The Big Question: Ethanol's Impact On Rural America?

USDA economist says impact is negligible in near term.

Published on: Jan 8, 2007

The huge growth in ethanol production will have little-to-no impact on food price inflation this year, according to Keith Collins, a USDA economist. "Food prices in 2007 will generally be a reflection of the price of crops consumed by consumers and meat prices, which have a very important role in food price inflation," said Collins on Sunday.

"Meat prices this year will reflect decisions made by producers over the last couple of years," continued Collins. "The cattle cycle has been building over the last couple of years. I don't think ethanol will have much of a role in the price of beef. Hog prices are actually declining, not increasing. Poultry prices are likely to come up in 2007, but that can't be directly attributed to ethanol.

"Ethanol will be a factor, but a very small factor with respect to overall price prospects. But as ethanol continues to grow year after year, we'll some price adjustments in the livestock sector."

At some point, economics will dictate a slow-down in ethanol production, Keith Collins, a USDA economist, told ag reporters on Sunday. "Just don't ask me when that will happen," he noted.

Collins made these remarks at a press conference the first day of the 88th Annual Convention of the American Farm Bureau Convention.

When asked about the real impact of ethanol growth on rural America, Collins explained USDA has entered into an agreement with the Center for Agriculture and Rural Development at Iowa State University. "They are studying the effects of bioenergy on the rural economy. Many areas are involved, such as methane production. But ethanol is the 'elephant'. Bio diesel is growing but I have no data as to what that means to farmers and non-farmers in rural America."

Ethanol production is on a "break-neck path right now", continued Collins. Between June and December last year, plants under construction went up by 4 billion gallons. That will require 1.5 billion bushels of corn. At 150 bushels per acre, 10 million acres will need to be devoted to ethanol production.

"If ethanol production stays on that kind of break-neck path, we could reach a point where new ethanol markets will be needed just to maintain ethanol's price. As we look to the future, ethanol is going to have to move into E-10 blend markets all across the United States. At some point, E-10 blend markets will be saturated and ethanol will have to move from being a blending agent to a stand-alone fuel. That's a transition I think can happen, but there may be some bumps in the road."