WASHINGTON, Oct. 24 (UPI) -- The rising cost of corn amid increased demand and sliding oil prices may hurt the burgeoning ethanol industry.
Corn prices have risen from $2.20 a bushel over the summer to more than $3 on the back of lower U.S Department of Agriculture estimates than had been projected in September. The department predicted the nation's farmers would produce 10.9 billion bushels of corn this year, at an average yield of 153.5 bushels per acre. The estimate for September was 2 percent higher.
Demand for corn is high from the ethanol industry, which received a boost when the Bush administration said the United States was "addicted to oil" and singled out ethanol -- corn and cellulosic -- as the cure.
Ten years ago, less than 5 percent of corn production was used for ethanol. In 2005, 14 percent was used. This year, that number is expected to grow to 20 percent, or more than 2 billion bushels, almost the same as the amount of corn exported each year.
U.S. officials acknowledge this rise in demand has pushed up prices, but they say there's not much that can be done to bring those prices down.
"We should not be in the business of encouraging $1.60 corn because it benefits one sector," Agriculture Secretary Mike Johanns said at a news conference earlier this month in St. Louis on the sidelines of a renewable energy conference. "We're going to do everything we can to move them to a point where they are farming for the marketplace."
Indeed, the demand for ethanol -- and corn -- has risen since the Bush administration made energy security an integral part of its energy policy amid high oil prices that touched $78 a barrel earlier this year, prompting a boom in the construction of ethanol plants. More than 100 plants nationwide produce nearly 5 billion gallons of ethanol a year. Six years ago, 54 plants produced less than 2 billion gallons annually.
With this rise in ethanol production comes an increase in demand for corn. Corn is wanted not only as a source of ethanol but also as a food crop and as a grain for export, thereby pushing up both prices and demand for farmable land. In a bid to offset some of the pressure on corn, the administration is looking to other sources of ethanol -- primarily from cellulosic sources.
"Looking years into the future, we understand concerns about competing demands for corn; that is, if we envision ourselves depending solely upon corn to meet the ethanol demand," Johanns said in a speech at the St. Louis conference. "But we have no intention of doing so."
Before cellulosic ethanol can become cost-effective, however, corn is likely the way to go. The federal government already subsidizes ethanol by 54 cents a gallon and mandates that by 2012, the country must use 7.5 billion gallons of renewable fuels.
The subsidy was primarily to offset relatively low oil prices through much of the late 1990s. It is unclear how the sudden recent drop in the price of oil to around $58 a barrel will affect the demand for ethanol. Ethanol's advocates say it is competitive with gasoline up to $40-$45 a barrel. Oil is trading at $57 a barrel, a far cry from that figure, but the precipitous drop in its price over the last month might raise some concerns that the current public attention being paid to renewable fuels might abate if gas prices fall far enough.
"My worry is ... that a low price of gasoline will make us complacent about our future when it comes to energy, because I fully understand that energy is going to help determine whether or not this nation remains the economic leader in the world," President George W. Bush said in St. Louis at the conference.
Indeed, though the demand for ethanol is rising, oil and natural gas are expected to provide nearly two-thirds of U.S. energy consumption until 2030, including more than 80 percent of motor fuel consumption.
The rising cost of corn and the still-unresolved issue of the cost of producing cellulosic ethanol, along with falling oil prices, are only likely to heighten the debate over whether corn ethanol can effectively provide the United States with the energy security it wants.
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