Maryland grain farmers benefit from increased ethanol production
Crude oil prices hovering around US$87 a barrel has improved outlook for ethanol and also welcome news for grain farmers in the US state of Maryland.
Ethanol, a gasoline extender made from corn, is expected to enhance farm profitability in the coming years. But the growth of the industry is projected to result in consumers paying higher prices for groceries at the supermarket.
Those are among the findings of a new USDA study on the alternative fuel and its impact on agriculture.
Paul C. Westcott, an agriculture economist with the USDA's Economic Research Service and author of the study, the ethanol boom can be expected to bring higher incomes to farmers and reduce government outlays for farm programmes which will likely mean higher prices for consumers.
Retail price increases for red meat, poultry and eggs are projected to exceed the general inflation rate next year and through 2010, he said, as the livestock sector adjusts to higher feed costs.
The report said that ethanol expansion would boost net farm income albeit no figures were specifically mentioned. Higher commodity prices over the next several years, particularly for corn and soy, are projected to bring large increases in total farm cash receipts.
But to some extent, these gains are expected to be offset by higher production expenses for seed, fertilizer and livestock feed.
The ethanol boom is not particularly good for Maryland's largest agriculture sector - the poultry industry. The USDA report says higher corn prices reduce the profitability of meat production. As a result, red meat production is projected to decline in the United States and growth in poultry output is likely to slow.
Poultry sales totalled US$535 million in Maryland last year and accounted for about 35 percent of the state's total farm receipts.
US ethanol production climbed to almost 5 billion gallons last year, up nearly 1 billion from 2005. The industry is fast-tracking the expansion pace and ethanol production is expected to top 10 billion gallons by 2009.
The ethanol boom was by the federal Energy Policy Act of 2005, which stipulated an increase in the use of ethanol as a gasoline extender. The government also provided a tax credit of 51 cents a gallon for ethanol blended into gasoline.
Most ethanol is made from corn, and Maryland grain farmers are already benefiting from higher corn price. According to the state Agricultural Statistics Service, corn prices jumped from an average of US$2.19 a bushel in the market year 2006 to US$3.25 this year. So far this year prices have mostly stayed in a range of US$3.75 to US$4.
Other findings of the study:
- Ethanol production is expected to grow to 12 billion gallons by the middle of the next decade.
- Ethanol accounts for only a small share of the overall gasoline market. Last year it represented about 3.5 percent of the motor vehicle gasoline supplies in the United States.
- Fourteen percent of the US corn crop was used in ethanol production last year. That percentage is projected to grow to more than 30 percent by 2009 and remain at that level in subsequent years.
- Farmers planted 93 million acres of corn this year, up over 14 million acres - 18.6 percent - from last year.
- In Maryland corn acreage increased 10 percent this year to 540,000 acres.
- The increased use of US corn for ethanol and subsequent higher corn prices will have an impact on global trade and international markets. The US typically accounts for 60 percent to 70 percent of world corn exports. This is expected to drop to 55 percent to 60 percent over much of the next decade.
- As a result of higher corn prices, government payments to farmers, which averaged over 7 percent of gross cash income last year, are expected to account for less than 4 percent during most of the next decade.
