The insanity of ethanol
By Jim Dickrell
3/8/2008
Jim Dickrell
If you’re hoping or expecting a reprieve from high feed prices, forget about it.
Mike Boehlje, an ag economist with Purdue University, says high feed prices are here to stay—at least through 2010.
Ethanol, though not the only driver, is the prime culprit.
Today, ethanol plants are consuming 30% of the 13 billion bushel U.S. corn crop, up from less than 5% just five years ago. And keep in mind, five years ago, U.S. corn growers were producing just over 10 billion bushels per year.
By 2009, ethanol plants will be demanding some 800 million more bushels of corn—which suggests an even larger share of the corn crop as growers struggle to keep pace. And that means feed prices won’t soften any time soon.
The only good news is that the shine might be off many new ethanol plants as production starts to meet domestic ethanol requirements. With 140 billion gallons of mobile fuel used annually in the United States, the 10% ethanol standard suggests demand will mature at 14 billion gallons. Boehlje projects we could reach that level sometime next year.
The Federal ethanol credit of 51¢/gallon translates into an additional $1.60/bu that ethanol plants can bid for corn. That $1.60/bu subsidy literally pumps $8 billion into corn growers’ checking accounts—or twice what the new Farm Bill would send out in direct corn payments to growers.
And with those kinds of returns, farmers are planting more corn. That’s driving up the demand for seed corn, nitrogen fertilizer and even combines.
Purdue economists estimate cash rents for good corn ground will be up 25% to 35% this year. They also estimate it will cost nearly $375/acre to grow 160-bushel corn this year, a 54% increase over last year. Cash costs alone will be $2.34/bu; total costs will exceed $4/bu.
Competition for corn ground means soybean growing costs will also go up. Purdue spreadsheets suggest a 49-bushel soybean crop will have cash costs of $168/acre, or $3.43/bushel. Total costs will creep past $9/bushel.
As corn and bean (and $9/bu wheat) acres go up, that means fewer acres for forage. Already last year, there were reports of alfalfa growers breaking contracts with dairies so they could grow higher-priced grains and oilseeds. This year could be even worse—forcing hay and silage prices even higher.
These kinds of price levels mean margin management—income over feed costs—will be critical. If you have an opportunity to lock in margins, do it.
By Jim Dickrell
3/8/2008
Jim Dickrell
If you’re hoping or expecting a reprieve from high feed prices, forget about it.
Mike Boehlje, an ag economist with Purdue University, says high feed prices are here to stay—at least through 2010.
Ethanol, though not the only driver, is the prime culprit.
Today, ethanol plants are consuming 30% of the 13 billion bushel U.S. corn crop, up from less than 5% just five years ago. And keep in mind, five years ago, U.S. corn growers were producing just over 10 billion bushels per year.
By 2009, ethanol plants will be demanding some 800 million more bushels of corn—which suggests an even larger share of the corn crop as growers struggle to keep pace. And that means feed prices won’t soften any time soon.
The only good news is that the shine might be off many new ethanol plants as production starts to meet domestic ethanol requirements. With 140 billion gallons of mobile fuel used annually in the United States, the 10% ethanol standard suggests demand will mature at 14 billion gallons. Boehlje projects we could reach that level sometime next year.
The Federal ethanol credit of 51¢/gallon translates into an additional $1.60/bu that ethanol plants can bid for corn. That $1.60/bu subsidy literally pumps $8 billion into corn growers’ checking accounts—or twice what the new Farm Bill would send out in direct corn payments to growers.
And with those kinds of returns, farmers are planting more corn. That’s driving up the demand for seed corn, nitrogen fertilizer and even combines.
Purdue economists estimate cash rents for good corn ground will be up 25% to 35% this year. They also estimate it will cost nearly $375/acre to grow 160-bushel corn this year, a 54% increase over last year. Cash costs alone will be $2.34/bu; total costs will exceed $4/bu.
Competition for corn ground means soybean growing costs will also go up. Purdue spreadsheets suggest a 49-bushel soybean crop will have cash costs of $168/acre, or $3.43/bushel. Total costs will creep past $9/bushel.
As corn and bean (and $9/bu wheat) acres go up, that means fewer acres for forage. Already last year, there were reports of alfalfa growers breaking contracts with dairies so they could grow higher-priced grains and oilseeds. This year could be even worse—forcing hay and silage prices even higher.
These kinds of price levels mean margin management—income over feed costs—will be critical. If you have an opportunity to lock in margins, do it.
Well drillers in the cornbelt are working non-stop putting in large water wells at all these plants. If people would look at the whole picture, ethanol wouldn't look like such a 'green' alternative.
Comment