Ethanol demand could raise consumer prices

US - President Bush's State of the Union call for a sevenfold increase in ethanol production within a decade could have the unintended consequence of sparking corn shortages and driving up the prices of a wide array of food products.
calendar icon 26 January 2007
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Bush said Tuesday that he wanted 35 billion gallons of ethanol in the nation's fuel supply by 2017, and he proposed an ethanol subsidy of as much as $17.8 billion over a decade, as well as grants and loan guarantees.

To meet Bush's goal, a substantial amount of corn that's now used to feed animals or make food products may be diverted to producing alternative fuels, and that worries cattle ranchers, hog farmers and poultry producers, who depend on feed corn to raise their animals. They've already seen per-bushel prices for corn double over the past six months, and they expect further price increases as dozens of ethanol plants open over the next two years.

"Bottom line is, it has already gone up substantially," said Gene Gourley, a pork producer in Webster City, Iowa, who fears forecasts that the feed corn available to his industry could shrink by 30 percent or more. "We're not opposed to ethanol production ... but it's just trying to balance the growth of that industry along with the livestock needs."

In 2000, about 6 percent of the nation's corn harvest went to produce about 1.6 billion gallons of ethanol. Last year, 20 percent of the corn harvest was used to make 5 billion gallons of ethanol.

As many as 79 ethanol plants already are under construction in the United States and at least 111 already are operating, primarily in the Midwest and Western states. As more come on line, the demand for corn will surge. That's sparking a bidding war for corn that will mean higher food prices for consumers.

As corn prices rise - they've climbed from about $2 a bushel in August to more than $4 a bushel today - the cost of beef, chicken and pork, along with related products such as eggs and milk, also rises.

Source: Herald Leader
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