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Ethanol industry changing traditional flow of corn production

Published on 7 September, 2006, Last updated at 00:12 GMT

By Holly Jensen

The rapid build up of the ethanol industry has done more than bring profit to producers and open up marketing opportunities for corn farmers. It has changed the traditional pattern of grain flows. "Structurally, our corn and livestock world is changing because of ethanol," according to Scott McDermott, partner with Ascendant Partners, a Greenwood Village, Colo.-based consulting company.

Ascendant Partners recently conducted its own study of ethanol's effect on grain flows, the livestock industry and distillers grains supplies. The company may publish it at some point, McDermott said.

That explosion of growth is increasing demand for corn, putting some corn consumers, such as livestock producers, in the position of rationing supplies. That, in turn, puts upward pressure on corn prices, he said.

With the current rate of expansion in mind, the consulting company has come to the conclusion that prices of corn will likely start to rise, probably by next year. "Really, for the first time in history, we are going to see this ethanol expansion have a broader price impact," he told Ethanol Producer Magazine.

Of course, U.S. corn yield is a big deciding factor. If the total corn crop for this year and next is good, that could lessen the price impact. "That's why there is no one answer because Mother Nature hands us a new deck of cards every year," McDermott says.

States within the Corn Belt have felt the impact in the form of more corn supplies being consumed domestically. When it comes to ethanol plants, Iowa is the king so far, with more ethanol plants operating or under construction than any other state. Along with other in-state corn processing plants and proposed plants still in the planning stages, Iowa could potentially have a whopping 55 facilities in the future, according to Bob Wisner, Iowa State University agricultural economist and professor of economics specializing in grain marketing.

Although not all proposed plants make it to the reality of producing ethanol, the number is enough to garner attention. With 55 plants in Iowa, there would be a need for about 2.16 billion bushels of corn - about equal to 2005's entire corn crop in the state, Wisner says.

Currently, some Iowa corn is exported out of state and a substantial amount is used for livestock and poultry feed in the state. As ethanol plants gobble up more and more of the local corn supply, distillers grains could replace some - but far from all - the corn for animal feed needs in the state, Wisner said.

In all, an estimated 30 percent of the corn that goes into an ethanol plant comes out the back end as distillers grains. Only about 18 percent of that supply can actually be used for animal feed due to ration or nutritional constraints for certain animals, he said.

As demand and prices for corn rise, the good news for ethanol is that it will pave the way for increased acreage of corn. Though not all of it is suitable for crop production, up to about 800,000 of the 1.92 million Conservation Reserve Program acres could be used to grow additional corn, Wisner said.

Iowa's main crops are corn and soybeans, with hay and some oats grown as minor crops in the state. As corn prices rise, some of the acres currently planted in those crops may also be shifted to corn production. "What seems to be shaping up is a potential battle between corn and soybeans," he said.


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