Ethanol: Good news and some bad news

Saturday, June 14, 2008

By Jack H. Knowlan Sr.

Although I agree with almost every thing William I. Ludlow said in his May 15 article, "Ethanol Fuel is Folly," ethanol has in some odd way been good.

In my first article, "Corn famine," in February 2007, I warned against overproduction of ethanol affecting our food supplies, causing higher prices and possibly rationing. I have, however, always contended ethanol production from our surplus corn, even though it might not be profitable or economical, would be tolerable and help the corn farmers. In 2006 we produced about 5 billion gallons of ethanol and exported over 2 billion bushels of corn, which exceeded our surplus, caused corn price to soar and increased many food prices.

I wrote our senators and representatives and warned them, but they assured me that the increased corn acres would be adequate to produce more ethanol. So when they passed the new Senate bill, instead of mandating a ceiling on ethanol they passed a mandate increasing ethanol production and requiring its use in all gasoline.

One thing I disagreed with the crop forecasters on was corn exports. I thought when corn went up to $5 a bushel exports would fall off. I also thought ethanol would become less profitable with $5 corn. I was wrong on both counts.

As it turned out Japan, South Korea, Taiwan, Mexico and others had so many U.S. dollars to spend and needed the corn so badly that they didn't mind paying more than $5 a bushel for it. Consequently exports have already reached 2.25 billion bushels and are expected to reach 2.45 billion bushels, or 20.4 percent, of our 2007 corn crop.

Then crude oil and gasoline prices continued to rise so that ethanol production, even with $5 corn (plus government subsidies) apparently was profitable enough to produce about 9 billion gallons of ethanol and use up 3.5 billion bushels (29 percent) of our 2007 corn crop.

The total 5.95 billion bushels, or 49.4 percent, far exceeds our surplus. We need almost to 50 percent for feed and about 11 percent for other domestic uses.

In 2008 the price of everything that goes into the production of corn has gone up above all expectations. Taking 2006, 2007 and 2008 in that order: fertilizer has gone from $234 to $339 to $986 per ton, diesel fuel has gone from $1.85 to $2.44 to over $4 a gallon, and seed corn has reached over $100 per acre. This does not include cost of herbicides, repairs, labor and other expenses.

The good news is that ethanol production has raised the price of corn enough to keep the corn farmers in business. Otherwise, we would have little corn. The bad news is that the corn price has gone so high (more than $6 a bushel), and if Congress doesn't wake up and put ceilings on ethanol production and corn exports, it will be so scarce and priced so high that it will put the beef, pork, dairy and poultry producers out of business. And my "Corn famine" prediction will become reality.

Jack H. Knowlan Sr. is a Jackson resident.

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