alternative energy sources and the surging ethanol industry. At the moment, corn ethanol is the most developed bioenergy in the United States and it is clearly having a huge impact on the corn economy.
These charts represent one estimate of how the use of corn in Minnesota could change over the next few years.
What does this mean for farmers?
This surge in corn prices is viewed to be very good for some crop farmers. The forecast for 2007 futures is close to $4.50 a bushel. This is over twice as much as farmers were making at the beginning of the planting season in 2006. If this trend toward corn-based ethanol continues, the price of corn will continue to rise. Clearly, this means that farmers who produce corn will continue to bring in more money.
This increased value of corn will likely influence farmers’ decisions about what crops to produce. While there are no specific statistics about the impact on crops produced, it is reasonable to assume that farmers will want to produce crops that gain a higher monetary return, and as they see the price of corn rising, many are likely to plant more corn than they do currently. This has a substantial impact on farm rental prices, which has driven prices for rental up 25-35% per acre from last year’s prices.
What does this mean for consumers?
The increase in the cost of corn will lead to the increase in the cost of products produced from corn. Because corn is used in so many products, this increase in cost will have a visible impact on prices. In addition to increasing the cost of products made from corn syrups and certain starches, the price of other foods will increase. Corn is used in the feed of cattle, poultry, and pork, the sources of the most widely consumed meat types. The heightened cost of feeding this livestock will lead to an increase in meat costs for meat consumers. Also, as farmers switch over to corn, the supply of other traditional crops, such as soybeans, will decrease, thus increasing the costs and driving up consumer prices at the grocery store.
One already apparent impact of rising prices is the “Tortilla Crisis” in Mexico. Much of the corn used in Mexico is imported from the United States and used to make tortillas. Tortillas have long been an inexpensive, but nutritious staple food for low-income families in Mexico. Tortillas are made from white corn, which is not a type of corn used to produce ethanol. The problem is that many farmers are switching from white corn to yellow corn (the type used to produce ethanol) because of the high market prices. This, in turn, is leading to higher prices of white corn, causing tortilla prices to double over the past few months. This sharp increase in price is making tortillas inaccessible to many families.
There is some concern over the priorities of corn usage. With this new demand for ethanol, which is being pushed by the US government, it is unclear whether the use of corn for ethanol will become a priority. Studies show that even if the entire corn supply in the United States were converted to ethanol, it would only offset about 12% of gasoline consumption in the US. The major concern is whether farmers and/or the government will actually take steps toward using the whole corn supply for ethanol, neglecting corn’s other uses. With the primary use of corn being animal feed both domestically and abroad, this could greatly impact the commodities market, making already expensive meat and other corn byproducts even less accessible to most consumers.
“Corn industry looks for market direction clues.” Minnesota Farm Guide. February 3, 2007.
“Ethanol Plants in Minnesota.” Minnesota Department of Agriculture. February 2007.
“Trade and Agriculture: What’s at Stake for Minnesota.” United States Department of Agriculture. August
“Ethanol fuel presents a corn-undrum.” Univeristy of Minnesota. September 18, 2006.
“Corn Production Estimate is a Major Surprise.” Weekly Outlook. January 16, 2007.
“Quick Facts.” Camp Silos. 2005. http://www.campsilos.org/mod3/students/index.shtml
“A Zillion Uses for Corn.” Ontario Corn Producer.
“Food for Life, Corn.” Minnesota Agricultural Experiment Station-- University of Minnesota.
“2000 to 2005 and 2006 monthly corn price vs. monthly 650 lb str price.” MFA. December 2006.
“Corn Use and Education.” Iowa Corn. 2007. http://www.iowacorn.org/cornuse/cornuse_3.html
“Mexicans protest as tortilla crisis hurts Calderon.” Reuters. January 31, 2007.