Corn versus ethanol: continuing the debate

Hoard's Dairyman: 

Corn versus ethanol: continuing the debate

Thu, 02/09/2012

China needs it. Ethanol plants need it. And so do American’s dairy producers. With a smaller-than-anticipated corn crop, how do we balance domestic, global, and industry needs for corn?

The first ethanol-run vehicle was developed in Philadelphia in 1826. Therefore, we would not be having this discussion if prohibition hadn’t occurred. This was one of the opening comments made at the Pennsylvania Dairy Summit’s session Ethanol – Friend or Foe held in Lancaster, Pa.

Henry Ford’s original models ran on ethyl alcohol, better known today as ethanol. Ethyl alcohol though was a by-product of distilleries. When prohibition went into effect, Ford’s supply dried up.

ethanol plant

“Today, there are between 402 and 409 ethanol plants in 29 states throughout the U.S.,” noted panelist John Nikoloff, president of ERG Partners and Pennsylvania Energy Resources Group. In Pennsylvania, 11 plants were proposed in 2005 – only one was ever built. But this plant eventually closed; now the nearest ethanol plants and sources of corn distillers grains for Pennsylvania farmers are in Fulton and Medina, N.Y.

Ethanol has gained strength and corn prices have risen for a few key reasons, noted Nikoloff. First, legislation in Pennsylvania banned the use of MTBE as an oxygenator in gasoline; this was replaced with ethanol. Second, there was a surge in oil prices. Without the addition of ethanol, gasoline would cost an additional $0.12 per gallon. Finally, the instability of currency and the deregulation of trading commodities in 1999 played a critical role in the ethanol/corn controversy.

“In 2005, the corn price was $2.05. In 2008, it was $5.25. Today, corn hovers near $7 per bushel,” noted Leon Ressler, county extension director in Lancaster. He also asked how many audience members felt the rise in corn prices was due to ethanol subsidies.

His response: “From 2006 to 2009, the corn price rose $1.65. Only 8 percent of this price increase was due to subsidies. Another 45 cents came from production costs. After analysis, even without the subsidies, the pattern of corn prices would have stayed the same – there would have been no impact on the price we received.”

“Today, we are flatlining on ethanol production, but corn supplies will continue to be tight. In the past few years, China has had 300 million people move from poverty to the middle class. As this happens, there is a higher demand for meat and protein products. To increase the consumption of meat, corn usage will concurrently rise,” noted Richard Cole, director of PACMA.

Cole concluded that while we often import ethanol from Brazil, a country that is able to make a lower-cost ethanol with sugar cane, with its shortages last year, we exported some of our product to South America.

The next webinar is on Monday, February 13. Veterinarian Garrett Oetzel will discuss “Preventing and treating ketosis.” An associate professor of food animal production medicine at the University of Wisconsin-Madison, Oetzel regularly consults herds on nutrition and cow care. His hands-on approach tackles nutritional risk factors, and the webinar will focus on ketosis’ impact on cow performance. The webinar is brought to you by Elanco.