Grainnet, IL
01-22-07
Part 1: Impact of the Ethanol Industry on Iowa
In the first of a daily three-part series, Dr. Robert Wisner, extension
agricultural economist at Iowa State University, shares his observations on
the ethanol industry's impact on agriculture.
By Ed Zdrojewski, Grain Journal Editor
When it comes to ethanol production and its impact on corn producers and grain
elevators, the State of Iowa is ground zero.
According to the Iowa Renewable Fuels Association, Iowa is the leading state for
ethanol production, with 26 plants currently producing 1.7 billion gallons of
ethanol annually.
Another 12 plants are either under construction or being expanded across the
state, which would add another 1.1 billion in production capacity.
Wisner has become a well-known observer of the biofuels scene in Iowa and
surrounding states, and has plenty to say about the ethanol industry’s likely
impact on every sector of agriculture, including the grain elevator business.
A native of Michigan, Wisner has bachelor’s and master’s degrees from Michigan
State University and a doctorate from the University of Tennessee, all in
agricultural economics. He has been on the ISU faculty since 1967.
Grain Journal reached him in mid-January at his office on the Ames campus.
What impact has the growth in ethanol production had on Iowa and the
surrounding region?
We’ve been processing corn into ethanol since the late 1970s or early 1980s.
However, we’ve seen a rapid acceleration in the growth of the ethanol industry in
the past few years, triggered primarily by high crude oil and gasoline prices.
If all of the proposed ethanol plants and those that are under construction in Iowa
are built, the total rated capacity of all the ethanol plants in the state would
consume 133% of the bushels of corn produced in 2006 in the state.
And that’s with no allowance for feed usage or exports to end users outside of
the state. That’s a huge potential demand for corn, and it will require a sharp
increase in corn acreage in Iowa for the next few years.
The situation is similar in other states, although there are more refineries west of
the Mississippi than in the eastern Corn Belt. Prices for corn have been a little
more favorable in the western Corn Belt.
However, we’re seeing more rapid expansion of ethanol production in the eastern
Corn Belt due to better corn yields and more state interest in generating
employment.
We’re also seeing plants being built in areas outside of traditional corn-growing
regions—Montana, North Dakota, California, Arizona, the Pacific Northwest, New
Mexico, the High Plains, the southeastern states, New York, and Pennsylvania.
If all of these plants are built nationwide and use corn as a feedstock, the
capacity would exceed the entire 2006 U.S. corn crop.
My take is that a lot of these ethanol plants won’t be built or will use other
feedstocks. A few will try cellulose.
For now, the economics remain favorable enough to see additional plants
breaking ground.
I expect ethanol processing will max out around 5-1/2 billion bushels of corn.
Corn usage will level off based on market forces reducing profitability including
higher corn prices, increased building costs, and downward pressure on the price
of ethanol.