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.
