Ethanol sparks major shift in US farm economy

18 October 2007 21:30  [Source: ICIS news]

WASHINGTON (ICIS news)--US corn-based ethanol production has increased more rapidly than anticipated and has triggered a major structural shift in the nation’s agricultural economy, a farm economist told Congress on Thursday.

 

Patrick Westhoff, a programme director at the Food and Agricultural Policy Research Institute at Columbia, Missouri, told the US House Agriculture Committee that the institute’s price projections for corn, soybeans, wheat and other crops are much higher than a year ago and are expected to increase still further.

 

“The obvious answer is biofuels,” Westhoff said.

 

“In 2006, we expected biofuel production to increase, but the actual pace of expansion has been much more rapid than we anticipated,” he said.  “The combination of high petroleum prices and supportive policies has encouraged massive new investment in ethanol and biodiesel production capacity.”

 

He said consumption of corn for ethanol production has sharply altered projections.  He said that a year ago the institute forecast 3bn bushels of corn would be used for ethanol by 2015, but new estimates put ethanol-driven corn consumption at 4m bushels by 2009.

 

“Using more corn to produce ethanol puts upward pressure on corn prices,” he said, adding that “higher corn prices encourage producers to shift acreage away from other crops to satisfy the growing demand for corn.” 

 

“The resulting reduction in supplies of soybeans, wheat, cotton and other crops results in higher prices for those commodities,” Westhoff said. 

 

He said too that higher US prices also encourage farmers in South America and elsewhere to expand production and as a consequence livestock producers around the world face higher feed costs.  “These higher costs slow the rate of expansion of livestock production and eventually raise the price of meat and dairy products,” he said. 

 

“Many have said, and our projections suggest, that we are experiencing a major structural shift in the agricultural economy,” Westhoff said. 

 

However, Westhoff indicated that the biofuels-related shift in the agriculture economy might not be long-term.  He noted that sharp declines in ethanol prices over the past year have squeezed ethanol plant profit margins.

 

“As a result, the future of the ethanol industry is now much less certain than it seemed just a few months ago,” Westhoff said.  “We expect plants under construction to be completed, however it is less certain whether they will all operate at full capacity, and the pace of new investment seems sure to slow dramatically.”

By: Joe Kamalick
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