Metroland Online
05-21-07
Put an Ear in Your Tank?
Ethanol production has helped double the price of corn since last year, but no
one’s quite sure how long this demand will last—or if ethanol is really an
attractive alternative-energy solution
By Shawn Stone
‘The dairy industry is the larg- est single segment of the state’s agricultural
industry.”
This is the official word of the New York State Department of Agriculture and
Markets. While the state’s overall ranking as an exporter of agricultural products
is only fair-to-middling—28—New York ranks third in the country as an exporter
of dairy products.
It’s big business. Being a dairy farmer, however, is not a lucrative occupation.
And in the last year, it’s become even less lucrative for a lot of dairy farmers.
That’s because cows have to eat, and what they mainly eat is corn.
Eric Oohms, who, in a partnership with his father and two brothers, works about
1,800 acres on the family farm in Chatham, explains it this way: “In the
Northeast, a lot of us grow our own feed. It’s just traditionally the way it is: You
own cows, you plant corn in the spring.”
“I was just plowing last night,” Oohms says, on fields that will be used to grow
corn. “In the fall you harvest it, and feed your cows. It’s the same regardless
whether you’re milking 50 cows or 500 cows.”
“My family,” he says, “grows 80 percent of our feed, and buys 20 percent of our
feed.”
Last year, production of ethanol—an alcohol fuel-additive mostly made from corn
in the United States—began to really affect the price of corn.
“The price [of corn] is almost double what it was a year ago,” he says. “That’s a
substantial hit for dairy farmers. Roughly two-thirds of our cost is feed.”
“In 2006,” Oohms says, “we had some of the worst dairy prices we’ve had in a
long time. They were not the worst; what made the situation worse is the cost of
the inputs.”
By inputs, Oohms means, primarily, corn and energy.
“The two are interrelated,” he explains. “Because energy prices are so high, more
and more corn is going into ethanol, so there’s less corn for dairy farmers.”
The Oohms family have been in the dairy business since the 1500s. Yes, you
read that correctly. While his father and family emigrated from the Netherlands to
the states in 1950, and have owned their farm since 1952, they can trace their
family tree back hundreds of years in Holland. And for most of the last halfmillennium? Dairy farmers all.
Right now, they have about 400 head of cows. They do their own milking, twice a
day—“We milked three times a day for about eight years, and we’ll never do that
again; personally, it killed us”—and raise enough feed to be able to sell to their
neighbors.
“We have five different farms buying feed from us right now,” Oohms says. “It
grows through the summer. A couple of weeks ago we only had two, [but] as
people start running out of feed from last year, they buy it from us.”
The idea is sensible: “You want to keep growing and diversifying your income, so
you’re not totally dependent on the dairy market.”
Unfortunately, he notes, they’re really still dependent on the dairy market,
because the people they sell feed to are also dairy farmers.
“Quite frankly,” Oohms says, “if we don’t have any money, the people we’re
selling it to won’t have any money.”
Asked about the relationship between ethanol and the price of corn, Oohms
wonders: “How much of this is real? How much is the corn supply short, and how
much is speculation on what’s going to happen with ethanol?”
“The price of feed has gone up, and it has increased pressure on dairy farmers,”
says Thomas Lindberg of the New York State Department of Agriculture and
Markets. “They’ve had low milk prices for all of last year, and increased fuel
costs, and when feed goes up, it hurts their cash flow.”
Lindberg explains that, right now, “we’re administering a $30 million program”
recently passed by the Legislature and signed by Gov. Eliot Spitzer, to “get them
through the planting season, help them stay in business.”
Lindberg sees the long-term positives associated with ethanol production.
“It’s interesting: One of the byproducts of ethanol production,” he explains, “is a
product known as distiller dry grains, which is actually a high-protein feed
supplement. . . . On the one hand you’re driving the price of corn up by producing
ethanol, and on the other you’re creating something that may be beneficial.”
Like everything else associated with ethanol, Lindberg says, “it’s a complicated
situation.”
There are those farmers who have profited: “Anybody that’s been working corn in
the last year has seen really good times. The price of corn’s around $4, $4.50 a
bushel.”
Then there’s the prospect of new ethanol-production facilities here in New York;
five are currently in the planning and/or building stages.
“I think the dynamic that’s changing,” Lindberg says, “is that we will be seeing
ethanol production here in New York. We’re hoping that it will improve the prices
for corn a little . . . instead of taking prices that are dictated from the Midwest.
We’ll get to start making prices here in New York.”
“Still,” he cautions, “we are concerned about the rise in the prices of feed.”
Lindberg also noted the increased interest in ethanol from Wall Street: “I think
with the fuel standards at the federal level, the investment industry has gotten
into [the ethanol business]. The landscape has definitely changed.”
Asked about the current situation with corn prices, Peter Gregg, spokesman for
the New York Farm Bureau (a nongovernmental advocacy group that claims
35,000 “member families”), says: “It’s a good news, bad news situation. Farmers
that have to buy corn for cattle feed are not happy. In the past year, corn’s gone,
roughly, from over $2 per bushel to over $4 per bushel.”
As for this year, he says that relief might be on the horizon.
“From what I’ve heard,” Gregg says “the price is probably going to stabilize or
even drop. The market may be oversupplied. We’ll have to see. Hopefully, it has
plateaued.”
The effects of ethanol on corn prices wouldn’t have hurt so much in a normal
year. This is because, he explains, “most dairy farms grow corn to feed to their
cows.”
“However, last year, there were a lot of weather problems,” Gregg says, “a lot of
flooding in central New York and the Southern Tier—and it wiped out the corn
crops of many dairy farmers. So what they had to do was go on the open market
for their feed.”
“We’re still in recovery mode from last year,” he adds. “And you have to also
consider that the milk prices for dairy farmers for the last two and a half years
have been very low, and energy costs have tripled, which is also a big problem.”
Asked about the new ethanol plants under development in the state, Gregg is
enthusiastic: “There are also a lot of big corn growers across the state that have
been striving to get ethanol production going in New York for years. All of the
sudden, there are about five projects coming online, that have pledged to buy a
lot of New York-grown corn.”
“This will be a marketing opportunity that didn’t exist before, and,” he adds
hopefully, “at a good price, to boot.”
Chad Hart is a researcher at Iowa State University’s Center for Agricultural
and Rural Development in Ames, where they are closely monitoring all matters
ethanol.
“We do economic modeling, looking at agricultural policy and environmental
impacts,” Hart says, explaining that they focus on the effects of ethanol
production on agriculture.
Hart has noted the same changes as the farmer in the field: “The push of ethanol
on corn has been seen in the last six months. It’s great if you’re a corn farmer,
not so great if you’re a corn user. For dairy producers, it squeezes their profit
margin.”
Hart says, however, that there is something of a silver lining in the process of
distilling ethanol. It will produce that aforementioned alternate feed, distiller dry
grains.
“Those distiller’s grains can be utilized as a feed. I know, we’ve seen it here in
the Midwest, especially with beef cattle.”
Hart explains that “there are basically two types of ethanol plants, wet mill and
dry mill.” Wet mill produces a kind of corn gluten as a byproduct; dry mill
produces distiller’s grains. Of course, he adds, “the nutritional characteristics
aren’t what corn was.”
Looking at prospects for the short-term future, Hart sees high energy prices
sustaining ethanol production. There is a possible problem on the horizon,
however.
“We’re looking at the possibility,” he says, “that we’re going to run into a shortterm bottleneck here, within the next three to five years, as we begin to produce
enough ethanol to completely fill the E10 market for ethanol.”
E10 (or E-10, the designation varies), which is 10-percent ethanol and 90percent gasoline, is the most common fuel formulation. Hart explains that “most
auto manufacturers would prefer not to push it beyond that level, as they’re
concerned with affecting the engine’s performance.”
“We’re using about 140 to 150 billion gallons of gasoline per year,” he says. “So,
if you took 10 percent of that, that would be 14 to 15 million gallons of ethanol
that we would use, if everything was blended [for E10 fuel].”
Hart notes that the United States “produced five billion gallons last year; it looks
like we’ll produce six to seven or eight billion gallons this year. Plants are coming
online that will bring us up to 12 million gallons, approaching the maximum
amount that E10 can use.”
“The question,” he asks, “is, how would you go beyond this? E85 is one
alternative, but there aren’t that many vehicles that can utilize the blend. I’ve
heard discussions, ‘could we go to an E20?,’ or a 20-percent blend of ethanol,
but what you need will be engine modifications to pull it off.”
Thomas Drennen was thinking about E85 vehicles recently, when he found
himself behind one on the highway.
“It just struck me the other day, following an SUV marked ‘flex-fuel vehicle,’ and I
thought, ‘those people are probably thinking they’re being environmentally
friendly.’ And they’re not.”
The professor of economics and environment at Hobart and William Colleges in
Geneva, N.Y, explains: “It’s just completely bogus.”
“What’s going on,” he argues, “is that the car companies, under the CAFE
[Corporate Average Fuel Economy] standards, are given a huge loophole—if
they have flex-fuel vehicles, they can have basically double the fuel efficiency
[rating] for that vehicle. It helps the car companies achieve their targets, but
nobody’s ever going to put E85 fuel in them. It’s completely bogus.”
The reason, of course, is that there are only a handful of stations offering E85 in
the Northeast—and most of these are restricted for government use only. There
is a plan to eventually make E85 fuel—85 percent ethanol, 15 percent gasoline—
available at every New York State Thruway rest stop. Right now, however, it’s
almost impossible to buy it for your “flex-fuel” vehicle.
And for New Yorkers who live west of the Hudson River, it’s just plain impossible.
Drennen sees other problems with ethanol, though, aside from lack of availability.
“Ethanol doesn’t have the energy content of a gallon of gas,” he points out,
meaning that a vehicle will need to burn more fuel to get the same result. He also
notes, unfavorably, the heavy subsidies needed to produce it—around 52 cents
per gallon from the U.S. government.
There’s also the problem of efficiency: “It takes a lot of energy to produce a
gallon of ethanol. My best estimate is that it takes two-thirds of a gallon of gas
equivalent to produce a gallon of ethanol. When you take into account the costs
of producing the corn, and harvesting it. . . .”
“If people think this is a quick solution to our oil addiction,” Drennen says, “they’re
wrong. It’s a very, very small step. . . . If we want to get serious about oil
addiction, or pollution, or climate change, we have to have a major change in the
way we use our vehicles. Or we have to come up with some great alternative—
and it’s not ethanol.”
In any event, corn might not be the preferred bioproduct from which to make
ethanol from in the long term, anyway. There’s the possibility of cellulosic
ethanol.
Dairyman Eric Oohms asks, “what’s going to happen with cellulosic [ethanol],
which is supposed to be a panacea? The technology hasn’t been perfected. . . .
I’ve heard people say it’s 10 years away.”
Iowa State’s Chad Hart says: “Technically, it’s feasible. It’s a matter of making it
cost effective. We’re several years away from it.”
Cellulosic ethanol would be made from other kinds of plants—plants that don’t
require as much energy or pesticides to produce as corn does, thus lowering the
cost and increasing the value of the end product. Hart explains that processing
ethanol from corn results in a fuel that puts out about 20 percent more energy
than is used in producing it; cellulosic ethanol presents the possibility of an end
product that puts out 200 to 300 percent more energy than is used to make it.
The savings, Hart says, come in the production of the plant, not the fuel.
It will take years, Hart says, to solve the chemical problems in creating cellulosic
ethanol (“cellulose” here refers to the walls within the plant’s cells, and the
difficulty is in breaking them down into complex sugars).
The prospect, then, is that corn’s value as an alternative fuel may not last.
Eric Oohms and his family, it’s safe to assume, will take things as they come.
They love the life: “We’re enjoying ourselves. We’re at a good age, too; we’re all
in the prime of our lives, and my father loves the fact that his farm is continuing
on.”
As for this year?
“The milk price is looking up, so that’s excellent.”