On the surface, it seems logical. Reduce our dependence on foreign petroleum by turning abundant, renewable grain into ethanol. American farmers, after all, are perfectly capable of producing huge volumes of corn to feed the ethanol industry.

But as demand for corn increases and livestock producers find themselves competing with the energy industry for raw materials, production costs have increased dramatically.

Talking points

Bruce A. Babcock, an economics professor at Iowa State University’s Center for Agricultural and Rural Development, makes these points about growth in ethanol production.

  • Current U.S. ethanol capacity is about 6.5 billion gallons per year. As of early September, there were 77 new ethanol plants and eight expansion projects underway, with capacity to produce another 6.5 billion gallons per year.
  • Ethanol production used 2.2 billion bushels of corn during the 2006–2007 marketing year. That total will grow to 3.2 billion bushels for the 2007–2008 marketing year.
    Paul C. Westcott, an analyst with the USDA’s Economic Research Service, says the Energy Policy Act of 2005 mandated that renewable fuel use in gasoline reach 7.5 billion gallons by calendar year 2012.
  • In 2006, ethanol accounted for about 3.5 percent of motor vehicle fuel in the United States. But 14 percent of the U.S. corn crop went to ethanol production.
  • By 2009–2010, ethanol production’s share of the corn crop will increase to about 31 percent, but even then, ethanol will account for just 8 percent by volume of gasoline use in the United States. USDA Agricultural Projections to 2016, released in February 2007, indicate that livestock’s share of corn use will decline from 55 percent to about 42 percent over the next decade.

Thomas E. Elam, PhD, president of FarmEcon.com, recently released a report titled “Fuel Ethanol Subsidies: An Economic Perspective.” Industry groups, including the National Turkey Federation, National Chicken Council and American Meat Institute, funded the study. Elam notes that:

  • Each 1 percent of the U.S. gasoline supply that is replaced by ethanol uses almost 1 percent of current global grain production. Global demand for food places a limit on the feasibility of using grain supplies for producing a large percentage of U.S. motor fuels.
  • Total U.S. adoption of E10 fuel, which is 10 percent ethanol and 90 percent gasoline, would require replacement of 14.4 billion gallons of gasoline per year. Ethanol has less energy than gasoline, so replacing that much gasoline would take about 21.3 billion gallons of ethanol.
  • Twenty pounds of corn produces one gallon of ethanol and about 6.1 pounds of distillers’ grains. So, some corn used in ethanol production remains available for livestock use, but there is a substantial net loss of feed and food availability.
  • Cattle can use distillers’ grains at higher levels than monogastric livestock. However, according to Iowa State University reports, DG prices will closely track corn, so the impacts of rising corn prices are as significant for beef and dairy as they are for hogs and poultry.
  • The federal government subsidizes ethanol production at 51 cents per gallon. This subsidy enables ethanol producers with a 2.8 gallon per bushel ethanol yield to pay $1.43 per bushel more for corn than they would without the subsidy.
  • Federal subsidies are not needed for a viable ethanol fuels industry, according to Elam’s report. During the 1990s, when wholesale gasoline prices were under $1 per gallon and ethanol plants were less efficient, plants needed the subsidies. Today, with wholesale gasoline well above $2 per gallon, ethanol production could be profitable without subsidies.

NCBA supports a market-based approach, and has asked Congress to delay any legislation to further subsidize ethanol production.

Walking points

  • Contact your Congressional representatives to tell them how subsidies for ethanol production create higher feed prices and production costs for livestock producers.
  • Explain to consumers that ethanol production comes at a cost. Biofuels can be part of the solution to our dependence on foreign oil, but a broader approach toward multiple sources of renewable energy probably will be the most effective and sustainable.
  • Look for ways to incorporate ethanol co-products in your operation. These feed ingredients can work well as supplements for grazing cattle.
  • Work with a nutritionist to analyze the nutritional makeup and consistency of DG you purchase, and try to develop a consistent source.
  • Go to www.drovers.com for links to more information about ethanol production.