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Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The

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Author Info
Amani Elobeid () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
Simla Tokgoz
Dermot J. Hayes () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
Bruce A. Babcock () (Center for Agricultural and Rural Development (CARD), Midwest Agribusiness Trade Research and Information Center (MATRIC))
Chad E. Hart

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Abstract

The ongoing growth of corn-based ethanol production raises some fundamental questions about what impact continued growth will have on U.S. and world agriculture. Estimates of the long-run potential for ethanol production can be made by calculating the corn price at which the incentive to expand ethanol production disappears. Under current ethanol tax policy, if the prices of crude oil, natural gas, and distillers grains stay at current levels, then the break-even corn price is $4.05 per bushel. A multi-commodity, multi-country system of integrated commodity models is used to estimate the impacts if we ever get to $4.05 corn. At this price, corn-based ethanol production would reach 31.5 billion gallons per year, or about 20% of projected U.S. fuel consumption in 2015. Supporting this level of production would require 95.6 million acres of corn to be planted. Total corn production would be approximately 15.6 billion bushels, compared to 11.0 billion bushels today. Most of the additional corn acres come from reduced soybean acreage. Wheat markets would adjust to fulfill increased demand for feed wheat. Corn exports and production of pork and poultry would all be reduced in response to higher corn prices and increased utilization of corn by ethanol plants. These results should not be viewed as a prediction of what will eventually materialize. Rather, they indicate a logical end point to the current incentives to invest in corn-based ethanol plants.

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Publisher Info
Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 06-bp49.

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Date of creation: Nov 2006
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Handle: RePEc:ias:cpaper:06-bp49

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Related research
Keywords: biofuels; commodity markets; corn price; energy markets; ethanol.;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Amani Elobeid & Simla Tokgoz, 2006. "Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets," Food and Agricultural Policy Research Institute (FAPRI) Publications 06-wp427, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University. [Downloadable!]
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  2. Gallagher, Paul W. & Shapouri, Hosein & Price, Jeffrey & Schamel, Guenter & Brubaker, Heather, 2003. "Some Long-Run Effects of Growing Markets and Renewable Fuel Standards on Additives Markets and the U.S. Ethanol Industry," Staff General Research Papers 10648, Iowa State University, Department of Economics.
  3. Gallagher, Paul W. & Shapouri, Hosein & Price, Jeffrey & Schamel, Guenter & Brubaker, Heather, 2003. "Some long-run effects of growing markets and renewable fuel standards on additives markets and the US ethanol industry," Journal of Policy Modeling, Elsevier, vol. 25(6-7), pages 585-608, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Simla Tokgoz & Amani Elobeid & Jacinto F. Fabiosa & Dermot J. Hayes & Bruce A. Babcock & Tun-Hsiang (Edward) Yu & Fengxia Dong & Chad E. Hart & John C. Beghin, 2007. "Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets," Center for Agricultural and Rural Development (CARD) Publications 07-sr101, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  2. Marzoughi, Hassan & Kennedy, P. Lynn & Hilbun, Brian, 2008. "Impact of Corn Based Ethanol Production on the U.S. High Fructose Corn Syrup (HFCS) and Sugar Markets," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6792, Southern Agricultural Economics Association. [Downloadable!]
  3. Baker, Mindy L. & Hayes, Dermot J. & Babcock, Bruce A., 2008. "Crop-Based Biofuel Production under Acreage Constraints and Uncertainty," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6352, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
    Other versions:
  4. Wallace E. Tyner, 2007. "Policy Alternatives for the Future Biofuels Industry," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2). [Downloadable!]
  5. Andrew Schmitz & Charles B. Moss & Troy G. Schmitz, 2007. "Ethanol: No Free Lunch," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2). [Downloadable!]
  6. Hayes, Dermot J. & Babcock, Bruce A. & Fabiosa, Jacinto F. & Tokgoz, Simla & Elobeid, Amani & Yu, Tun-Hsiang & Dong, Fengxia & Hart, Chad E. & Chavez, Edward & Pan, Suwen & Carriquiry, Miguel A. & Dum, 2009. "Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers," Staff General Research Papers 13052, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  7. Elobeid, Amani & Tokgoz, Simla, 0. "AJAE Appendix: Removing Distortions in the U.S. Ethanol Market: What Does it Imply For the United States and Brazil?," American Journal of Agricultural Economics Appendices, Agricultural and Applied Economics Association. [Downloadable!]
  8. Fapri, 2007. "Economic Impacts of Not Extending Biofuels Subsidies," FAPRI-MU Report Series 42189, Food and Agricultural Policy Research Institute at University of Missouri. [Downloadable!]
  9. de Gorter, Harry & Just, David R., 2007. "The Welfare Economics of an Excise-Tax Exemption for Biofuels," MPRA Paper 5151, University Library of Munich, Germany, revised Sep 2007. [Downloadable!]
  10. McPhail, Lihong Lu & Babcock, Bruce A., 2008. "Short-Run Price and Welfare Impacts of Federal Ethanol Policies," Staff General Research Papers 12943, Iowa State University, Department of Economics. [Downloadable!]
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  11. Fabiosa, Jacinto F. & Beghin, John C. & Dong, Fengxia & Elobeid, Amani & Tokgoz, Simla & Yu, Tun-Hsiang (Edward), 2008. "Land Allocation Effects of the Global Ethanol Surge: Predictions from the International FAPRI Model," Staff General Research Papers 12877, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  12. Silvia Secchi & Bruce A. Babcock, 2007. "Impact of High Crop Prices on Environmental Quality: A Case of Iowa and the Conservation Reserve Program," Center for Agricultural and Rural Development (CARD) Publications 07-wp447, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  13. Schmit, Todd M. & Verteramo, Leslie & Tomek, William G., 2008. "Implications of Growing Biofuels Demands on Northeast Livestock Feed Costs," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37595, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management. [Downloadable!]
  14. Paulson, Nicholas D. & Babcock, Bruce A. & Hart, Chad E. & Hayes, Dermot J., 2008. "An Insurance Approach to Risk Management in the Ethanol Industry," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(1), April. [Downloadable!]
    Other versions:
  15. Paul W. Gallagher, 2009. "Roles for evolving markets, policies, and technology improvements in U.S. corn ethanol industry development," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Apr, pages 12-33. [Downloadable!]
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