Iowa Farmer Today
11-25-06
Ethanol bringing enthusiasm, excitement, changes
By Tim Hoskins, Iowa Farmer Today
LITTLE AMANA -- Energy prices will continue to drive the ethanol, crops and
livestock sectors of agriculture, three Iowa State University ag economists
said at a recent meeting.
John Miranowski knows ethanol is creating enthusiasm in rural areas.
“This is one of the healthiest periods in rural Iowa and America,” he said.
Bob Wisner said ethanol is making for the most exciting time in agriculture since
the 1970s, when the U.S.S.R. purchased a lot of U.S. grain.
John Lawrence thinks the ethanol boom will significantly change agriculture.
It might be a truly historic moment because three economists agreed on
something.
Whichever way you want to view it, energy and ethanol is a large factor for grain
farmers and livestock producers.
Ethanol, energy outlook
Miranowski gave an outlook for the ethanol and energy markets at a recent ProAg Outlook meeting here.
While ethanol is growing, he said it is still a small share of the entire oil market.
Miranowski presented a graph showing 4 billion gallons of ethanol produced per
year compared with 135 billion gallons for gas. That equals about 3 percent of
the market.
“It is hard to be a market driver when you only have 3 percent of the market,” he
said.
Therefore, the outlook for the ethanol industry is tied to the energy and oil
outlooks.
Based on information Miranowski was able to gather, oil prices are expected to
stay about $60 per barrel of oil for a while.
That translates into $2.10 per gallon of gas. At that price, ethanol should be
competitive at $1.50 per gallon.
“There is nothing we see slowing the expansion of ethanol. However, there might
be some challenges and constraints,” he said.
One of the challenges is transporting the fuel to urban consumers who mainly
live on the coasts, Miranowski noted.
“Any form of energy is costly to transport,” he said.
Miranowski said Iowa, located in the center of the country, accounts for roughly
one-third of the ethanol produced in the nation. However, Iowa is still a distance
from the coasts.
He expects the transportation issue to be solved.
Miranowski said some industry consolidation might occur.
But, ethanol is a transition fuel before corn is made into other things, such as
PLA, which is a corn-based plastic, he said. PLA could have a higher value than
ethanol.
“However, the transition might be 30 years.”
Miranowski expects ethanol to be made from corn and corn stover for a long
time. He said it is simply a matter of the amount of ethanol is produced from each
acre.
As much as 750 gallons of ethanol can be produced from each acre by
harvesting the grain and half the corn stover, he noted.
Other crops, such as switchgrass, only can produce 450 gallons per acre,
Miranowski said.
Crops, grains outlook
The first effect of higher energy and ethanol prices is directly translated to many
Iowa grain farmers as higher corn prices.
“I am not predicting $5 per bushel corn, I am not ruling it out either,” said Wisner,
who specializes in grain marketing.
He said this fall’s high cash for corn is a result from the ethanol growth. It is a
reality check for grain traders at the Chicago Board of Trade.
To start with, Wisner noted ethanol use of corn has increased 34 percent from
2005 to 2006. That has meant more demand for corn has increased, and
processors have bid up the corn price.
At the end of the marketing year, which ends in August, Wisner said the United
States might use 1.1 billion bu. more than it grew in 2006. That is not such bad
news because there was surplus corn leftover from the 2005 crop.
He said next year could be a different story because there will be tighter supplies
entering the marketing year.
We might be entering a period of several years where corn demand exceeds
supply.
To compensate for this, Wisner said there needs to more corn acres. That is part
of the reason for the rising markets, to convince farmers to grow more corn in
2006.
He said the need for more corn acres will affect other crops. For example, Wisner
said soybean and wheat production can be pushed farther west.
For that to happen, he said higher soybean prices could make some wheat
farmers plant more soybeans. Higher wheat prices could make landowners
convert CRP ground to wheat production.
Wisner said there are more CRP acres in the Great Plains than in the Cornbelt.