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Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets

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Author Info
Simla Tokgoz
Amani Elobeid () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
Jacinto F. Fabiosa () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
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))
Tun-Hsiang (Edward) Yu
Fengxia Dong () (Center for Agricultural and Rural Development (CARD), Food and Agricultural Policy Research Institute (FAPRI))
Chad E. Hart
John C. Beghin

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Abstract

Projections of U.S. ethanol production and its impacts on planted acreage, crop prices, livestock production and prices, trade, and retail food costs are presented under the assumption that current tax credits and trade policies are maintained. The projections were made using a multi-product, multi-country deterministic partial equilibrium model. The impacts of higher oil prices, a drought combined with an ethanol mandate, and removal of land from the Conservation Reserve Program (CRP) relative to baseline projections are also presented. The results indicate that expanded U.S. ethanol production will cause long-run crop prices to increase. In response to higher feed costs, livestock farmgate prices will increase enough to cover the feed cost increases. Retail meat, egg, and dairy prices will also increase. If oil prices are permanently $10-per-barrel higher than assumed in the baseline projections, U.S. ethanol will expand significantly. The magnitude of the expansion will depend on the future makeup of the U.S. automobile fleet. If sufficient demand for E-85 from flex-fuel vehicles is available, corn-based ethanol production is projected to increase to over 30 billion gallons per year with the higher oil prices. The direct effect of higher feed costs is that U.S. food prices would increase by a minimum of 1.1% over baseline levels. Results of a model of a 1988-type drought combined with a large mandate for continued ethanol production show sharply higher crop prices, a drop in livestock production, and higher food prices. Corn exports would drop significantly, and feed costs would rise. Wheat feed use would rise sharply. Taking additional land out of the CRP would lower crop prices in the short run. But because long-run corn prices are determined by ethanol prices and not by corn acreage, the long-run impacts on commodity prices and food prices of a smaller CRP are modest. Cellulosic ethanol from switchgrass and biodiesel from soybeans do not become economically viable in the Corn Belt under any of the scenarios. This is so because high energy costs that increase the prices of biodiesel and switchgrass ethanol also increase the price of corn-based ethanol. So long as producers can choose between soybeans for biodiesel, switchgrass for ethanol, and corn for ethanol, they will choose to grow corn. Cellulosic ethanol from corn stover does not enter into any scenario because of the high cost of collecting and transporting corn stover over the large distances required to supply a commercial-sized ethanol facility.

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Publisher Info
Paper provided by Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University in its series Food and Agricultural Policy Research Institute (FAPRI) Publications with number 07-sr101.

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Date of creation: Jul 2007
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Handle: RePEc:ias:fpaper:07-sr101

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Related research
Keywords: biofuels; corn acreage; crop prices; ethanol production; food prices.;

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  1. Amani Elobeid & Simla Tokgoz & Dermot J. Hayes & Bruce A. Babcock & Chad E. Hart, 2006. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Food and Agricultural Policy Research Institute (FAPRI) Publications 06-bp49, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University. [Downloadable!]
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  2. Babcock, Bruce A. & Gassman, Philip W. & Jha, Manoj & Kling, Catherine L., 2007. "Adoption Subsidies and Environmental Impacts of Alternative Energy Crops," Staff General Research Papers 12778, Iowa State University, Department of Economics.
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  1. Thaeripour, Farzad & Hertel, Thomas W. & Tyner, Wallace E. & Beckman, Jayson F. & Birur, Dileep K., 2008. "Biofuels and their By-Products: Global Economic and Environmental Implications," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6452, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. 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:
  3. Wallace Tyner, 2007. "Policy Alternatives for the Future Biofuels Industry," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2), pages 1189-1189. [Downloadable!] (restricted)
  4. Andrew Schmitz & Charles Moss & Troy Schmitz, 2007. "Ethanol: No Free Lunch," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2), pages 1186-1186. [Downloadable!] (restricted)
  5. Rubin, Ofir & Carriquiry, Miguel A. & Hayes, Dermot J., 2008. "Implied Objectives of U.S. Biofuel Subsidies," Staff General Research Papers 12866, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  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. Lihong Lu McPhail & Bruce A. Babcock, 2008. "Ethanol, Mandates, and Drought: Insights from a Stochastic Equilibrium Model of the U.S. Corn Market," Center for Agricultural and Rural Development (CARD) Publications 08-wp464, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
    Other versions:
  8. 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!]
  9. Frank J. Dooley, 2008. "U.S. Market Potential For Dried Distillers Grain With Solubles," Working Papers 08-12, Purdue University, College of Agriculture, Department of Agricultural Economics. [Downloadable!]
  10. Du, Xiaodong & Hayes, Dermot J., 2008. "Impact of Ethanol Production on U.S. and Regional Gasoline Prices and On the Profitability of U.S. Oil Refinery Industry," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6353, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  11. 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!]
    Other versions:
  12. Du, Xiaodong & Hayes, Dermot J., 2008. "Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, The," Staff General Research Papers 12929, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  13. Du, Xiaodong (Sheldon) & Hayes, Dermot J. & Baker, Mindy, 2008. "A Welfare Analysis of the U.S. Ethanol Subsidy," Staff General Research Papers 13003, Iowa State University, Department of Economics. [Downloadable!]
  14. 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:
  15. Hertel, Thomas W. & Tyner, Wallace E. & Birur, Dileep K., 2008. "Biofuels for all? Understanding the Global Impacts of Multinational Mandates," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6526, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
    Other versions:
  16. Meyer, F. & Strauss, P.G. & Funke, T., 2008. "Modelling the impacts of macro-economic variables on the South African biofuels industry," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(3), September. [Downloadable!]
  17. Ariadna Martinez-Gonzalez & Ian Sheldon & Stanley Thompson, 2007. "Estimating the Welfare Effects of U.S. Distortions in the Ethanol Market Using a Partial Equilibrium Trade Model," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2), pages 1204-1204. [Downloadable!] (restricted)
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