Grainnet, IL
05-14-07
CARD Ethanol Impact Study Posted to Internet
by Myke Feinman, BioFuels Journal Editor
A six-month study looking at four scenarios of the ethanol industry and its
potential impact on corn and livestock producers is now available on the web.
The study was conducted by the Center for Agricultural and Rural Development
(CARD) at Iowa State University.
Chad Hart, one of the study's nine authors, Agricultural Economist with
CARD and head of CARD's Biorenewable Policy Division, said these four
scenarios will be followed in about two months by two more scenarios currently
being researched.
The scenarios use computer projections which look forward in time to 2016, and
use several assumptions such as: > Continued government support in the
ethanol and agriculture industries such as the tariff on foreign ethanol.
> The ability of livestock to handle dried distillers grains with solubles (DDGS), a
co-product of ethanol.
> There are no cellulosic ethanol plants coming online before 2016.
"We tried to look at how ethanol production is going to ramp up and its impact on
agriculture over the next decade if plants being built today go online as
expected," he continued.
The four scenarios are:
1) Baseline: A baseline scenario which looks at oil prices starting at
approximately $58 per barrel in 2008 and finished at $54 per barrel in 2016. In
this case, corn acreage increases to 93.5 million acres and stays between 92
and 94 million until 2016. The price of corn at $3.20 per bushel increases to
$3.40 in 2010 and drops to $3.15 by 2016. Ethanol levels out at 14.9 billions
gallons of production per year by 2016, up from 5 billion in 2006.
2) Higher Oil Prices: Under this scenario, oil is $10 per barrel higher than the
baseline ($58). This strengthens the ethanol industry in the United States. The
scenario assumes there is no bottleneck for ethanol, meaning that ethanol
demand will not be limited to current ethanol blends. Hart said studies have
shown that with blending ethanol at 10 percent, there is a bottleneck at between
14 and 15 billion gallons produced per year. The scenario shows a higher
demand and higher supply of DDGS, and the price of DDGS will increase by 40
percent. Also, corn will increase to $4.40 per bushel. "This tightens the margins
for our livestock producers. We will see some pulling back of the livestock
industry." For example, beef production will go from 28.3 billions pounds in 2016
in the baseline projections to 27.8 billion pounds under the higher oil price
scenario.
3) CRP Land in Production: Under this scenario, about 7 million acres under the
Conservation Reserve Program is brought back into production, with most of it
going to corn. Corn price drops from $3.15 in the baseline to $3.09 by 2016. For
the ethanol industry, production increases from 14.9 billion gallons to 15.3 billion
gallons by 2016.
4) Drought Year: In the final scenario, the model looked at what would happen if
there was a severe drought year, similar to the one which occurred in 1988. The
year chosen is 2012. The impact shown is a significant drop in corn production, a
reduction in stored corn between 65 and 70 percent, and a 60 percent reduction
in exported corn. "We see everything backing off slightly; feed usage of corn falls
15 percent because of the increase in corn prices." He said for one year, ethanol
production goes down by 8 to 10 percent. The next year, production increases in
corn and ethanol, so the impact is for one year only.
"These are computer-based, economic models that look at each agricultural
sector," Hart said. "We try to look at production, consumption, how commodities
are traded and government support."
The next two scenarios will examine the impact of: > The bottleneck for ethanol
under higher oil prices, and > The possible impacts of removing the ethanol tariff
on foreign imports.
For more information, contact CARD at (515) 294-1183.