Corn hype?

By Gary Marshall

It's amazing how people can read the same story and come away with opposite opinions. When I read the recent U.S. News & World Report article titled "Is Ethanol the Answer?" followed by the "Corn famine?" opinion piece of Jack Knowlan, my first thought was amazement that a national publication and now local newspapers would be focusing on something that until a few years ago was considered nothing more than a boutique fuel.

My second thought was that Knowlan must hit the top of the pessimist scale. According to his scare tactics and poor math obtained from one article, the sky is indeed falling, and either the government or ethanol is to blame.

Concerns about the ethanol sector's increased demand for corn and the impact on meat prices are nothing new. A 1995 Chicago Tribune piece claimed using corn for ethanol would raise the price of corn to such an extent that consumer meat prices would rise drastically. The article claimed that "the conversion of corn into ethanol would destroy our meat industry." But more than 10 years after the article was published, U.S. consumers continue to enjoy the most affordable and abundant food supply in the world while our homegrown ethanol industry has grown to the point of a mainstream fuel.

History shows us that farm-gate corn prices and retail meat prices are decoupled. In fact, less than 11 percent of corn goes for human use. When corn is $4 a bushel:

• A $2.79 box of corn flakes (12 ounces) uses less than a nickel's worth of corn.
• A $2.69 hamburger (quarter-pound patty) required 13 cents' worth of corn for production.
• A six-pack of soda uses only 10 cents' worth of corn.

Corn famine? Hardly. In response to heightened demand, U.S. growers have produced the three largest corn crops in history in the past three years. In 2004, farmers crested the 11 billion-bushel mark for the first time, harvesting a record 11.8 billion bushels. The record harvest of 2004 was followed by an 11.1 billion-bushel crop in 2005. After all demands were met, the corn industry finished 2005 with nearly 2 billion bushels in surplus--one of the highest levels since the 1980s. Even with moderate drought conditions in many parts of the country, the 2006 corn crop still came in at 10.75 billion bushels.

Furthermore, steadily increasing corn yields ensure that there will continue to be an adequate supply of corn for all markets in the future. On average, corn yields have increased by about 3.5 bushels per acre per year since the 1995-1996 crop year. Based on the 10-year historical trend, corn yield per acre could reach 180 bushels by 2015. Corn yields could advance at an even faster rate than indicated by the 10-year trend because of improved plant breeding practices and biotechnology.

Prior to the recent increase, corn prices have been depressed for the last 10 years as a result of this rising productivity. Any farmer will tell you there is a lot of volatility in agriculture. Today's prices are simply an example of the market place working. However, these prices will not likely last. Farmers will respond in 2007 to market signals by planting record corn acres and prices will moderate. That is the way the market works. Recall that prices in the countryside were well below $2 per bushel less than a year ago.

When talking about the demise of the livestock industry, Knowlan failed to mention that every 56-pound bushel of corn used in the ethanol process yields 18 pounds of distillers grains, a good source of energy and protein for livestock and poultry. These distillers have an average protein content of 28 to 30 percent that is typically three times higher than that of corn, making it a valuable ingredient in livestock and poultry diets.

According to a recent economic impact study performed by the University of Missouri Commercial Agriculture Program, the state's four producing ethanol plants have the capacity to generate 461,560 tons of dried distillers grains. That is enough feed for 337,213 beef steers and heifers. As more ethanol plants are built here in Missouri and across the nation, supplies of distillers grains will continue to increase, thereby lowering their cost to livestock feeders, particularly those livestock operations close enough to purchase the distillers grains in the cheaper wet form. Continued growth of the ethanol industry will create additional opportunities to use the byproducts and create new opportunities for the profitability of related industries.

Just as long as ethanol opponents have been using the food supply scare tactic, antagonists have also been arguing against increasing ethanol use in America's fuel supply, asserting that ethanol would not be competitive without its federal government subsidy. Those opponents seemingly ignore oil's myriad of direct and indirect costs to the consumer, paid primarily by increasing taxes, insurance costs and retail prices in other sectors.

The 51-cent per ethanol gallon break is an excise-tax exemption that does not go to corn growers or ethanol plants. It goes to the petroleum industry marketers that blend ethanol. It is more accurately a "blender's credit" put in place by Congress to encourage blenders, primarily the oil industry, to use ethanol as Congress fully understands that the petroleum industry would not and will not voluntarily use ethanol, a competing product to oil. By my math, a 10 percent ethanol blend would translate to 5.1 cents per gallon of blended fuel -- not anywhere close to the $5.10 figure Knowlan cited.

Mr. Cynic also attacks ethanol for its perceived inability to be shipped through pipelines. This is not true either. Ethanol can be shipped via pipeline, as it is all over Brazil, but the U.S. pipeline infrastructure, owned by pipeline and petroleum companies, has not yet been set up for shipment from ethanol production centers to markets across the country.

Some other facts about ethanol:

• As an oxygenate, ethanol causes the fuel blend to burn cleaner and more completely, making blends more environmentally friendly.
• Reduction in mileage is negligible for a 10 percent ethanol blend, much less than can be attributed to poorly inflated tires or a "lead foot" with fast starts and stops.
• Yes, drivers of flexible-fuel vehicles get reduced mileage, in most cases about 20 percent fewer miles per gallon less when burning E85 (85 percent ethanol and 15 percent gasoline). But when retailers can sell the fuel for 20 to 50 cents less per gallon it is an attractive alternative. Having a Flexible Fuel vehicle gives you the flexibility to choose which fuel makes the most choice on any given day based on price and availability.

In terms of corn availability, President Bush's aggressive goal of 35 billion gallons of renewable and alternative fuels by 2017 did not stipulate that it be exclusively corn-derived fuel. We will be the first to admit that corn-based ethanol is not the silver bullet to single-handedly solve our nation's longstanding thirst for energy. The private sector realized long ago that there will be a need for cellulosic ethanol and researchers have been hard at work increasing cellulosic ethanol's efficiency. Breakthroughs have been made, and we expect a rapid increase in production in response to marketplace demands.

Let's not let the Chicken Little's of the world impede the progress that we are making.

Today a coalition of interests much broader than the corn industry is pushing for increased use of renewable fuels: environmental, consumer, labor and auto.

These groups are driven by a desire to establish energy security and independence and to reduce global warming. If the United States has an opportunity to meet those objectives, shouldn't we jump on it?

Gary Marshall is the chief executive officer of the Missouri Corn Growers Association in Jefferson City, Mo.