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U.S. Corn Growers: Producing Food & Fuel
U.S. Corn Growers: Producing Food & Fuel
U.S. Corn Growers: Producing Food & Fuel
Corn Growers:
Producing Food & Fuel
The ethanol industry in the United States is hitting its stride in
response to America’s need for a domestic, renewable source of
transportation fuel. Corn use for ethanol tripled from 2001 to 2007.
The U.S. Department of Agriculture estimated 4.0 billion bushels of
corn will be made into ethanol in 2008/09. More than 160 biorefineries
are in operation and dozens more are under construction.
1
15000
U.S Corn Supply & Total Use, 88-89 to 08-09
14000
13000
million bushels
12000
11000
10000
9000
8000
7000
“...as you look at the effect of
88-89
89-90
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molecular breeding, instead of
Source: USDA, ERS; ProExporter Network
getting that one bushel-per- Supply Note: 08-09 is based on ProExporter Network projections
Total Use
acre rate of gain each year,
you get two or three. As you Corn supplies keeping up with record demand.
look at the biotechnology
traits, particularly drought and Demand for corn is at an all-time high, due in That is exactly what is happening. In 2007,
fertilizer efficiency, we think large part to the rapid increase in corn-based farmers planted 93.6 million acres to corn,
that it’s possible to see those ethanol production to meet our nation’s a 19 percent increase over 2006 and the
energy supply and security challenges. Often highest level since 1944. In 2008, farmers
national averages push 250 to
overlooked is the fact that corn supply is planted 87 million acres to corn—which
300 bushels per acre.”
keeping adequate pace with demand. reflects decisions based on the rise in prices
of 14.4 billion bushels. Annual production Even with the weather challenges posed for
12000
“The development of new averaged
11 000 11.3 billion bushels from 2003/04 the 2008/09 corn crop, USDA reports higher-
technologies, combined with to 2007/08,
10000 compared with an average of 9.5 than-expected corn acres planted with more
yield improvement, point to 9000
billion bushels in the previous five crop years. than a 12 billion bushel harvest. Data from
the opportunity to produce Corn8000
growers plant acres in response to ProExporter Network estimates corn stocks
7 000
more food and more fuel—and signals from the marketplace. If demand for over one billion bushels in 2008/09 in light
08-09
05-06
06-07
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02-03
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04-05
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01 -02
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91 -92
Patricia Woertz,
chairman and CEO of
2 95
Archer Daniels Midland U.S Corn Acres, 01-02 to 11-12
90
85
million bushels
80
75
70
65
60
06-07
07 -08
08-09
09-10
10-11
11-12
03 -04
04-05
05 -06
01 -02
02-03
2
12 0
18 0
110
10170
0
16 0
9 7 -9 8
9 8 -9 9
9 9 -0 0
0 0 -0 1
0 1 -0 2
0 2 -0 3
0 3 -0 4
0 4 -0 5
0 5 -0 6
0 6 -0 7
0 7 -0 8
0 8 -0 9
0 9 -1 0
1 0 -1 1
1 1 -1 2
1 2 -1 3
1 3 -1 4
1 4 -1 5
1 5 -1 6
bushels/acres
15 0
Increasing yield per acre will ensure an year historical trend, 14
average
0 corn yield could
adequate supply of corn for all markets in the 130
reach 175 bushels per acre by 2015/16. Corn
future. On average, corn yields have increased yields could advance12at0an even faster rate
110
by about three bushels per acre per year with improved corn genetics, biotechnology
10 0
since the 1995-96 crop year. Based on the 10- and management practices.
9 7 -9 8
9 8 -9 9
9 9 -0 0
0 0 -0 1
0 1 -0 2
0 2 -0 3
0 3 -0 4
0 4 -0 5
0 5 -0 6
0 6 -0 7
0 7 -0 8
0 8 -0 9
0 9 -1 0
1 0 -1 1
1 1 -1 2
1 2 -1 3
1 3 -1 4
1 4 -1 5
1 5 -1 6
180
170 U.S. Corn Yield, 10-Year History and Trend
160
150
140
130
180
120
170 U.S. Corn Yield, 10-Year History and Trend
110
160
100
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01-02
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11-12
12-13
13-14
14-15
15-16
150
140
Source: USDA, ERS; NCGA
130 “If you have to single out
120 the…greatest contributor to
Corn110demand for food and feed is leveling off. higher prices, it is energy. Fuel
100
Other corn demand categories such as Even as corn use for ethanol has risen contributes costs to food at
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livestock production and exports have dramatically over the past 10 years, American every step: growing, processing,
shown limited future growth—meaning farmers have continued to beERS;
Source: USDA, the world’s top
NCGA packaging and shipping.
that increased corn supplies will result in exporter of corn—satisfying the demands of Higher energy costs also drive
more corn available for biofuels production. foreign customers. Corn exports have stayed up the overhead for grocers,
Demand for corn in the livestock and poultry steady or expanded slightly and, through restaurants and warehouses.”
sector has been relatively flat in the last 10 exports of distillers grains, the ethanol sector
marketing years. The amount of raw field is helping satisfy foreign demand for high- Ed Maxiner, editor of the Kiplinger
corn fed to livestock is expected to decline protein, high-energy livestock feed. The Agricultural Letter3
13000
slightly as more corn is displaced byUse
distillers United States exported about 2.4 million
12000
Ethanol vs. All Other Corn Uses
grains, a co-product of ethanol production. metric tons of distillers grains in 2007.
11000
Furthermore,
10000 the amount of corn used for Those who say ethanol production is taking
million bushels
9 8 -9 9
9 9 -0 0
0 0 -0 1
0 1 -0 2
0 2 -0 3
0 3 -0 4
0 4 -0 5
0 5 -0 6
0 6 -0 7
0 7 -0 8
08-09
9000
8000
7000 Ethanol Demand Source: USDA, ERS; ProExporter Network
Note: 08-09 Demand Figures from ProExporter
6000 All Other Demands Network; growth is absolute, 98-99 to 08-09
5000
4000
3000
9 8 -9 9
9 9 -0 0
0 0 -0 1
0 1 -0 2
0 2 -0 3
0 3 -0 4
0 4 -0 5
0 5 -0 6
0 6 -0 7
0 7 -0 8
08-09
3
Humans typically do not eat the corn used
to make ethanol.
Ethanol is made from field corn, a grain Just 1.3 percent of the 2007/08 corn crop
that humans typically do not eat in its raw was used for cereals, while other human
“There has been a lot of form. It usually goes through some form of food uses accounted for roughly 8 percent
inaccurate information out processing first. The corn that humans eat as of total corn use. The overwhelming
there about corn prices and a vegetable is sweet corn. Some 99 percent majority of U.S. corn—including exports—is
alternative energy and it just of all corn acres in the U.S. are used to grow used to feed livestock, not humans. And
keeps getting reported… field corn. when corn is used to feed livestock, it’s
Feed is such a small part of helping add to the volume of animal protein
the overall [retail food] price in the world’s food supply to meet growing
that it really isn’t a driver.” demand.
Ephraim Leibtag,
2007/08 U.S. Corn Usage
economist with USDA’s
4
Economic Research Service Exports 17.0% Ethanol 20.8%
HFCS 3.5%
“The consumers should Sweeteners 1.7%
complain to The Organization of
Starch 1.9%
Petroleum Exporting Countries Alcohol 0.94%
(OPEC) and not to the farmer Feed &
Cereals 1.3%
Residual
if they’re unhappy with food 42.7% Surplus 10.0%
prices. The U.S. regularly
encounters food inflation even Source: USDA, ERS; June 2008 Note: Percentages based on total supply.
1 500
to lack of infrastructure, access to capital,
1 000 political unrest and other factors that result
500
in global hunger. Often overlooked is the
fact that higher global grain prices and the
0 development of a world biofuels trade are
03 -04
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4
creating economic opportunity for small well managed, bioenergy production can
farmers around the world to earn a profit on bring new areas of development…new
their crops for the first time in years. Speaking investment, new jobs and new infrastructure
to Reuters news service, Gustavo Best, chief that can also benefit the food industry.”
energy policy analyst at the United Nations’
Food and Agriculture Organization said, “If
markets.
The ethanol process removes only starch
from the feed and food market—not fat or
protein. The starch portion of the kernel is
9.5% Protein
4.0% Fat
15.0% Moisture
5
Corn prices have not kept up with inflation.
While corn prices have ramped up led to healthy earnings for meat and milk
significantly over the past year, they are still producers, despite higher feed costs.
lagging behind inflation in terms of real
As an example, milk prices received by
dollars. According to a report from Barclays
farmers increased 52 percent from July 2006
Capital, even at its “record” levels in June
to May 2007, when they were the highest
2008, corn price was still 42 percent below
they had seen since June 2004. According
its inflation-adjusted peak in October 1974.
to a June 2007 edition of the Daily Livestock
If corn had followed the same rate of price
Report from the Chicago Mercantile
increases we’ve seen in oil, corn would be
Exchange, “...pork producers are likely in the
selling at $13.50 per bushel today.
best financial shape ever...”. Certain meat and
poultry cuts are also enjoying record prices at
Corn prices have been historically low in the
the wholesale level. Chicken leg quarters, for
past decade—making recent prices seem
example, achieved a record price of $50.43/
disproportionately
95 higher. A February 2007
U.S Corn Acres, 01-02 to 11-12cwt in late June 2007.
study by economists
90 at Tufts University found
85 feed allowed the broiler
that below-cost
million bushels
05-06
06-07
07-08
08-09
09-10
10-11
11-12
01-02
02-03
03-04
$6.00 $140
Corn, Per Bushel Oil, Per Barrel
$5.50 $120
$5.00
$116
+804%
$100
$4.00
+283% $80
$3.00
$60
$2.00
$1.94 $40
$1.00
$20
$14.42
$0.00 $0
1998 2008 1998 2008
Source: Corn prices information is from USDA WASDE, updated monthly; Oil prices are annual estimates for
West Texas crude oil from UDOE Energy Information Administration
6
Corn demand for ethanol has negligible impact
on retail food prices.
The impact of corn prices on retail food prices Corn is a more significant ingredient for meat,
has been unfairly characterized by those who dairy and egg production. Still, corn “Claims on higher consumer
blame ethanol demand for corn on higher represents a relatively small share of these food prices in the popular
costs at the grocery store. products from the perspective of retail price.
press are exaggerated... .
It takes about 3.6 pounds of corn to produce
Energy prices and increasing
According to USDA, just 19 cents of every one pound of pork (live weight). This equates
retail margins are competing
consumer food dollar can be attributed to to 32.1 cents worth of corn when corn is
explanations for the rising
the actual cost of food inputs such as grains $5 per bushel, compared to 16 cents worth
food prices.”
and oilseeds. Labor costs account for about when corn is $2.50.
38 cents of every dollar a consumer spends
John Behgin, economist at the
on food. Packaging, transportation, energy, Because corn and other grains constitute
Food and Agriculture Policy
advertising and profits account for 24 cents of such a small portion of retail food products,
Research Institute at Iowa State
the food dollar—with energy costs having an moderately higher grain prices are unlikely to University
8
even greater impact as oil prices rise. have any significant impact on overall food
inflation. According to USDA, annual food “While it may be more
According to the Federal Reserve Bank of inflation is projected at 4.5% - 5% over the
sensational to lay blame for
Kansas City, marketing costs (the difference next two years. This is considerably less than
rising food costs on corn prices,
between the farm value and consumer the average annual food inflation rate of 8.9
the facts don’t support that
spending for food at grocery stores and percent between 1972 and 1981.
conclusion. By a factor of
restaurants) have risen from 67 percent
two-to-one, energy prices are
in the 1980s to 80 percent today. Other cost factors have much greater impact
on the retail price for food products. A June the chief factor determining
Retail food products such as cereals, snack 2007 study by LECG, LLC, what American families pay
foods and beverages sweetened with corn determined energy prices have two to three at the grocery store.”
sweeteners contain very little corn. Therefore, times the impact on retail food prices than
fluctuations in the price of corn are not often grain prices do. The study concluded that Economist John Urbanchuk, LECG,
9
LLC
reflected in the retail prices for these items. historically high energy prices are a much
For example, a standard box of corn flakes more significant factor in the marginal
“By keeping gasoline prices
contains approximately 10 ounces of corn, or increases in food prices we’ve seen of late.
about 1/90th of a bushel. Even when corn is lower than they otherwise
priced at $5 per bushel, a box of corn flakes would be, ethanol is helping
contains about a nickel’s worth of corn. the average American family
an
save about $500 a year, even
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The net effect of having ethanol in our fuel supply saves
consumers money.
While energy costs are having a significant without the billions of gallons of biofuels in
impact on food costs—including the price the marketplace. This translates to a savings
farmers pay for fuel and fertilizer—the of $526 per year in gasoline costs for the
presence of ethanol in our nation’s fuel average family—compared to the $15
supply is actually offsetting increased increase in annual household spending on
“Higher oil prices affect much consumer prices. food attributed to higher grain prices.
11
USDA Secretary Ed Schafer
References
1. McElroy, Anduin Kirkbride. “The Future of Corn Production” May 2007. Ethanol Producer
Magazine. http://ethanolproducer.com/article-print.jsp?article_id=2956
“In the last five years, despite 2. Esquivel, Teresa. “Food vs. Fuel” May 8, 2007. Food Product Design.
the nearly threefold growth http://www.foodproductdesign.com/articles/741news.html
of the corn ethanol industry 3. Griekspoor, Phyllis Jacobs. “Grain prices not at fault for food costs.” Wichita Eagle. July 1, 2007.
http://www.wichitaeagle.com/101/story/ 111085.html
(or actually because of it),
4. Griekspoor, Phyllis Jacobs. “Grain prices not at fault for food costs.” Wichita Eagle. July 1, 2007.
the U.S. corn crop grew by 35 http://www.wichitaeagle.com/101/story/111085.html
percent, the production of 5. Pocock, John. “Ethanol’s Winners and Losers,” Corn and Soybean Digest. August 2007
distillers grains (a high-value 6. Anderson, David P., Outlaw, Joe L., Bryant, Henry L., Richardson, James W., Ernstes,
animal feed made from the David P., Raulston, J. Marc, Welch, J. Mark, Knapek, Goerge, Herbst, Brian K. and Allison, Mark.
“The Effects of Ethanol on Texas Food and Feed.” April 10, 2008. Agricultural and Food Policy
protein saved from the corn Center, Texas A&M University.
used for ethanol) quadrupled 7. Texas A&M Extension Service. “Feeding Distiller’s Grains Vital to Future Livestock Operation
and the net corn food and feed Success.” July 6, 2007. Cattle Network.
http://www.cattlenetwork.com/bi_content.asp?contentid=142748
product of the U.S. increased 26
8. Beghin, John. Verbal remarks. “Biofuels, Food & Feed Tradeoffs.” Farm Foundation meeting.
percent.” April 2, 2007. St. Louis, MO.
9. “Energy Prices, Not Corn, Chief Reason for Rising Food Prices, Study Finds” Press Release.
Robert Zubrin and Gal Luft, National Corn Growers Association. June 14, 2007.
Set America Free Coalition
12 http://www.ncga.com/news/releases/2007/news061407.asp
10. “New Merrill Lynch Report Confirms Overall Benefit of Domestic Ethanol for the Family Budget.”
Press Release. Renewable Fuels Association. June 12, 2008.
http://renewablefuelsassociation.cmail1.com/e/435217/l/
11. Schafer, Ed. Verbal remarks. “USDA Officials Briefing with Reports on the Case for Food and
Fuel.” May 19, 2008. USDA Headquarters, Washington, DC. http://www.usda.gov/wps/
portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=true&contentid=2008/05/0130.xml
12. Zubrin, Robert and Luft, Gal. “Food vs. fuel a global myth.” Chicago Tribune. May 6, 2008