WASHINGTON, March 12 (UPI) -- The rising demand for ethanol is pushing up corn prices and affecting industries such as feedstock and biofuels, reports say.
On Friday the U.S. Department of Agriculture blamed the growing demand for ethanol on rising corn prices, which have adversely affected the livestock industry where most of the corn grown in the United States is used as feedstock.
Earlier last week a report from the University of Missouri said the rising corn prices were hurting profit margins in the ethanol industry where corn is the main source of the fuel. The high costs, the study said, will prove a disincentive to build new plants in the long run.
The two reports will likely provide additional ammunition to critics of corn-based ethanol who say the United States must look to other sources such as cellulose to manufacture biofuels. They may have a point. The percentage of the corn crop being used to make ethanol has increased dramatically. Ten years ago less than 5 percent of corn production was used to manufacture ethanol. In 2005 it was 14 percent. Last year it touched 20 percent (2.15 billion bushels), and this year is it expected to be 25 percent (3.2 billion bushels). That figure is expected to rise to 4 billion bushels, or 32 percent of the nation's corn crop by 2009, according to the University of Missouri's Food and Agricultural Policy Research Institute.
This demand has led to a surge in corn prices: It's now $3.20 a bushel, up from $2 in 2006.
The USDA report, released Friday, said the high cost of feed will reduce broiler-chicken output by 124 million lbs from last month's estimates and beef output by 62 million pounds from earlier figures. Indeed, the National Chicken Council has taken its complaints of high corn prices all the way to Congress.
Testifying before the House Agriculture Committee last week, Matthew Herman, a manager at a Tyson Foods chicken production and processing complex in Monroe, N.C., said the United States could face a corn shortage because of the demand from ethanol.
"The current approach and pace is full of risks to traditional users of feedgrains," he said. "Without adequate safeguards for the unintended consequences, the future of U.S. animal agriculture is put in great jeopardy."
The second report, from the University of Missouri's FAPRI, said that net operating returns for the industry will fall from 61 cents per gallon last year to 28 cents per gallon this year and 19 cents by 2012.
Pat Westhoff, the institute's program director, said in a statement that because ethanol plants need to make 20 cents per gallon to cover the cost of capital, the rise in corn prices will prove a disincentive to build new plants in the long run.
The report was based on the assumption that the price of oil will drop from $60 levels now to $50 a barrel by 2016; ethanol prices follow that of oil and gas.
In a bid to diversify the sources of ethanol, the U.S. Energy Department is looking at cellulose. Last month it awarded $385 million to six companies to build biorefineries over the next four years in a bid to reduce the cost of manufacturing cellulosic ethanol.
"These biorefineries will play a critical role in helping to bring cellulosic ethanol to market and teaching us how we can produce it in a more cost-effective manner," Energy Secretary Samuel Bodman said at the time. "Ultimately, success in producing inexpensive cellulosic ethanol could be a key to eliminating our nation's addiction to oil."
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