Ethanol boom driving corn prices, acreage

Gordonville farmer John Lorberg sees the immediate future of farming in a more optimistic way than he did just a few years ago.

Back then, planting many acres of corn was a risky proposition. The yellow crop just wasn't very profitable.

"It's been slim for the last I don't know how many years," Lorberg said. "With $2 corn, you can't make any money."

This year Lorberg looks to double his amount of acres in planted in corn. It's still not much, only about 200 acres, but those 200 acres will be some of the most profitable he'll farm, with corn prices hovering around $4 per bushel.

Spurred by heavy demand, in part caused by the current ethanol boom, corn recently reached a 10-year record high of $4.47 on the Chicago Board of Trade.

High corn prices have affected economies around the world, most notably driving up the price of tortillas in Mexico, where poor families use them as a staple in their diets. And even though farmers and farming experts know the market is volatile and corn may not stay at such high prices for long, they still see those high prices as a relief for the farm economy, at least for the near future.

"I think most farmers are going to plant a few more acres of corn," said David Reinbott, an agribusiness specialist with the University of Missouri Extension in Scott County. "That's just normal because the prices are so high."

Those farmers will start planting their fields in the coming weeks, if weather permits.

Stoddard County farmer Mike Bell is one of them. Bell has plans to plant between 2,100 and 2,200 acres of corn this year, about 1,000 acres more than last year. The increase, Bell said, is partially due to the price he can get for his corn.

"Farmers really need this," Bell said. "We need a big boost, and this will get us by for at least a few years, we're hoping. This is setting record prices that we've never seen before. It makes farming a little bit more fun."

Ethanol isn't solely responsible for the high prices farmers are getting for their corn, experts say. World demand is high right now for many reasons, ethanol being only one of them.

Gerald Bryan, an agronomist with the University of Missouri Extension in Cape Girardeau County, said corn prices have been high in the past, spiked by short supplies and high worldwide demand.

But projections point to a rising demand for ethanol as government requirements increasing the use of the biofuel mandate more and more of the corn fuel be blended in with gasoline over the coming years. The federal Renewable Fuel Standards required that 4 billion gallons of renewable fuels be blended into the nation's fuel supply in 2006, and 7.5 billion gallons by 2012.

Requirements like those have caused something of an economic boom in ethanol that will affect Southeast Missouri in coming years. On both the state and federal level, governments have been providing tax breaks and other incentives for those starting ethanol plants.

Plans have been made for two ethanol plants in the area -- one at Sikeston administered by a group called Bootheel Agri-Energy and one at the SEMO Port that is a joint venture between SEMO Milling and Kansas-based Ethanex. The Sikeston plant, which will cost $190 million to construct, is expected to produce 100 million gallons per year when it gets up and running. Plant completion is still years away, as Bootheel Agri-Energy has just began to start raising capital.

But chairman of the plant's board of directors, Chaffee, Mo., farmer David Herbst, is optimistic about the plant's effect on the local economy.

Herbst said he's receiving calls about the plant from all over the country, and the economic benefits will help all of Southeast Missouri.

"This isn't just a Sikeston project. It's a Bootheel project," Herbst said.

The SEMO Milling/Ethanex plant will produce 132 million gallons of ethanol per year and will process up to 150 loads of corn per day, said SEMO Port director Dan Overbey. The plant will be at the port, giving it close access to Interstate 55 and rail shipping that runs to the port. Access to interstate and rail transportation is also a benefit Bootheel Agri-Energy saw as a benefit to the Sikeston location.

Overbey said the plant at the port should be ready for operation in late 2008 or early 2009.

Bootheel Agri-Energy looks to be a farmer-owned operation, and both plants have expressed a desire to buy local corn to cut down on shipping costs.

Another plant may be in the works in Scott County. County Developer Joel Evans said a company is looking to acquire land to build a third plant.

"At least in Missouri and in the Midwest a lot of the ethanol plants are farmer-owned," said Tony Stafford, executive director of the Missouri Agriculture and Small Business Authority. "Farmers get benefit of higher grain prices, but it hurts the bottom line on the ethanol plant."

Like everything else, ethanol's profitability depends on market forces. If crude oil prices drop and corn prices stay high, ethanol producers must pay more to make their product but get less money from selling it, hurting the bottom line.

But there are other ways to make a profit from ethanol. Many plants sell their byproducts, including dried distiller grains, which can be used for animal feed. But at the same time, high corn prices also drive up prices for livestock feed, affecting another sector of the farm economy negatively.

Local livestock farmers won't see as much negative effect as some in other areas might, because local livestock farmers commonly grow their own grain for feed purposes, Bryan said. That means the net effect of the ethanol boom locally will be profit.

"These plants are going to be a benefit to the overall economy," Bryant said. "They're economic development tools, and they're going to benefit our communities in that respect."

Livestock operations might also enter the area, locating close to ethanol facilities so they can use the dried distiller grain byproducts, Bryan said.

New ethanol-producing technologies under research could also make the fuel from different feedstocks, like wood. If those become as efficient as the corn method of producing ethanol, Bryan said, Cape Girardeau County could see even more benefit. Local timber acreage needs to be thinned to reach its production capacity, he said. Timber trees can't grow to their full potential if too many are occupying an area due to competition for resources.

But right now corn produced from ethanol is the "glamour horse," Bryant said.

Reinbott said the need for corn will keep prices high for the near future. "It's going to keep prices up, just because we're going to need so many acres of corn," he said.

To meet demand, 10 to 12 million additional acres of corn will need to be planted each year, Reinbott said.

But ethanol has also faced its share of criticism. Critics have pointed out that rising corn prices will drive up the price of many consumer goods from sodas to cereal. Critics also say the fuel is too costly to make, can't be shipped efficiently (ethanol can't be transported in existing pipelines like petroleum because of chemical residue in the pipes) and won't significantly reduce greenhouse gas emissions.

Others have pointed out the cost to produce ethanol, $2.53 per gallon according to a USDA report in 2005, is higher than the cost to produce gasoline, and does not reduce gasoline prices.

Probably the most famous argument against ethanol comes from studies saying the fuel's production has a net energy loss -- more energy is used in planting corn and making ethanol than is gained from ethanol use. But the USDA says those studies are bunk, based on old ethanol technology that has become more efficient of the years.

Stafford is quick to criticize those studies. He says ethanol is a viable alternative fuel that is not just a fad.

"We think it's a good deal for the farm economy in rural Missouri," he said.

Benefits include jobs, increased tax revenue and higher revenue for farmers, ethanol's proponents say.

But farmers seem to be happy with the current situation, at least as it applies to the coming year.

"As they keep making ethanol out of corn, I think we're going to see some good corn prices," Lorberg said.

msanders@semissourian.com

335-6611, extension 182