Ethanol boom isn't all good

Rising corn prices, shortages threaten livestock, food sectors

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January 26, 2007|By Kevin G. Hall | Kevin G. Hall,McClatchy-Tribune

WASHINGTON -- President Bush's call for a sevenfold increase in ethanol production within a decade could have the unintended consequence of sparking corn shortages and driving up the prices of a wide array of food products.

Bush in his State of the Union address said Tuesday night that he wanted 35 billion gallons of ethanol in the nation's fuel supply by 2017, and he proposed an ethanol subsidy of as much as $17.8 billion over a decade, as well as grants and loan guarantees.

To meet that goal, a substantial amount of corn that's now used to feed animals or make food products may be diverted to producing alternative fuels, and that worries cattle ranchers, hog farmers and poultry producers, who depend on feed corn to raise their animals.

Per-bushel prices for corn have doubled over the past six months, and further price increases are expected as dozens of ethanol plants open over the next two years.

"Bottom line is, it has already gone up substantially," said Gene Gourley, a pork producer in Webster City, Iowa, who fears forecasts that the feed corn available to his industry could shrink by 30 percent or more.

"We're not opposed to ethanol production ... but it's just trying to balance the growth of that industry along with the livestock needs."

In 2000, about 6 percent of the nation's corn harvest went to produce about 1.6 billion gallons of ethanol. Last year, 20 percent of the corn harvest was used to make 5 billion gallons of ethanol.

As many as 79 ethanol plants are under construction in the United States and at least 111 already are operating, primarily in the Midwest and Western states. As more come on line, the demand for corn will surge. That's sparking a bidding war for corn that will mean higher food prices for consumers.

As corn prices rise - they have climbed from about $2 a bushel in August to more than $4 a bushel today - the cost of beef, chicken and pork, along with related products such as eggs and milk, also will rise.

Many soft drinks are sweetened with high-fructose corn syrup. It's made by corn refiners, who increasingly are shifting their operations to make ethanol.

"I think high-fructose corn syrup costs to the beverage industry are going to be up 20 percent this year," said John Sicher, the publisher of Beverage Digest, a specialty publication that follows the soft-drink industry.

Over time, that growing cost of producing soft drinks could be passed on to consumers.

"It has its subtle impact," said Jerry Gidel, a grains and ethanol analyst for North America Risk Management Services Inc. in Chicago.

As farmers plant corn instead of soybeans, that also could reduce the supply and raise the price of soybeans, a high-protein ingredient in numerous food products, including dog food.

"When the price of corn goes up, the price of feed goes up. And the price of products that we put into our shopping cart goes up," said Janet Larsen, the research director of the Earth Policy Institute, an environmental group that isn't sold on ethanol.

In a report this month, the institute said that by 2008, ethanol distilleries will require more than twice the amount of corn forecast by the Department of Agriculture early last year.

Ethanol's backers counter that growing demand sends an obvious signal to corn farmers.

"The fact of the matter is the markets are adjusting to the shifting demands for grain. All indications are that corn farmers are going to dramatically increase the acres planted [this year]," said Ron Miller, the president and chief executive officer of Aventine Renewable Energy, a large ethanol producer in Pekin, Ill.

U.S. farmers cultivated 78.6 million acres of corn for the 2005-2006 harvest. They're expected to reach 85.6 million acres in the 2006-2007 harvest, according to Keith Collins, chief economist for the USDA.

When the ethanol plants under construction come on line by 2009, they'll have the capacity to produce 11.4 billion gallons, more than double last year's production. They'll need a lot more corn than is being planted now.

"Beyond 2007, to achieve steady increases in ethanol production from corn will require ever more acreage or higher corn yields, or both," Collins told Congress earlier this month.

Demand for corn could drive prices above $5 a bushel next year, said Gidel, the market analyst. That's a level unseen on a sustained basis since 1996. That could weaken the profitability of the infant ethanol industry.

Ethanol producers such as Miller, however, think that genetic engineering advances will double the corn yield to 300 bushels per acre within 20 years.

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