Up, up, and away: corn edition

Corn hits a new record -- $6 a bushel

Posted by Joseph Romm (Guest Contributor) at 9:38 AM on 06 Apr 2008

At the end of February, I blogged on a Fortune article that had the subhead "The ethanol boom is running out of gas as corn prices spike." That article noted:

Spurred by an ethanol plant construction binge, corn prices have gone stratospheric, soaring from below $2 a bushel in 2006 to over $5.25 a bushel today. As a result, it's become difficult for ethanol plants to make a healthy profit, even with oil at $100 a barrel.

Just six weeks later, we have an AP article with the subhead "Corn Prices Jump to Record $6 a Bushel, Driving Up Costs for Food, Alternative Energy."

And it gets ~~better~~ worse:

Worldwide demand for corn to feed livestock and to make biofuel is putting enormous pressure on global supply. And with the U.S. expected to plant less corn, the supply shortage will only worsen. The U.S. Department of Agriculture projected that farmers will plant 86 million acres of corn in 2008, an 8 percent drop from last year ...

Another loser in higher corn costs is ethanol producers, who are struggling to squeeze out gains as corn's record-setting run outpaces the price of ethanol, currently at around $2.50 a gallon.

"For years, corn was cheap and fermentation processes for ethanol production came to completely dominate the biofuel industry in North America," Michael Jackson, president and chairman of Vancouver-based ethanol maker Syntec Biofuel, said this week. "Now, with corn prices well over $5 a bushel, corn ethanol economics have gone out the window."

And the worst is yet to come:

The nation's 147 ethanol plants now have the capacity to produce 8.5 billion gallons of fuel a year, according to the Renewable Fuels Association. Corn is the basic feedstock for most of the plants and about 20 percent of last year's 13 billion bushel corn crop was consumed by ethanol production. That percentage is expected to increase to 30 percent for the next crop year, which ends Aug. 31, 2009, according to Terry Francl, a senior economist for the American Farm Bureau Federation.

There are still plans to build or expand another 61 plants, which will add about 5.1 billion gallons of capacity. However, as corn prices have climbed over the past year or so, construction of several plants has been halted or delayed, shaving about 500 million gallons worth of capacity off the original figure, according to Broadpoint Capital analyst Ron Oster.

The 2007 Energy Bill mandate is actually for 15 billion gallons of corn ethanol by the middle of the next decade. Hard to see how corn prices will be coming down any time soon.

This post was created for ClimateProgress.org, a project of the Center for American Progress Action Fund.

For story: Up, up, and away: corn edition
8 Comments | Post a Comment

66 cents per gallon

Ethanol proponents keep on claiming it will bring gas prices down.

Meanwhile, enough electricity to take your car as far as a gallon of ethanol/gas does, still costs only 66 cents.

With your own solar panels, after a few years payback in energy bill savings, your daily dose of electric "gas" would be free.

Energy based on fuel sources, biomass, corn, sugar cane, wood chips, whatever will always go up in price with demand.

Energy sources based on renewable resources become essentially free once the device that collects the energy, wind machines, wave machines, solar pV/heat cogeneration; has paid for itself in costly fossil energy saved.

Ethanol in the tank, corn prices soar, people starve.

Plugin hybrids plugged into a renewable smart grid would tend to level off energy prices at around the market price at the average payback period of this energy revolution.

In ten years maybe half the systems needed to replace the status quo energy mess, would be paying off for their owners. Energy inflation could be defeated.

http://amazngdrx.blogharbor.com/blog

by amazingdrx at 10:25 AM on 06 Apr 2008

Maybe Michael Jackson

should have stayed in the music business.

This was all predictied (several times in fact) over the years on the Gristmill.

In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world

by biodiversivist at 11:14 AM on 06 Apr 2008

Why plant less corn?

Why are farmers expected to plant less corn when demand is high and expected to grow? What is more profitable that farmers are planting instead or can they simply not afford the fertilizer?

by katakanadian at 5:17 PM on 06 Apr 2008

Crop rotation

You simply can't plant corn every year no matter how much artificial fertilizers and minerals you are willing to pour on the soil. If nothing else you will breed disease.

Farmers who probably added an extra year of corn into thier rotation to take advantage of a (possibly) temporary rise in prices have to plant something else for a season or two.

Also with the run up in wheat prices and lack of stock in reserve wheat prices that are now at record highs are not going to go down before a crop can be brought in. Wheat, producing less total calories per acre, getting a larger share of farmland will only increase the price of corn further.

A farmer who can plant half his fields in wheat and half in corn hedges his bets several ways. As long as he brings in a crop he's maximizing income.

Put the Carbon Back

by Pangolin at 6:11 PM on 06 Apr 2008
[ Parent ]

Not all bad news!

Many of those who built corn to ethanol plants will lose their shirts. Isn't this a good thing?

by bigTom at 6:51 PM on 06 Apr 2008

The sins of petroleum

Fertilizer costs have gone up tenfold in the last three to five years. Alas, when the system is based on petroleum derived chemicals and built to fuel the petroleum industry, someone has to lose. That someone is very often the farmer, who now has to find a way to afford the inputs to take advantage of $6 per bushel corn. The margins for farming haven't changed, despite the record price for corn.

To give you an idea as to how bad the cost of fertilizer has been for farmers, until recently most livestock producers have looked at manure as a "problem" they had to dispose of. Today many livestock farmers are considering expanding. Remember, these guys have to buy that $6 corn and feed it to their animals at a net loss when they go to sell the critters. Why would they be considering expansion in herd numbers? Because of the manure value of the animals. There are folks that have essentially bought future manure production of large confinement operations so they can have the fertilizer to grow that $6 corn.

by otocco at 7:59 PM on 06 Apr 2008
[ Parent ]

commodities

Not only are farmers paying more in fuel and fertilizer. They are not getting the record prices that the commodities market is.

by cheflovesbeer at 7:44 AM on 07 Apr 2008

On the plus side...

...the increase in corn feed has helped in the recent price spike and subsequent consumption reduction in meat, specifically industrial cattle meat.

by Tasermons Partner at 10:45 AM on 07 Apr 2008

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