Converting more corn into ethanol would be a high-octane boost to many, but not all, in the agriculture industry. Corn growers, beef producers and the dairy industry stand to gain from an ethanol boom, according to economists Chris Hurt and Otto Doering, two Purdue University agricultural economists.
On the flip side, hog and poultry producers, grain elevator operators and grain shippers might be negatively affected. Soybean and wheat growers could go either way.
A new federal standard calls for the production of 7.5 billion gallons of renewable fuel by 2012. To meet that goal, ethanol plants would use 2.5 billion bushels of corn, an increase in current usage of 1 billion bushels.
Higher corn prices would encourage farmers to grow more corn, leading to fewer acres of soybeans and wheat, Hurt says. Depending on market conditions, prices for those grains could rise or fall.
"On the soybean side we'll probably see a reduction in acreage," Hurt says. "That says the supply of beans would be smaller. On the other hand, we're going to see the distillers dried grains from the ethanol plants compete very heavily for some of the soybean meal demand at the soybean crushing plants. So my guess overall is we'll probably see some weakening of soybean prices."
Distillers dried grain (DDG) is a byproduct left over when ethanol is extracted from corn. DDGs primarily substitute for protein in rations for ruminant animals like cows and sheep. In hog and poultry rations DDGs are primarily energy substitutes, making the byproduct less valuable.
"About a third of the corn processed as ethanol remains as DDGs," Hurt says. "This new alternative feed source could have a more positive impact for beef and dairy producers, while the economic impact to hog and poultry producers will be less, since the negative impact of higher corn prices is not likely to be offset by feeding DDGs. The growth of DDGs will likely have the largest impact on the animal feed industry of any event since the advent of soybean meal in the 1940s."
Ethanol's impact on the livestock industry could be far-reaching, the economists say.
"Where is corn going now, that in a year or two years will not be headed in that same direction?" Hurt says. "Some of that would have gone into the Southeast poultry and hog markets. The Eastern Corn Belt is the largest agricultural shipper of rail cars from one region of the country to the other. Thirty-five million bushels of corn represents about 10,000 rail cars of grain that would stay here in Indiana each year and not be shipped out.
"As an example, if one were feeding hogs with 35 million bushels of corn, they could produce more than 2 million head. When we have a large new demand like this there are going to be some current users that will get crowded out. And we think that's primarily going to be the feed users."
Other possible impacts from higher ethanol production include:
- A need for fewer grain elevators. "In many areas of the state grain elevators buy the surplus corn produced in that area and find a market for the corn," Hurt says. "If that corn is used internally in the local area for ethanol, then some of those grain elevators will probably go out of business." Hurt and Doering believe some grain elevators could remain viable by serving as corn storage facilities for nearby ethanol plants.
- Lower export volumes. "The amount of corn exported from ports at the Great Lakes and Ohio River will probably decrease as, again, we see more corn used internally," Hurt says.
- A move away from traditional crop rotations. Instead of the conventional 50/50 corn-soybean rotation, farmers could shift to a 60/40 corn-soybean rotation. Planting some fields to corn in successive years could have agronomic consequences, Hurt says.