Corn-based ethanol production near tipping point, study warns

by Editor
Tuesday, May 22, 2007

A new study estimates that increased corn prices driven by rapidly expanding U.S. ethanol production already have increased U.S. retail food prices by $14 billion annually.

The study was conducted by the Center for Agricultural and Rural Development at Iowa State University, and it was funded in part by AMI and other associations related to meat production and processing.

The study indicates that the increase in U.S. retail food prices could reach $20 billion annually under a scenario in which crude oil prices range from $65 to $70 per barrel and U.S. corn prices reach $4.42 per bushel, compared to the $2 per bushel that existed in mid-August 2006.

The study projected the following U.S. commodity impacts if season-average corn prices over a 10-year period increased to $4.42 per bushel, compared to the $2-per-bushel corn price that existed in mid-2006:

Pork production costs would increase by 36.8%, production would decline by 9.2%, retail prices would increase 8.4% and exports would decline by 21%.

Poultry/broiler exports would decline by 15%, while turkey exports would fall by 6%. Wholesale broiler prices would increase by 15%, retail prices would increase by 5% and domestic consumption would decline by 4%.

Retail beef prices would increase 4% and production would decline by 1.6% and prices for distillers grains with solubles will closely track corn, meaning price increases are nearly as significant for beef and dairy as for hogs and poultry.