At first glance, ethanol looks like a cure to all of America's energy woes. Since it's made from plants, it's a renewable resource. And advocates say that the clean-burning fuel can help the country become less dependent on foreign sources of oil. Just consider Brazil — the country became energy-independent last year, due in large part to its 30-year effort to make more ethanol out of sugar cane.
These arguments helped inspire a part of the 2005 Energy Bill that mandates the production of 7.5 billion gallons of the stuff each year by 2012, with the federal government assisting through a hefty combination of subsidies for corn growers and tax breaks for ethanol producers and blenders.
Unfortunately, what sounds great in theory hasn't worked out so well in practice. Notably, one unintended and perhaps congressionally unanticipated consequence of the ethanol boom this year has been a massive spike in the price of corn used in animal feeds, which is already being priced into the cost of chicken, pork and dairy products (see “Soaring Corn Prices Impact Meat Production,” SN Feb. 26, Page 35).
“The cost of corn is at $3.75 for December delivery,” Richard Lobb, communications director for the Washington, D.C.-based National Chicken Council. “We were paying less than $2 last summer. And as the cost of corn goes up, we're going to start seeing the cost of other things go up.”
The U.S. Department of Agriculture has estimated that, due to these high prices and strong demand, more corn will be grown this year than at any time since 1944, but even this may not be sufficient to meet the demands for food, fuel and export, Lobb added.
“There will be enough corn, but at a high price,” he said. “As a result, our [member] companies are clearly cutting back. Some of the big ones have announced specific targets for reducing poultry production.”
Similarly, feed costs account for about 60% of the average pork producer's total costs, and while the longer gestation cycle of hogs compared with poultry has ensured that plenty of pigs will be headed to market this year, slaughter weight is expected to be below normal.
“Hog weights have been creeping up for a long time now as producers have become more efficient,” explained Karen Boillot, director of retail marketing for the Des Moines, Iowa-based National Pork Board. “What we're anticipating now is that hog weights, for the first time in quite a while, will moderate or decline.”
Noting that pork and chicken producers are almost entirely dependent on corn and soybeans — a crop that will likely cede significant acreage to the ethanol boom — for feed, Boillot said that these two industries will likely be hurt more by the price of corn than the beef or dairy industries.
Yet dairy prices are spiking as well, despite ranchers and dairy operators having the option of feeding their herds more forage, or mixing distillers' grain — a cereal byproduct of ethanol and alcohol production — into their feed.
“Milk prices are going up rapidly, in almost a non-fundamental manner,” noted Ed Jesse, a dairy economist at the University of Wisconsin, in a telephone interview arranged for SN by the Wisconsin Milk Marketing Board. “We've got an increase in cow numbers, and milk production does not appear to be sliding, but it looks like we're going to see what appear to be nearly record prices by early fall.”
Industry groups are already expressing concern, with some attacking the issue at a deeper level in hopes of urging lawmakers to reconsider other pending legislation that might further boost ethanol production.
“A 35-billion-gallon ethanol mandate will require a substantial increase in the use of fossil fuels for corn and ethanol processing and transportation, as well as an additional 15 million acres devoted to corn crops, which will encroach on agriculturally marginal and environmentally sensitive land,” argued Cal Dooley, president and chief executive officer of the Grocery Manufacturers Association, in a release issued in response to President Bush's recent proposal to cut gasoline usage 20% in 10 years.
Despite its much-touted credentials as a cleaner-burning and renewable fuel source, corn-based ethanol is deeply unpopular with many environmental activists for these same reasons. Corn requires a lot of synthetic fertilizer to grow, a lot of diesel to harvest, a lot of coal or natural gas to turn into fuel, and finally, since it can't be transported through standard oil pipelines, it requires a lot of diesel to transport to blending stations.
Ironically, the net result, some are beginning to argue, is that corn-based ethanol production and blending may consume as much fuel as it creates.
For example, the January/February 2007 issue of the Sierra Club's magazine Sierra included a point-by-point rebuttal of a recent General Motors Flexible Fuel Vehicle advertisement, at one point noting that “corn-based ethanol's contribution to fighting global warming is marginal at best. A debate is raging, in fact, over whether ethanol takes more energy to produce than it provides.”
Tom Philpott, a North Carolina farmer and regular contributor to Grist magazine, presented a more scathing critique in a recent blog entry, writing that “it's hard to imagine what politicians and corporate chiefs are intending to do by crafting a corn-based ethanol boom. … But whatever their intentions, they're methodically creating environmental and social disasters — while brazenly brandishing the ‘green’ flag.”
And organic farming operations haven't been immune to the skyrocketing price of conventional corn, either. With the price of regular corn so high, it's becoming “almost impossible” to convince conventional row-crop and soybean farmers to transition acres to organic production, Lynn Clarkson, president of Cerro Gordo, Ill.-based Clarkson Grain Co., said during a panel discussion at this month's All Things Organic trade show in Chicago.
“Their reason to become organic farmers is disappearing,” he said. “The conventional corn price is now the same as it was for organic corn a year and a half ago.”
As a result, organic dairy, meat, pork and poultry operations may soon be facing animal feed shortages and rising costs of their own, finding it tougher to build herds and flocks to meet ever-increasing consumer demand.
“The price of organic corn is going up due to basic supply and demand, as well as energy costs,” Bob Scowcroft, executive director of Santa Cruz, Calif.-based Organic Farming Research Foundation, told SN. “It takes years to transition a farm, and you match that against the demand that is growing monthly.”
Noting that the federal mandate for ethanol production will increase every year through 2012, many analysts see little relief in sight, and argue that prices for meat and dairy items, as well as products sweetened with corn syrup, could continue to rise for the next five years. Others have a more optimistic outlook, arguing that the market could correct itself within the next two.
“Markets work — at least, that's the way I describe it,” said Jesse of the University of Wisconsin. “And they're already working. We've seen a huge increase in the anticipated planting of corn. We'll know in a few weeks whether those planting intentions actually held, but I think the larger supply is one thing that will give some relief. Also, the high corn prices we have now are being driven in part by non-commercial speculation.”
Jesse added that the U.S. has typically been a major exporter of corn, but higher prices would likely make U.S. corn too expensive for the world market, curbing exports and, as a result, boosting domestic supply and helping to correct prices here.
“I may be in the minority, but I am not forecasting these very high corn prices to last very long,” he said. “Maybe a year and a half to two years, rather than the five-year predictions of some.”