"Ethanol production has doubled in the last four years and is projected to
double again over the next four years," said Westhoff, who was presenting
to an audience of 105 at the annual Breimyer Seminar on the MU campus. The
theme of the agricultural policy discussion was "BioFuels: An Agricultural
Revolution?"
Ron Plain, seminar coordinator and MU Extension economist, said "Turning
farm crops into automobile fuel has the potential to be the biggest change
in U.S. agriculture since the introduction of the soybean."
New FAPRI projections indicate fewer acres planted to soybeans and wheat
as more acres are planted to corn to meet ethanol demand. At present, corn
and soybean acreage is about evenly divided in the Corn Belt, which covers
Missouri, Iowa, Illinois, Indiana and Ohio. For 2006, each crop takes
about 36 million acres.
By 2010, the end of the five-year revised FAPRI baseline, the five-state
acreage for corn could reach almost 39 million. Soybeans would drop to 33
million acres.
In spite of rising corn production, FAPRI projections say corn prices also
go up due to increased demand from the growing number of ethanol plants.
The average corn price is $1.98 per bushel for the 2005 marketing year
just ending. The price for the crop now growing in the field is projected
at $2.33. By 2010 the average price jumps to $2.69 per bushel in the
outlook.
FAPRI baseline projections assume normal weather and continuation of
current government policies. Both can change, Westhoff said.
Westhoff pointed out ethanol production rose due to a 51-cent tax credit
and a renewable-fuel mandate that 7.5 billion gallons of ethanol, or other
renewable biofuel, be used. He added that current projected ethanol
production far exceeds mandated biofuel levels.
Gary Marshall, executive director of the Missouri Corn Growers
Association, said, "The renewable fuel mandate provided a floor that gave
encouragement to investors in ethanol plants," adding that all ethanol
plants in Missouri are farmer-owned.
Use of agricultural equity allows farmers and landowners to participate in
economic renewal in rural areas of the state, Marshall told the audience.
The prospect of increasing returns from corn draws more available crop
acreage into corn production, Westhoff said. Some attending the conference
expressed concern about farmers pulling land out of the soil-saving
Conservation Reserve Program (CRP) and putting it into crop production.
Westhoff said land could be drawn out of CRP -- the amount depends on
markets and policy decisions.
Higher energy prices have driven the surge in ethanol production. "Current
market conditions encourage very rapid growth in biofuels," Westhoff said.
"That is not likely to slow."
"The greatest risk for biofuel investments is a downturn in petroleum
prices," Westhoff said. "Rising grain prices will likely have little
impact on slowing ethanol production. The price of corn would have to get
very high before an ethanol plant would shut down."
In an interview after the program, Abner Womack, co-director of FAPRI
said, "One scenario for lower petroleum prices would be a global economic
recession that caused China and India to back off on their increasing use
of gasoline."
While the outlook for ethanol producers seems promising, there are risks
to growers, Westhoff said. "Increased demand and lower carryover stocks
could lead to greater volatility in corn prices. Risk management becomes a
bigger issue."
Rising corn costs place greater pressure on beef, pork and poultry
producers who feed that grain, Westhoff said. Partially offsetting that
shift in feed demand is an increasing supply of distiller's byproduct
grains that can be used in livestock rations. Feed nutrients are left over
after starch in grain is converted into alcohol.
"A cattle feedlot located near an ethanol plant would have an advantage,"
Westhoff said. "A feedlot farther away might not find it practical to use
byproduct feeds and would pay more for corn." A concern for livestock
producers is "too much, too fast," Westhoff said. Livestock feeding
systems will require a transition period to learn to use all of the
byproduct feed coming onto the market.
"Big questions remain," Westhoff said. "What will happen in a drought year
with a short corn crop? Who will bid the most to get the needed grain?"