Rick Tolman talks about the effects of ethanol on the price of meat
The Wall Street Journal published a commodities report on corn on January 16. The title? “Ethanol Could Fuel Rise in Corn.” Imagine that! A graph showed corn futures from the beginning of 2005 through the first month of 2007. It started at just above $2.00 and wandered along randomly between that base price and $2.50 until the 4th quarter of 2006 when it did a credible imitation of an old-fashioned Saturn rocket gone amuck, closing on January 13 at $3.965. It was a price 55% higher than the same day a year ago.
My math says the price of corn almost doubled in 2 years. It climbed more than 60% from its 3rd quarter 2006 average and is expert opinion has it staying above $4.00 throughout 2007. Numbers like that after several years of near record harvest makes one wonder what’s going on. Could it be the ethanol boom has created a conflicting market demand pitting the needs for corn for food vs. corn for fuel?
Asking the folks with a vested interest in corn for an educated but insider’s opinion seemed like a good idea but this is a politically loaded issue. So it was with the music behind that old 1950’s atomic bomb public service announcement “Duck and Cover” playing in the back of my mind that I read this response from the Corn Refiners Association:
Thank you for inviting the Corn Refiners Association to participate in your discussions on ethanol. Some of our members do produce ethanol, but not all of them. Our organization focuses on the other products of the corn wet milling industry: corn starch, corn oil, corn sweeteners, corn gluten feed, etc. I think it would be more appropriate if you contacted the Renewable Fuels Association for information on ethanol.
I sent the note to CRA’s CEO, Audrae Erickson. The reply came from Shannon McNamara on behalf of Ms. Erickson. The Association won’t be sharing an opinion about the food vs. fuel controversy. I guess Audrae won’t even hazard an opinion about what $4.00 corn will do to the price of “corn starch, corn oil . . . etc.” You will see an interesting response from Bob Dineen, the RFA President and CEO, in this space next week.
Rick Tolman, CEO of the National Corn Growers Association, thinks there is no conflict and he boldly defends his position. He was quoted in the WSJ story as saying, “Market forces, not broad assumptions, are driving the ethanol and corn markets. There is no conflict between [corn use for food and fuel], nor any pending crisis.”
But clearly the big money boys are betting on a significant and growing demand for corn and a production curve that falls a little short. Maybe they read the J.P. Morgan report that predicts the ethanol industry will suck up an additional 500 million to 1 billion bushels of corn every year. With an out-take of that magnitude, there is bound to be a conflict. A crisis? Let’s not do one of those “whistling-through-the-graveyard-hoping-nothing-bad-will-happen” strolls through the growing season, praying for good weather and another near record harvest. And no late season repeats of this week’s announcement that the harvest fell a little short of expectations, either.
But Rick has his finger on a pulsating corn industry. He knows most of the newly minted corn barons of Iowa, Kansas and Nebraska on a first name, “how’s the wife and kids” basis. Let’s spend five minutes with him to get his side of the story.
Rick, let’s take a look at what the alarmists are saying. A recent news story in Meatingplace.com made some shocking statements. It quoted Gene Gourley, an Iowa pork producer and swine nutritionist, testifying on behalf of the National Pork Producers Council to the Senate Agriculture Committee, that ethanol producers are receiving huge subsidies of $1.53 per bushel of corn purchased and tax credits of $0.51 per gallon of ethanol produced, resulting in runaway growth in ethanol production. “These incentives have the ethanol industry growing at an almost unbelievable pace,” he said in his testimony. “New plants are springing up everywhere, and they’re using a lot of corn.”
The same story said Lester R. Brown, president of Washington think tank Earth Policy Institute, compiled figures concerning ethanol plant construction and planned construction, and suggested that USDA projections of the amount of corn needed to feed the ethanol industry are far short of actual demand. “By 2008,” he said, “automobiles will be eating as much corn as is in the food system, and that will endanger the global food supply. One 25-gallon tank of ethanol consumes an amount of corn that would directly or indirectly feed a person for a year.”
Janet Larsen, director of research at EPI, said corn growers may or may not make up the difference by planting more and more productive corn, but the inevitable result is higher food prices. “Increasing the subsidies for ethanol production, as the Democrats are suggesting, is completely uncalled for,” she told Meatingplace. “Higher food prices could cause a consumer backlash against ethanol.”
EPI suggests instead that fuel efficiency standards be increased to lower dependence on ethanol and that tax credits for ethanol production be reduced or eliminated.
Although it would be hard to refute Gourley’s claim that ethanol plants are springing up everywhere, the other statements might be open to interpretation. What are your responses?
Tolman: First of all, I like your term “alarmists.” They are certainly out in force and the level of rhetoric and misinformation is actually quite amazing. The simple facts are that the ethanol industry is growing quite rapidly. As a result, demand for corn is strong. Prices have responded and the market is telling corn producers to produce more corn and they are. We can expect to see a period of volatility for the next eight months or so until the supply situation sorts itself out.
There is no shortage of corn. In 2006 we had the third-largest crop ever. Supplies are quite adequate to meet all of the projected demand in 2007, given the thing that we count on every year – normal weather.
The farm level price of corn has very little impact on food prices. There has been virtually no correlation between price changes in corn and changes in the price of food at the retail level. The current value of corn in a $2.79 box of corn flakes is less than 7 cents. The cost of packaging, marketing, wages, energy, etc. have a much bigger impact on the price of food than do changes in the price of corn.
Lester Brown has been predicting famine and food shortage for 40 years. He has made a living warning people of shortages. He has yet to be accurate and so deserves very little credibility in this current discussion and debate. Even his statistics and sound bytes are inaccurate and self serving. Let’s take a look at the actual numbers behind his best current quote … filling up a 25 gallon gas tank with ethanol fuel consumes enough corn to feed someone for a year. Accounting for it being E-85 and offsetting the DDG displacement back into the food/feed supply, it takes approximately five bushels of corn equivalent to fill that tank. Even at today’s high corn prices, that is still less than $20. I would like to see Mr. Brown live for a year on either five bushels of corn or $20 worth of food.
Mr. Gourley fails to remember that at today’s corn price level there is virtually no subsidy to corn producers. Neither the countercyclical payment nor the marketing loan is in effect. When corn is below $2 a bushel, as it was in many areas just three months ago, then the figures he quotes may have been close to accurate. But it was that cheap, “subsidized,” $2 corn that made Mr. Gourley’s hog feeding operation so profitable over the last two to four years.
Mr. Gourley’s comment about the $0.51 cent a gallon ethanol subsidy going to corn farmers is just plain factually wrong. The $0.51 is an excise tax exemption that goes to blenders, primarily the oil industry, not to ethanol plants and certainly not to corn producers. It is a “blender’s credit” designed to encourage the blenders to blend and mix ethanol. Your readers will be aware that we do not have a free market in automobile fuels we have a virtual oil monopoly. Congress has chosen to incentivize the blenders (the oil industry) to put in the infrastructure to blend ethanol.
I could go on for many more pages addressing the myths and misinformation, but I think that your readers will get the idea. There is no shortage of corn. Rising corn prices have very little effect on retail food prices. We have produced the three largest corn crops in history the last three years and given anything but an extreme weather disaster, we expect to put the largest crop ever produced anywhere in the world in the bins this fall.
In the Los Angeles Times, Sara Hessenflow Harper, a national security and climate policy analyst with Environmental Defense in Washington, D.C., said that newer forms of “cellostic“ ethanol fuel are being developed from rice stock, cow manure, wood chips and other California agricultural products, and that they could make a big dent in carbon-based fuels. As an example, she cited Brazil, where ethanol from sugarcane is widely used.
“Unfortunately, for too long, the environmental movement has looked at ethanol for all its negatives … instead of looking at what it could be,” Harper said. What can you say about the positives of increased ethanol use as well as production alternatives to corn?
Tolman: Ethanol has a tremendous environmental record. It is an oxygenate it adds oxygen to the air. It comes from a renewable resource. The ethanol process lowers greenhouse gas emissions and puts carbon into the soil. It is a very green and environmentally friendly product.
We support ethanol production from all feedstocks. We are working closely with the cellulose and expanded biomass community to encourage production of ethanol from other feedstocks. The policies NCGA has helped put in place to encourage ethanol production do not distinguish between feedstocks.
The transition to other feedstocks has already started. It is an “evolution” rather than the “revolution” some see. Several current ethanol plants have made adjustments to their process and are already starting to process cellulose from the corn kernel fiber and from corn stover and blending it with the stream coming from the corn starch. We will soon see wheat straw and switchgrass and other biomass products become part of the process. Although we are still a long way from it, there is a limit to the amount of corn that we see going to ethanol production.
The Governors’ Ethanol Coalition claims governors representing about half the states are members and they’re calling for a doubling of production by 2010 – just three short years from now. There are at least half a dozen federal agencies with an interest in ethanol, too, indicating a large political backing for increasing production. If ethanol is indeed the fuel of the future, what will that future look like? Talk to me about the changes that might occur in fuel retailing, automobiles, farm equipment and what the cost-per-gallon might be if the industry grows to the point that it will no longer need federal subsidies to thrive.
Tolman: This is an exciting vision, but I want to emphasize that we see all of this occurring in an evolutionary sense and not “revolutionary.” There are some practical policy and infrastructure constraints that will slow the growth. Ethanol production is not nearly as profitable at today’s oil and corn prices as it was six months ago. There is no clear policy driver that will assure market growth much beyond the level of capacity we will reach by the end of 2007. These are some of the reasons that many of the projections being made by alarmists are virtually impossible.
A first realistic, but challenging hurdle will be to grow ethanol production approaching a level equivalent to 10 percent of our total gasoline usage. Because of the complexity of the fuels marketplace, we will likely get there much more quickly with supply than we will with demand. Our own vision is for a 15 billion gallon ethanol industry by 2015. We anticipate producing 15 billion bushels of corn by that time, with 5 billion of that going to ethanol production and 10 billion bushels available for food, feed and export. We think that this is an ambitious, but doable vision and that it can be done in a rational manner without undue market, supply chain or environmental disruption.
For a longer-term vision, look south to Brazil. Most consumers in Brazil drive flexible fuel vehicles that run on any combination of gas or ethanol blends. All filling stations in Brazil offer traditional gasoline, gasoline with a 20-25 percent blend of ethanol, or 100 percent ethanol. The consumer makes the choice based on relative prices and other preferences. Brazil declared their energy independence recently. The biggest challenge for the U.S. getting to a similar point is our existing gas and oil infrastructure and its resistance to change. Brazil had to mandate that every gas station would carry ethanol. Once that occurred, the market responded with the production of flex fuel vehicles and fuel distribution infrastructure.
With more and more farmer’s coalitions backing the construction of new ethanol facilities come the potential of tremendous economic growth in some economically disadvantaged rural areas. At the same time, the current increase in the price of corn has hurt the cattle, pork and poultry industries. With increased usage of corn for ethanol production, the prospect of steadily rising prices looms and it indicates a major change in the financial structure of U.S. agriculture might be well underway. What are your thoughts on the subject?
Tolman: Livestock feed still accounts for 56% of corn use. The industry is our biggest customer, and a healthy livestock industry is vital for a healthy corn industry. The old maxim that the cure for high prices is high prices still holds true. There is a very real scenario that could put us back to an oversupply of corn and resulting low prices again as soon as a year from now.
What has changed is that we can expect more volatility. The ethanol boom is good for U.S. agriculture. It is the first wave of rural economic development. It is bringing new investment in U.S. agriculture. It is turning the attention of the consumer back to agriculture. All of this can be for the greater good if we take advantage of the opportunity.
I fully expect corn prices to moderate to a plateau higher than they have been, but probably not as high as they are now. I fully expect the livestock industry to adapt and adjust and rationalize the higher price of corn with new and changed feeding methods, incorporation of DDGs, etc. I see some changes in the livestock industry structure to take advantage of some of the synergies with ethanol production. Manure is being used to cogenerate power for example. U.S agriculture is innovative, adaptive and responsive. That is why we are so productive. The ethanol boom can be and should be a catalyst for an industry wide resurgence in U.S. agriculture.
Increased ethanol production isn’t just a North American phenomenon. Brazil is a major player and we can expect any country with a significant farm economy to step in. What other countries will participate and what will happen to world energy usage – what kinds of resources will be consumed and how they will be consumed – as production increases?
Tolman: The change to renewables is an evolution that is occurring worldwide. Europe is in the midst of a major change. They are not only producing ethanol, but have a much greater focus on biodiesel. There they are using oilseeds primarily for biodiesel and potatoes and sugar beets and other forms of biomass for ethanol. China has embarked on a significant campaign for renewables. Much is currently based on corn ethanol plants, but they are also focusing on cellulose. Japan has an ethanol plant and a small allowance for ethanol blends. They will likely import ethanol
Now technologies are coming into play that will allow a country to use the feedstock that the country can best produce: sugar in India grains in Australia and Canada wood pulp in Sweden canola in Europe, etc.
Again, I see this as an evolutionary change – one that should not disrupt food supplies or distribution chains. We will use feedstocks where America has a competitive advantage. Our competitive advantage is corn, and advances in biotechnology and genomics will strengthen that advantage in the future.
Some lawmakers say ethanol will be the major driver behind the new farm bill. Backing that claim, Senator Harkin, the Senate Agriculture Committee Chairman and the Chair when the last farm bill was written in 2002, has set a hearing on renewable fuels as the Committee’s first of 2007. What effect do you see ethanol having on the bill?
Tolman: I think ethanol and renewables will play a significant role in the upcoming farm bill discussion, but I don’t think that it will be a major part of the final legislation. What I mean is that the current boom will color the backdrop for discussions on farm policy and safety nets and for some – how to protect the status quo. Part of the discussion will be how do we build on the experience and energy of the ethanol boom to continue to stimulate more of a resurgence in agriculture and in other sectors and areas. How do we apply the lessons learned?
In addition, there is a jurisdictional issue for Congressional committees that will not allow the farm bill to substitute for an energy bill. Major new legislation that has national energy implications cannot be part of the farm bill. However, as Congress continues to advance U.S. energy policy, we’ll continue to work with our allies and customers in the livestock industry to help reduce our country’s dangerous dependence on foreign petroleum.
My math says the price of corn almost doubled in 2 years. It climbed more than 60% from its 3rd quarter 2006 average and is expert opinion has it staying above $4.00 throughout 2007. Numbers like that after several years of near record harvest makes one wonder what’s going on. Could it be the ethanol boom has created a conflicting market demand pitting the needs for corn for food vs. corn for fuel?
Asking the folks with a vested interest in corn for an educated but insider’s opinion seemed like a good idea but this is a politically loaded issue. So it was with the music behind that old 1950’s atomic bomb public service announcement “Duck and Cover” playing in the back of my mind that I read this response from the Corn Refiners Association:
Thank you for inviting the Corn Refiners Association to participate in your discussions on ethanol. Some of our members do produce ethanol, but not all of them. Our organization focuses on the other products of the corn wet milling industry: corn starch, corn oil, corn sweeteners, corn gluten feed, etc. I think it would be more appropriate if you contacted the Renewable Fuels Association for information on ethanol.
I sent the note to CRA’s CEO, Audrae Erickson. The reply came from Shannon McNamara on behalf of Ms. Erickson. The Association won’t be sharing an opinion about the food vs. fuel controversy. I guess Audrae won’t even hazard an opinion about what $4.00 corn will do to the price of “corn starch, corn oil . . . etc.” You will see an interesting response from Bob Dineen, the RFA President and CEO, in this space next week.
Rick Tolman, CEO of the National Corn Growers Association, thinks there is no conflict and he boldly defends his position. He was quoted in the WSJ story as saying, “Market forces, not broad assumptions, are driving the ethanol and corn markets. There is no conflict between [corn use for food and fuel], nor any pending crisis.”
But clearly the big money boys are betting on a significant and growing demand for corn and a production curve that falls a little short. Maybe they read the J.P. Morgan report that predicts the ethanol industry will suck up an additional 500 million to 1 billion bushels of corn every year. With an out-take of that magnitude, there is bound to be a conflict. A crisis? Let’s not do one of those “whistling-through-the-graveyard-hoping-nothing-bad-will-happen” strolls through the growing season, praying for good weather and another near record harvest. And no late season repeats of this week’s announcement that the harvest fell a little short of expectations, either.
But Rick has his finger on a pulsating corn industry. He knows most of the newly minted corn barons of Iowa, Kansas and Nebraska on a first name, “how’s the wife and kids” basis. Let’s spend five minutes with him to get his side of the story.
Rick, let’s take a look at what the alarmists are saying. A recent news story in Meatingplace.com made some shocking statements. It quoted Gene Gourley, an Iowa pork producer and swine nutritionist, testifying on behalf of the National Pork Producers Council to the Senate Agriculture Committee, that ethanol producers are receiving huge subsidies of $1.53 per bushel of corn purchased and tax credits of $0.51 per gallon of ethanol produced, resulting in runaway growth in ethanol production. “These incentives have the ethanol industry growing at an almost unbelievable pace,” he said in his testimony. “New plants are springing up everywhere, and they’re using a lot of corn.”
The same story said Lester R. Brown, president of Washington think tank Earth Policy Institute, compiled figures concerning ethanol plant construction and planned construction, and suggested that USDA projections of the amount of corn needed to feed the ethanol industry are far short of actual demand. “By 2008,” he said, “automobiles will be eating as much corn as is in the food system, and that will endanger the global food supply. One 25-gallon tank of ethanol consumes an amount of corn that would directly or indirectly feed a person for a year.”
Janet Larsen, director of research at EPI, said corn growers may or may not make up the difference by planting more and more productive corn, but the inevitable result is higher food prices. “Increasing the subsidies for ethanol production, as the Democrats are suggesting, is completely uncalled for,” she told Meatingplace. “Higher food prices could cause a consumer backlash against ethanol.”
EPI suggests instead that fuel efficiency standards be increased to lower dependence on ethanol and that tax credits for ethanol production be reduced or eliminated.
Although it would be hard to refute Gourley’s claim that ethanol plants are springing up everywhere, the other statements might be open to interpretation. What are your responses?
Tolman: First of all, I like your term “alarmists.” They are certainly out in force and the level of rhetoric and misinformation is actually quite amazing. The simple facts are that the ethanol industry is growing quite rapidly. As a result, demand for corn is strong. Prices have responded and the market is telling corn producers to produce more corn and they are. We can expect to see a period of volatility for the next eight months or so until the supply situation sorts itself out.
There is no shortage of corn. In 2006 we had the third-largest crop ever. Supplies are quite adequate to meet all of the projected demand in 2007, given the thing that we count on every year – normal weather.
The farm level price of corn has very little impact on food prices. There has been virtually no correlation between price changes in corn and changes in the price of food at the retail level. The current value of corn in a $2.79 box of corn flakes is less than 7 cents. The cost of packaging, marketing, wages, energy, etc. have a much bigger impact on the price of food than do changes in the price of corn.
Lester Brown has been predicting famine and food shortage for 40 years. He has made a living warning people of shortages. He has yet to be accurate and so deserves very little credibility in this current discussion and debate. Even his statistics and sound bytes are inaccurate and self serving. Let’s take a look at the actual numbers behind his best current quote … filling up a 25 gallon gas tank with ethanol fuel consumes enough corn to feed someone for a year. Accounting for it being E-85 and offsetting the DDG displacement back into the food/feed supply, it takes approximately five bushels of corn equivalent to fill that tank. Even at today’s high corn prices, that is still less than $20. I would like to see Mr. Brown live for a year on either five bushels of corn or $20 worth of food.
Mr. Gourley fails to remember that at today’s corn price level there is virtually no subsidy to corn producers. Neither the countercyclical payment nor the marketing loan is in effect. When corn is below $2 a bushel, as it was in many areas just three months ago, then the figures he quotes may have been close to accurate. But it was that cheap, “subsidized,” $2 corn that made Mr. Gourley’s hog feeding operation so profitable over the last two to four years.
Mr. Gourley’s comment about the $0.51 cent a gallon ethanol subsidy going to corn farmers is just plain factually wrong. The $0.51 is an excise tax exemption that goes to blenders, primarily the oil industry, not to ethanol plants and certainly not to corn producers. It is a “blender’s credit” designed to encourage the blenders to blend and mix ethanol. Your readers will be aware that we do not have a free market in automobile fuels we have a virtual oil monopoly. Congress has chosen to incentivize the blenders (the oil industry) to put in the infrastructure to blend ethanol.
I could go on for many more pages addressing the myths and misinformation, but I think that your readers will get the idea. There is no shortage of corn. Rising corn prices have very little effect on retail food prices. We have produced the three largest corn crops in history the last three years and given anything but an extreme weather disaster, we expect to put the largest crop ever produced anywhere in the world in the bins this fall.
In the Los Angeles Times, Sara Hessenflow Harper, a national security and climate policy analyst with Environmental Defense in Washington, D.C., said that newer forms of “cellostic“ ethanol fuel are being developed from rice stock, cow manure, wood chips and other California agricultural products, and that they could make a big dent in carbon-based fuels. As an example, she cited Brazil, where ethanol from sugarcane is widely used.
“Unfortunately, for too long, the environmental movement has looked at ethanol for all its negatives … instead of looking at what it could be,” Harper said. What can you say about the positives of increased ethanol use as well as production alternatives to corn?
Tolman: Ethanol has a tremendous environmental record. It is an oxygenate it adds oxygen to the air. It comes from a renewable resource. The ethanol process lowers greenhouse gas emissions and puts carbon into the soil. It is a very green and environmentally friendly product.
We support ethanol production from all feedstocks. We are working closely with the cellulose and expanded biomass community to encourage production of ethanol from other feedstocks. The policies NCGA has helped put in place to encourage ethanol production do not distinguish between feedstocks.
The transition to other feedstocks has already started. It is an “evolution” rather than the “revolution” some see. Several current ethanol plants have made adjustments to their process and are already starting to process cellulose from the corn kernel fiber and from corn stover and blending it with the stream coming from the corn starch. We will soon see wheat straw and switchgrass and other biomass products become part of the process. Although we are still a long way from it, there is a limit to the amount of corn that we see going to ethanol production.
The Governors’ Ethanol Coalition claims governors representing about half the states are members and they’re calling for a doubling of production by 2010 – just three short years from now. There are at least half a dozen federal agencies with an interest in ethanol, too, indicating a large political backing for increasing production. If ethanol is indeed the fuel of the future, what will that future look like? Talk to me about the changes that might occur in fuel retailing, automobiles, farm equipment and what the cost-per-gallon might be if the industry grows to the point that it will no longer need federal subsidies to thrive.
Tolman: This is an exciting vision, but I want to emphasize that we see all of this occurring in an evolutionary sense and not “revolutionary.” There are some practical policy and infrastructure constraints that will slow the growth. Ethanol production is not nearly as profitable at today’s oil and corn prices as it was six months ago. There is no clear policy driver that will assure market growth much beyond the level of capacity we will reach by the end of 2007. These are some of the reasons that many of the projections being made by alarmists are virtually impossible.
A first realistic, but challenging hurdle will be to grow ethanol production approaching a level equivalent to 10 percent of our total gasoline usage. Because of the complexity of the fuels marketplace, we will likely get there much more quickly with supply than we will with demand. Our own vision is for a 15 billion gallon ethanol industry by 2015. We anticipate producing 15 billion bushels of corn by that time, with 5 billion of that going to ethanol production and 10 billion bushels available for food, feed and export. We think that this is an ambitious, but doable vision and that it can be done in a rational manner without undue market, supply chain or environmental disruption.
For a longer-term vision, look south to Brazil. Most consumers in Brazil drive flexible fuel vehicles that run on any combination of gas or ethanol blends. All filling stations in Brazil offer traditional gasoline, gasoline with a 20-25 percent blend of ethanol, or 100 percent ethanol. The consumer makes the choice based on relative prices and other preferences. Brazil declared their energy independence recently. The biggest challenge for the U.S. getting to a similar point is our existing gas and oil infrastructure and its resistance to change. Brazil had to mandate that every gas station would carry ethanol. Once that occurred, the market responded with the production of flex fuel vehicles and fuel distribution infrastructure.
With more and more farmer’s coalitions backing the construction of new ethanol facilities come the potential of tremendous economic growth in some economically disadvantaged rural areas. At the same time, the current increase in the price of corn has hurt the cattle, pork and poultry industries. With increased usage of corn for ethanol production, the prospect of steadily rising prices looms and it indicates a major change in the financial structure of U.S. agriculture might be well underway. What are your thoughts on the subject?
Tolman: Livestock feed still accounts for 56% of corn use. The industry is our biggest customer, and a healthy livestock industry is vital for a healthy corn industry. The old maxim that the cure for high prices is high prices still holds true. There is a very real scenario that could put us back to an oversupply of corn and resulting low prices again as soon as a year from now.
What has changed is that we can expect more volatility. The ethanol boom is good for U.S. agriculture. It is the first wave of rural economic development. It is bringing new investment in U.S. agriculture. It is turning the attention of the consumer back to agriculture. All of this can be for the greater good if we take advantage of the opportunity.
I fully expect corn prices to moderate to a plateau higher than they have been, but probably not as high as they are now. I fully expect the livestock industry to adapt and adjust and rationalize the higher price of corn with new and changed feeding methods, incorporation of DDGs, etc. I see some changes in the livestock industry structure to take advantage of some of the synergies with ethanol production. Manure is being used to cogenerate power for example. U.S agriculture is innovative, adaptive and responsive. That is why we are so productive. The ethanol boom can be and should be a catalyst for an industry wide resurgence in U.S. agriculture.
Increased ethanol production isn’t just a North American phenomenon. Brazil is a major player and we can expect any country with a significant farm economy to step in. What other countries will participate and what will happen to world energy usage – what kinds of resources will be consumed and how they will be consumed – as production increases?
Tolman: The change to renewables is an evolution that is occurring worldwide. Europe is in the midst of a major change. They are not only producing ethanol, but have a much greater focus on biodiesel. There they are using oilseeds primarily for biodiesel and potatoes and sugar beets and other forms of biomass for ethanol. China has embarked on a significant campaign for renewables. Much is currently based on corn ethanol plants, but they are also focusing on cellulose. Japan has an ethanol plant and a small allowance for ethanol blends. They will likely import ethanol
Now technologies are coming into play that will allow a country to use the feedstock that the country can best produce: sugar in India grains in Australia and Canada wood pulp in Sweden canola in Europe, etc.
Again, I see this as an evolutionary change – one that should not disrupt food supplies or distribution chains. We will use feedstocks where America has a competitive advantage. Our competitive advantage is corn, and advances in biotechnology and genomics will strengthen that advantage in the future.
Some lawmakers say ethanol will be the major driver behind the new farm bill. Backing that claim, Senator Harkin, the Senate Agriculture Committee Chairman and the Chair when the last farm bill was written in 2002, has set a hearing on renewable fuels as the Committee’s first of 2007. What effect do you see ethanol having on the bill?
Tolman: I think ethanol and renewables will play a significant role in the upcoming farm bill discussion, but I don’t think that it will be a major part of the final legislation. What I mean is that the current boom will color the backdrop for discussions on farm policy and safety nets and for some – how to protect the status quo. Part of the discussion will be how do we build on the experience and energy of the ethanol boom to continue to stimulate more of a resurgence in agriculture and in other sectors and areas. How do we apply the lessons learned?
In addition, there is a jurisdictional issue for Congressional committees that will not allow the farm bill to substitute for an energy bill. Major new legislation that has national energy implications cannot be part of the farm bill. However, as Congress continues to advance U.S. energy policy, we’ll continue to work with our allies and customers in the livestock industry to help reduce our country’s dangerous dependence on foreign petroleum.
posted by Chuck Jolley at Tuesday, January 30, 2007
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