The Ethanol Question
American Farm Bureau
President, American Farm Bureau
Ethanol is under fire once again. The “food v. fuel” debate is heating up with an intensity not seen for several years. But, unfortunately, the critics don’t have it right.
Instead of pointing fingers at ethanol for increased corn prices, we need to look at what’s really driving demand – energy prices, weather-related issues and a growing global middle class. The days of $2 bushel corn are over. It’s a whole new ballgame and we, as a planet, need to accept this new reality.
Corn supplies are currently tight and in high demand. It’s understandable why naysayers would point to ethanol as the culprit. It’s an easy target. But, if we look back at 1996, the last time U.S. corn supplies were as low as is expected at the end of this year, the ethanol industry didn’t even have both feet on the ground.
At the end of 1996, corn stocks dipped to 426 million bushels, or a stocks-to-use ratio of 5 percent. This year we again expect to see the stocks-to-use ratio dip to 5 percent. Due to higher use of corn, however, that same 5 percent rate translates to ending stocks of 675 million bushels.
The comparison of 1996 and our circumstances today tell an interesting story. Then, our total use of corn for ethanol was only 396 million bushels. This year we expect to use 4.95 billion bushels for ethanol, a near 4.5 billion bushel increase.
But, in 1996, we planted 71.5 million acres of corn as opposed to the 88.2 million acres we planted this year. Further, because of the increase in acreage and improved yields, U.S. production is actually 5 billion bushels higher than it was 15 years ago. Feed use for corn, along with other food and industrial uses not associated with ethanol, have also increased by 425 million bushels from the 1996 levels.
In short, we have expanded production in order to provide for not only more feed and industrial use of corn, but for nearly 10 percent of our nation’s automobile fuel supplies, as well.
Coming to Terms
Many critics would tell you that current increased production would have occurred without ethanol demand, but without economic signals driven by ethanol why would we expect farmers to boost planting?
One of the key elements we must all begin to come to terms with are the full implications of higher energy costs, particularly gasoline priced at $3 per gallon as opposed to the 75 cents per gallon that was the average in 1996. At $40 per barrel for oil, the energy value of corn is roughly $2.50 per bushel; at $100 per barrel that same bushel of corn is worth more than $6.50. And this is strictly the energy value of the corn as fuel in our fireplaces, not as a value added product that has been converted into valuable livestock feed and a fuel able to be mixed with gasoline and fully functional in our automobiles.
This general rise in the price of grains has not been limited to corn. Soybean prices, too, have moved to new levels, certainly due in part to spillover effects from corn, but also due to exploding demand from China and other rapidly developing economies. In 1996 China imported 320,000 tons of soybeans. This year it is expected to import 57 million tons from world markets. As the global middle class increases, so does protein consumption.
Weather-related issues around the world also are having an impact on corn supply and demand.
In short, it’s never as black-and-white as the critics would have us believe. Many factors are playing a role in increased corn prices and the “food v. fuel” cliché is growing tiresome. Ethanol is a good, clean, home-grown fuel that lessens U.S. reliance on foreign fuel while adding jobs to the American economy.