Unlimited Corn?

Corn is projected to top 13 billion bushels this year, the largest corn crop since 1933 — a spike driven by unprecedented demand for ethanol.

Production is up 24 percent from last year and 17 percent above 2005.

Good news for farmers? Without a doubt. But what does this mean for the average consumer, especially if most of this is going to feed spiking ethanol demand?

Probably very little, in the view of one economist.

“I don’t see it as a major problem for consumers in the immediate future,” says Dr. James Novak, an Alabama Cooperative Extension System economist and Auburn University professor of agricultural economics.

One reason: The eastern Midwest is expected to produce a very good crop, Novak says, adding that if the drought-stressed western part of the region had fared as well, predicted supply would be even better.

For now, the large crop is holding down corn prices, which makes ethanol production more profitable — precisely what farmers and biofuels entrepreneurs were hoping for.

Simply put, for now there’s plenty of corn for consumers and to power the nation’s growing demand for ethanol.

Indeed, Novak says he doubts that ethanol demand ever would have a serious impact on food prices, partly because high-priced corn would render ethanol production less profitable, forcing biofuel entrepreneurs to look for other feed sources.

“The other side of the coin is that high prices send a signal to producers to plant more corn acres as they did this year,” he says. “The consumer side of things is if the price of corn based products gets too high, substitutions will be made.

“It's basic economics.”

There is yet one other factor working in consumers’ favor — innovation.

Even in the midst of bumper crops, entrepreneurs continue to invest in biomass ethanol technologies produced from switchgrass, forestry products and other types of cellulosic materials. So, if a corn supply crunch follows in the future, it’s possible that other types of ethanol technologies will have emerged to fill this gap.

Yet, even if these technological innovations never panned out, Novak says government likely would step in should consumers ever face serious effects from corn shortfall.

“I’m sure that the government would approve and the food industry wouldn’t hesitate to import what was needed.”

Three separate studies completed recently also challenge the view that consumer prices would suffer in the event of a serious corn shortfall.

The three reports from Iowa State University’s Center for Agricultural and Rural Development, the Consumer Federation of America and Houston Biofuels Consultants LLC support the view that higher corn prices have little effect on either food or corn prices.

The Iowa State University-sponsored study, for example, shows that a 30 percent increase in corn prices would increase consumer food prices by only about 1.1 percent.

The National Corn Growers Association points to the results as proof that agriculture can rise to meet the added demand for corn.

Posted by Jim Langcuster at August 17, 2007 03:04 PM