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Ethanol demand prompts plantings, but pig producers still at risk from high feed costs

by 5m Editor
30 April 2007, at 11:57am

US - Ethanol production has been growing at breakneck speed since President Bush announced his goal of decreasing the nation's dependence on foreign oil through his Advanced Energy Initiative last year. Cereal growers are set to well financially, but, livestock producers are still likely to see feed prices soar.

Prices of sweet corn should not rise as a result of increased corn demand to make ethanol. Sweet corn is a different type of corn than what is used to make fuel.

"Corn producers are going to make more money than they'll know what to do with," said Stephen Koontz, associate professor in the Department of Agricultural and Resource Economics at Colorado State University.

Colorado alone is expected to plant 1.25 million acres of corn this year, up from 1 million acres in 2006, and according to a report released by the USDA's National Agricultural Statistics Service the US, corn acreage is expected to grow by 15 percent to 90.5 million acres in 2007. It will be the largest area of planted land mass since 1944.

The state already has a handful of corn ethanol plants producing more than 100 million gallons of ethanol each year and more plants are planned for the next few years. Its corn acreage is expected to grow by 25 percent this year, but agricultural economists say fears of resulting higher food prices are largely unfounded.

Corn acreage is up in almost every US state, because of the increased demand from ethanol producers and strong export sales. This has driven corn prices above $4 a bushel for much of the year and forecasts say it will continue.

However, overall the agricultural sector may see rising costs as a result because the corn that is used to produce ethanol is the same grain used to manufacture livestock feeds. The increased demand for the corn increasing feed costs and this will eventually push up meat prices.

Pig producers are going to experience particularly difficulty, said Mr Koontz. "Any price increases we see will be primarily pork, not immediately, but we will see higher priced meat in the future," he said.

Consumers effected

Consumers will continue to see moderate increases in prices for meat and poultry products during 2007 because of the higher feed costs, which are being combined with higher energy costs, said Jeff Helms, communications director for the Alabama Farmers Federation.

However, this may only be short-term. After 2007, farmers growing corn should be able to adjust to the increased demand for the crop, and meat prices at the retail end of the chain should stabilize.

The Alabama Farmers Federation said that higher meat prices pushed the average cost of 20 basic market basket items up nearly 1% in April. Reports from volunteer shoppers around the state showed the market basket averaged $48.56, up 39 cents from March.

Environmentalists favour biomass

Despite the speed at which corn ethanol production is growing there are concerns that the corn-derived product is not as environmentally friendly as other products. Some critics claim that it takes more energy to produce the fuel than it yields when burned.

The National Renewable Energy Laboratory in Golden is conducting research on "cellulosic" ethanol that is made from less expensive and more abundant agricultural and forest plant waste and biomass crops. It burns cleaner than corn ethanol and may not exert as much pressure on livestock markets.

5m Editor