Increased ethanol production to help Md. grain growers, increase cost of groceries


October 21, 2007|By TED SHELSBY

With world crude oil prices again hovering around $87 a barrel, the outlook for ethanol looks even more promising. And that's good news for Maryland grain farmers.

Ethanol, a gasoline extender made primarily from corn, is expected to enhance farm profitability in the coming years. However, the growth of the industry is projected to result in consumers paying higher prices for groceries at the supermarket.

Those are among the findings of a new USDA study on the alternative fuel and its impact on agriculture.

"While the ethanol boom can be expected to bring higher incomes to farmers and reduce government outlays for farm programs, it will most likely mean higher food prices for consumers," Paul C. Westcott, an agriculture economist with the U.S. Department of Agriculture's Economic Research Service and author of the study.

Retail price increases for red meat, poultry, and eggs are projected to exceed the general inflation rate next year and through 2010, he said, as the livestock sector adjusts to higher feed costs.

While offering no dollar figure, the report said that ethanol expansion would boost net farm income. Higher commodity prices over the next several years, particularly for corn and soybeans, are projected to bring large increases in total farm cash receipts.

But to some extent, these gains are expected to be offset by higher production expenses for seed, fertilizer and livestock feed.

The ethanol boom is not particularly good for Maryland's largest agriculture sector: the poultry industry. Higher corn prices reduce the profitability of meat production because of corn's importance to the livestock sector as animal feed. As a result, red meat production is projected to decline in the United States and growth in poultry output is likely to slow.

Poultry sales totaled $535 million in Maryland last year and accounted for about 35 percent of the state's total farm receipts.

U.S. ethanol production climbed to almost 5 billion gallons last year, up nearly 1 billion from 2005. The industry is stepping up the pace of expansion, and ethanol production is expected to top 10 billion gallons by 2009.

The ethanol boom was kick-started by the federal Energy Policy Act of 2005, which stipulated an increase in the use of ethanol as a gasoline extender. The government also provided a tax credit of 51 cents a gallon for ethanol blended into gasoline.

Most ethanol is made from corn, and Maryland grain farmers are already benefiting from higher corn price. According to the state Agricultural Statistics Service, corn prices jumped from an average of $2.19 a bushel in market year 2006 to $3.25 this year. So far this year prices have mostly stayed in a range of $3.75 to $4.

Other findings of the study:

Ethanol production is expected to grow to 12 billion gallons by the middle of the next decade.

Ethanol accounts for only a small share of the overall gasoline market. Last year it represented about 3.5 percent of the motor vehicle gasoline supplies in the United States.

Fourteen percent of the U.S. corn crop was used in ethanol production last year. That percentage is projected to grow to more than 30 percent by 2009 and remain at that level in subsequent years.

Farmers planted 93 million acres of corn this year, up over 14 million acres - 18.6 percent - from last year.

In Maryland, corn acreage increased 10 percent this year to 540,000 acres.

The increased use of U.S. corn for ethanol and subsequent higher corn prices will have an impact on global trade and international markets. The U.S. typically accounts for 60 percent to 70 percent of world corn exports. This is expected to drop to 55 percent to 60 percent over much of the next decade.

As a result of higher corn prices, government payments to farmers, which averaged over 7 percent of gross cash income last year, are expected to account for less than 4 percent during most of the next decade.

Plenty of pumpkins

Despite the ravages of this year's drought, pumpkins should be plentiful, according to extension agents at the University of Maryland.

However, one exception could be Southern Maryland, where drought hit particularly hard. The harvest - and the pumpkins - could be smaller that normal.

The extension service recommends picking a pumpkin that is completely orange. Any green could mean the pumpkin is still retaining moisture and has not cured.

A good weight for a carving pumpkin is between 15 and 20 pounds, the extension services says. An uncut pumpkin will last 30 days or more, and seven to 10 days after being carved.

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