Reports still forget that ethanol companies produce feed as well as energy

(excerpt from article, “Another Bumper Year for Farmers?” by Mike Hughlett, appearing in the business section of the Star Tribune newspaper on Thursday, March 31)

Corn demand in this country is increasingly driven by the ethanol industry, which eats up about 37 percent of the U.S. corn crop. The 2009-2010 crop year marked the first time that the majority of U.S. corn production went not to livestock, but to “industrial uses,” a category heavy on ethanol production, Usset said.

In March, the Department of Agriculture upped its estimate of corn used for ethanol this year by almost 8 percent. “There’s been a surprisingly large use of corn for ethanol,” said Good said.

Corn is king when it comes to influencing other commodity prices, and even the retail price of food. “As it has for the last two years, corn is going to set the tone for all of the commodity markets,” Good said.

Our Take:
This excerpt appears quite deep in the article, and in general we appreciate its fairly level tone in which it reports the expectation of higher prices at the farm gate (being greeted with optimism by growers) and the weather sensitivity of the markets due to a carryover from last crop year that is comparatively lower (though not the lowest it has been) than recent times.

But this reportage jumps over to editorializing when it says ethanol demand “eats up 37 percent of the US corn crop.”

Simply put, this information is dead wrong. Corn growers and ethanol producers continue to lobby USDA to change the way it reports the presence in the market of distillers grains–the coproduct of ethanol made from the corn, after the starch has been derived from it. What is left after fermentation is a high protein, high oil feed product. By weight it represents a third of the original raw corn feed stock being returned to the market place. When its advantageous balance of nutrients is calculated, the food value of this product rises to about half of the corn that went in to the ethanol plant. So, if you wanted to say that 20 percent of the feed value of the corn crop is consumed completely by the ethanol process, that would be accurate.

At that point it becomes a value judgment–what is the value of creating a renewable energy product that actively buys down the price of petroleum on the world market? What is the value of helping Venezuela and Saudi Arabia understand they have us that much less over a barrel? The presence of ethanol deprives them of literally billions of dollars that they would command if oil’s hold on transportation energy were complete.

We also take issue with the depiction of ethanol single-handedly driving demand for corn. Experts speak of a “demand package”–each element of which is essential to a strong price for US farmers: livestock demand, ethanol demand and export demand (for animal feed overseas). And while a strong corn price does bid up the price of other crops, this is another fact that cries out for a more nuanced understanding of the global economic picture.

Increasingly, economists recognize the role of energy in the entire commodity pricing structure. A July report from the World Bank speaks of oil prices “setting the floor” for crop prices. The fact that energy is required at every step of food production from farm field to grocery shelf makes agricultural commodities sensitive to oil fluctuations. Retail food prices even more so. Our whole economy runs on oil. Prying the energy market open and making a bigger space for ethanol is the cure for this oil price sensitivity–it is not part of the problem.

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