Impacts of Expanded Corn Processing for Ethanol on Iowa Agriculture

Robert Wisner, Faculty, Economics

Situation

The Iowa and U.S. fuel ethanol industry is expanding rapidly. Iowa is the leading producer of fuel ethanol with 17 currently operating plants. Fourteen more plants are under construction or being planned in the state for the next few years, along with doubling of capacity at four other plants. In addition, numerous additional plants are being planned for other states. Unless more corn acres are planted, less corn will be available for feeding in the state and for export to other states and countries. Grain elevator roles will change as many become storers and suppliers of grain for processing plants. The geographic pattern of grain prices is changing and will become more volatile as processing plants pay higher prices than alternative users in order to attract corn to the plants. In years of short crops, the mandated 7.5 billion gallons of renewable fuel production in the energy bill may produce very high feed costs for livestock producers, thus increasing that industry's need for effective risk management skills. Grain farmers almost certainly will see incentives to adjust crop rotations, reducing soybean acres and planting more corn.

Objective

To help grain, livestock, and poultry farmers and the agribusiness industry understand and adjust to the far-reaching effects of the dramatic expansion in the fuel ethanol industry.

Activities/Outputs

This project is an in-depth comprehensive program involving the Iowa Soybean Association, Agri-Industries (a regional grain cooperative), the Iowa Institute of Cooperatives, Land O'Lakes regional cooperative, the Iowa State University Beef Center, the Southern Conference of State Legislators, the World Pork Expo, and ISU Extension in analyzing (1) probable grain needs for the ethanol industry, (2) the amount of co-products that will replace corn and soybean meal in animal and poultry rations, (3)the needed future increases in Iowa and U.S. corn acreage, (4)alternative sources for additional corn acres, (5)impacts on crop rotations and soybean acreage, and (6)needed changes in infrastructure to accommodate anticipated changes in the next three to five years. Information from the project has been presented to policy makers, key agribusiness and farm decision makers through (1) two articles in a widely-read agribusiness trade journal, (2) four farm magazine news articles, (3) information distributed to Farm Progress publications, Farm News, Iowa Farmer Today, Successful Farming Magazine, at least 15 radio broadcasts, and several state-wide and local newspapers. Additionally, the information has been presented to meetings of (1) the National Pork Producers, (2)the Iowa Soybean Association, (3) the Iowa Poultry Association, (4) the Iowa Institute of Cooperatives, (5) Land O'Lakes Cooperative, (6) the Southern Legislative Conference, and (7)43 Extension sponsored meetings with producers and agricultural lenders. The audiences reached through these meetings totaled 2,971 persons.

Impact/Outcomes

This comprehensive program will be a multi-year effort because it has major implications for almost all participants in the Iowa agricultural sector and the rate of change brought about by fuel ethanol is been accelerating. Since the work was initiated in early 2004, Iowa farmers in the crop reporting districts most affected to date (Northwest and North Central)have increased corn acreage by 5.5 and 7.6 percent respectively. The increased corn acreage has corresponded with decreases of 3.0 and 4.2 percent respectively in soybean plantings. At recent market/loan rate values and current USDA yield forecasts, these changes would produce a $35.9 million dollar increase in value of the crops in these two districts. A major finding of the work which was stressed at meetings was the need for a substantial increase in Iowa and U.S. corn acreage to accommodate the growth in processing of corn for ethanol. In other agricultural sector adjustments that are already underway, numerous elevators are planning to add new condominium storage facilities.  With these storage arrangements, farmers invest in the facilities, and the elevator provides commitments to store their crops for each of the next several years.  Some elevators also are departing from previous policies by allowing farmers to market grain from these facilities to processors who may pay higher prices than the elevator.  In the past, farmers were committed to sell such grain to the elevator even if better markets were available elsewhere.


2005
104 -- Agricultural Risk and Financial Management

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