Understanding the Big-Picture Implications of Biofuels for Midwest Agriculture

Robert N. Wisner, Faculty, Economics Department


Situation:

Huge investments and planned investments in ethanol and biodiesel plants have emerged in the past fiscal year in Iowa, neighboring states, and in other areas of the U.S. outside the Corn Belt.  Plants currently being planned in Iowa, if all are built, will result in about 65 corn processing plants and about a dozen biodiesel plants in the state. These plants will use corn and soybean oil as feedstocks.  About 46 ethanol plants also are under construction outside Iowa, and more than 150 are being planned for locations outside the state.  Many of these plants are planning to use Iowa corn.  The planned plants, if all are brought into operation, have the potential to create dramatic changes in Iowa and Midwest agriculture that will affect livestock producers, the feed industry, grain elevators, farm supply firms, conservation programs, livestock and soybean processors,  the transportation industry, and grain exporters on a scale and with an adjustment speed not seen in the last half century.  In Iowa, for example, the existing and planned plants have the potential to use about 10% more corn than is currently being produced in the state -- without allowing for other uses of corn within and outside the state.   If all planned plants materialize, a very large increase in corn acreage and production will be needed in Iowa and nationally.   Even so, corn supplies for other users would likely be in much tighter supply than in the recent past and prices would be very sensitive to even modest decreases in yields resulting from adverse weather, insect infestations, or disease.

Objective: 

To help the grain, livestock, financial, and agribusiness farms and businesses in Iowa and other states understand the immense implications of a rapid transition of Midwest agriculture from being primarily a food producer to a major energy as well as food producer.

Activities/Output:

Plans for biofuels plants were monitored and analyzed with respect to needed feedstock supplies, production of distillers grain, local, state-wide, and nationally available grain supplies, grain needs of the livestock, export, and non-biofuels processing industry, available land to convert to corn production, and implications for grain price levels and volatility. The resulting analysis of economic implications of the rapidly expanding biofuels industry was presented and discussed in detail at meetings of the Iowa Soybean Association, the Iowa Institute of Cooperatives, the Iowa Turkey Federation, the Iowa Farm Bureau, the Iowa and American Farm Bureau, the USDA, Economic Research Service, the National Pork Council, the World Pork Expo, and numerous other meetings and workshops.  In total, the analysis of economic implications was presented at 42 meetings during the fiscal year, with total audience attendance of 2,530 persons.  Many in the audience were leaders of commodity and farm organizations, as well as leaders in agribusiness.  These clientele leaders have transmitted and are transmitting the Information to other Extension stake holders, thus creating a multiplier effect of the extension work.  Portions of the information also were presented through a wide range of state and national farm and non-farm media, as well as national non-farm media including New York Times, the Congressional Quarterly, Forbes Magazine, Reuters News Service, Fortune Magazine, Seattle Times, and CNBC Television.  Feedstuffs, a trade journal for the feed and livestock industry, published an in-depth article of implications for the livestock sector based on our analysis.  Their readership survey indicated 83.5% of readers looked at the story and 51.8% read it completely.   Feedstuffs staff described these readership survey percentages as phenomenal numbers.

Impact/Outcomes:

With the tremendous scope of ag sector changes required if all planned plants materialize, farm and business adjustments will require considerable time.   Economic impacts from this work will become more obvious as farmers, farm organizations, and agribusiness firms work through their adjustment alternatives in the next two or three years.   The program has reached a high percentage of Iowa agricultural decision-makers as well as firms outside of Iowa and has alerted them to a need for major business adjustments in the next two to three years.  Nearly all Iowa cooperative elevator management teams have been reached and have begun examining investments needed in new grain storage space, and alternative ways of pricing that space and providing service to farmers.   These elevators also are exploring ways of adjusting from heavily export-oriented merchandising programs to a more processor-oriented format.   The feed industry is exploring ways of using a greatly increased supply of distillers grain in feed rations and developing export markets for the product.  Pork industry leaders are looking at feed cost risk-management implications for their industry as well as potential changes in the competitive position of pork vs. beef and poultry in retail meat markets.  The beef and dairy industries are in a stronger position than pork to adjust to tightening corn supplies and sharply increased supplies of distillers grain. Ruminants can use distillers grain much more effectively than swine.  Poultry uses relatively more protein meal than swine, and protein meal is expected to be in abundant supply with the sharp increase in production of distillers grain, a medium-protein feed ingredient.

September 2006

104 Agricultural Risk and Financial Management
 

Page last updated: July 8, 2006
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