Robert Moskow, an agricultural market analyst with Credit Suisse, said last week that as long as oil costs more than $120 a barrel, energy from corn will be worth more than $8 a bushel. He forecasts that given the ethanol industry's growth, it eventually could claim one-third of U.S. corn output a year.
While corn has risen sharply, the price of other crops, including wheat and soybeans, have risen further. The worldwide production of wheat has been hit by droughts in Australia, and higher oil prices have raised costs for farmers and food processors.
Some industries see a political opening. As reported by Roll Call newspaper this month, the Grocery Manufacturers Association solicited lobbying firms this year to craft an anti-ethanol campaign, a proposal that drew a rebuke from ethanol advocates such as Iowa Republican Sen. Charles E. Grassley.
Worries about ethanol "create a window to change perceptions about the benefits of biofuels and the mandate and, ultimately, to build a groundswell in support of freezing or reversing" them, the association wrote in its proposal.
So far, the auto industry has stayed above the political fray, while continuing to promote ethanol and other biofuels as an effective alternative to foreign oil. The two industries' political ties have grown tighter in recent months, as ethanol backers have sided with automakers against the California greenhouse gas limits on vehicles that several states are considering. California's law offers no credits for flexible-fuel vehicles, as federal rules do.
"In the short-term, certainly in the next 10 to 15 years, the best and the only significant solution for displacing petroleum is ethanol," said Fritz Henderson, president of General Motors Corp.
But the rising price of grains could pose a hurdle to developing the next generation of ethanol from plants that aren't grown from food. Most of those alternatives - switchgrass, or wood pulp - either aren't a common crop today or don't have nearly the supply of corn. Moskow says if grains remain high, farmers will be reluctant to bet on an unknown commodity.
Farmers "could dedicate acreage to growing switchgrass, but why would farmers do that on land that is capable of growing higher energy value food?" he said. "They probably won't."
