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Bottlenecks, Drought, and Oil Price Spikes: Impact on U.S. Ethanol and Agricultural Sectors

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Author Info

  • Tokgoz, Simla
  • Elobeid, Amani
  • Fabiosa, Jacinto F.
  • Hayes, Dermot J.
  • Babcock, Bruce A.
  • Yu, Tun-Hsiang
  • Dong, Fengxia
  • Hart, Chad E.

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 about 29 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 1.1% over baseline levels.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12935.

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Date of creation: 15 May 2008
Date of revision:
Publication status: Published in Review of Agricultural Economics, Winter 2008, vol. 30 no. 4, pp. 604-622
Handle: RePEc:isu:genres:12935

Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: biofuels; food prices; corn acreage; crop prices; ethanol production;

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Cited by:
  1. Shawkat Hammoudeh & Soodabeh Sarafrazi & Chia-Lin Chang & Michael McAleer, 2011. "The Dynamics of Energy-Grain Prices with Open Interest," Documentos del Instituto Complutense de Análisis Económico 2011-18, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  2. Moschini, GianCarlo & Cui, Jingbo & Lapan, Harvey E., 0. "Economics of Biofuels: An Overview of Policies, Impacts and Prospects," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), issue 3.
  3. Sari, S. & Hammoudeh, S.M. & Chang, C-L. & McAleer, M.J., 2011. "Causality Between Market Liquidity and Depth for Energy and Grains," Econometric Institute Report EI 2011-14, Erasmus University Rotterdam, Econometric Institute.
  4. Dermot J. Hayes & Bruce A. Babcock & Jacinto F. Fabiosa & Simla Tokgoz & Amani Elobeid & Tun-Hsiang (Edward) Yu & Fengxia Dong & Chad E. Hart & Ed Chavez & Suwen Pan & Miguel Carriquiry & Jerome Dumor, 2009. "Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers," Food and Agricultural Policy Research Institute (FAPRI) Publications 09-wp487, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  5. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
  6. Yu, Tun-Hsiang (Edward) & Tokgoz, Simla & Wailes, Eric J. & Chavez, Eddie C., 2009. "A Quantitative Analysis of Trade Policy Responses to High Agricultural Commodity Prices," 2009 Conference, August 16-22, 2009, Beijing, China 51805, International Association of Agricultural Economists.
  7. Yu, Tun-Hsiang (Edward) & Hart, Chad E., 2009. "Impact of Biofuel Industry Expansion on Grain Utilization and Distribution: Preliminary Results of Iowa Grain and Biofuel Survey," 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia 46847, Southern Agricultural Economics Association.
  8. Fabiosa, Jacinto F. & Beghin, John C. & Dong, Fengxia & Elobeid, Amani & Tokgoz, Simla & Yu, Tun-Hsiang, 2010. "The Global Bioenergy Expansion: How Large Are the Food−Fuel Trade-Offs?," Staff General Research Papers 31603, Iowa State University, Department of Economics.
  9. Moschini, GianCarlo & Cui, Jingbo & Lapan, Harvey, 2012. "Economics of Biofuels: An Overview of Policies, Impacts and Prospects," Staff General Research Papers 35548, Iowa State University, Department of Economics.
  10. Chantret, Francois & Gohin, Alexandre, 2009. "The Long-Run Impact of Energy Prices on World Agricultural Markets: The Role of Macro-Economic Linkages," 2009 Conference, August 16-22, 2009, Beijing, China 51560, International Association of Agricultural Economists.
  11. Gohin, A. & Chantret, F., 2010. "The long-run impact of energy prices on world agricultural markets: The role of macro-economic linkages," Energy Policy, Elsevier, vol. 38(1), pages 333-339, January.

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