PART ONE

What the ethanol market is really doing

By LYNNE HOOT
Executive Director
Maryland Grain Producers
Utilization Board

Editor’s Note: This is the first in a two-part series.

Love it or hate it, ethanol is making the headlines.
The Maryland Grain Producers Utilization Board (MGPUB) has been promoting ethanol since the early 1990s and we consider ethanol to be a success story. We didn’t start promoting ethanol use and production to save the world, or to improve air quality or to reduce our dependence on foreign oil. These attributes are all positive byproducts of our desire to find a new market for grain.
We also didn’t intend to cause Americans to need to get a loan to buy their food, deplete the livestock industry of feed, pollute the waterways or cause Third World children to starve. These, sadly, are negative side-bars resulting from an uniformed press and scare-mongering ethanol opponents.
In this two part series, I will try to address “the other side of the story.” Next week I will discuss ethanol production and whether it will have any impact on the Chesapeake Bay.
Is there enough corn?
The ethanol industry now boasts 115 ethanol plants with another 79 under construction. Today’s capacity is 5.6 billion gallons per year (bgy) and when the plants under construction come on line, the capacity will be 11 bgy. This capacity will use close to 4 billion bushels of corn, significantly more than just a year ago (1.4 bbu).
A recent study completed for the National Corn Growers Association (NCGA) shows future corn yield trends with the addition of new traits such as drought resistance and improved nitrogen utilization.
The prediction is that there will be 15 billion bushels of corn produced nationally by 2015, of which 5 billion bushels will be used for 15 billion gallons of ethanol, roughly 10 percent of the gasoline market. This will still maintain adequate supplies for animal feed, food and the export market.
This prediction is based on some shift from soybean and cotton to corn and an increase in ethanol yield per bushel of corn, which has risen from 2.5 to 2.8 gallons in the past decade, and is expected to go to 3.3 gallons per bushel. In the meantime, the anticipation of this expanded corn use has driven prices from $2 a bushel to about $4 a bushel.
Maryland farmers are rising to the bait and plan to grow more corn this year in an effort to make sure demand is met.
Will food prices rise?
Grain farmers have grown cheap corn for too long and have had to rely on federal subsidies to pay their bills. Today the price of corn is much closer to reality and provides grain farmers with a reasonable profit, which sadly will undoubtedly decline due to increased input costs.
The livestock industry has benefited from low-priced corn over the past decade, but the biggest beneficiary has been the general public, which has gained from the safest and cheapest food supply in the developed world.
Food prices may increase. According to a study completed by Advanced Economic Solutions (AES) for the NCGA, if these higher grain prices are sustained, consumers can expect to see a small increase in food costs.
The biggest portion of this will be from increased meat cost, but this valuable protein source relates to only 10 percent of the average food bill, so the overall increase in food cost is expected to be no more than 3 to 5 percent above the price of inflation.
Can this country survive this increase? We weathered an increase in oil cost from $20 a barrel to $60 a barrel without too much hardship, and the long term benefits of an increased ethanol market will be to offset some of this higher energy cost.
It is important, however, to put the increased cost of food due to higher corn prices in perspective. A 16 ounce box of cornflakes contains 7 cents of corn at $4 a bushel, an increase of 3cents from last year! Only 4 percent of the cost of cereal and baked goods represents the grain component, whereas meats vary from 30 to 50 percent.
It is sincerely the hope of grain farmers that meat prices increase to allow livestock producers to make the same profit levels they have in the past and not suffer now that grain farmers are seeing reasonable profit margins at last. It is not healthy to have one segment of agriculture profit at the expense of another.
MGPUB continues to support the Delmarva poultry industry; they are our number one customer. Our main concern is not that the poultry industry has to pay more for corn, but we want the price to be competitive with other poultry growing areas and be sure that they have adequate grain supply to maintain their presence on the Eastern Shore.
According to the American Farm Bureau, each farmer feeds 144 people, and while it may take a few more days to pay their food bills next year, food for this year was paid for by Feb. 6, while freedom from tax day — the length of time the average person has to work to pay his or her taxes — was April 11. Which is the better deal?
Corn production has increased from 6.2 billion bushels of corn just 20 years ago to 10.5 billion bushels last year. Increased conservation practices, the development and growth of biotechnology and nutrient management have enabled producers to increase productivity with no net increase in overall inputs.
A recent statement from Lester Brown of the Earth Policy Institute, which has been getting a lot of press attention, is that 25 gallons of ethanol going into someone’s SUV uses enough corn to feed someone for a year. A great sound byte, but what are the numbers behind it?
Assuming no value in the 18 pounds of dried distillers grains (DDGS) that is produced from every bushel of grain, 25 gallons uses less than 9 bushels of corn. In reality, knowing that the E85 is only 85 percent ethanol, and there is considerable animal feed value in the DGGS, the real corn use for that 25 gallons is less than 5 bushels of corn; an annual food cost for “someone for a year” of $20!
(Next week: Will the Chesapeake Bay suffer from ethanol production?)


PART TWO

Research has ethanol concerns subsiding

By LYNNE HOOT
Executive Director
Maryland Grain Producers Utilization Board

(Editor’s Note: This is the second in a two-part series concerning ethanol. If you are interested in obtaining copies of either or both parts, visit www.americanfarm.com/Delmarva%20Farmer%20Newspaper.html to print them, or send a mailed request to “Hoot Series”, c/o The Delmarva Farmer, P.O. Box 2026, Easton, Md., 21601.)

The gasoline appetite in the United States amounts to about 140-plus billion gallons per year (bgy).
Today, ethanol provides just 5 billion gallons into this gigantic pool. In the next three to five years, however, grain ethanol will replace 10 percent of the fuel requirement. 
This is significant and goals for total renewable fuel use, such as the 25 by 25 initiative (25 bgy by 2025) and the President’s 35 bgy by 2017 can become a reality, if we continue to provide adequate research on new technology, crop research and a thorough analysis of the outcomes of all the changes we make to bring renewable fuels to the forefront. 
Some of this analysis is making headline news.
Is ethanol the solution? 
The development of environmentally friendly ethanol is only part of the solution to the unquenchable thirst for oil to fuel our cars. Conservation must also become part of the American way of life. Europeans have come to accept a smaller car getting more than 50 mpg, somehow we have not. 
Today, ethanol is one of the best tools we have in fighting air pollution from vehicles. According to Argonne National Laboratory, the use of 10-percent ethanol blends reduces greenhouse gas emissions by 18 to 29 percent compared with conventional gasoline. Ethanol displaces the use of toxic gasoline components such as benzene, a carcinogen, and it is non-toxic, water soluble and quickly biodegradable. 
Does ethanol use too
much energy to produce? 
The longest running anti-ethanol sentiment has hopefully been put to bed — and that is that it takes more energy to produce ethanol than is generated.
Sixteen studies later, only those from one steadfast scientist show a negative energy balance from corn to ethanol when all inputs for growing the crop and producing the ethanol are included. The collective result of these 16 studies reviewed by the U.S. Department of Energy National Argonne laboratory show a 67 percent gain or for every 1.0 btu of energy used in the process 1.67 btu’s are generated. This is significantly better than gasoline and electricity and surpassed only by biodiesel.
Does ethanol cause more cancer? 
Just last month, Stanford University released a study that suggests widespread use of E85 (100 percent market penetration by 2020) would increase the rate of ozone-related respiratory deaths by 4 percent nationwide in 2020.
The model found that ethanol-burning cars could boost levels of toxic ozone gas in urban areas, but that Los Angeles residents would be the hardest hit because of the city’s reliance on the automobile and environmental factors that tend to concentrate smog there.
The model showed that the city would experience a nine-percent increase in the rate of ozone-related respiratory deaths, 120 more deaths per year, compared with what would have been projected in 2020 assuming continued gasoline use. 
In response to this study, the ethanol industry notes that the emissions impacts of pure ethanol and E85 have been rigorously tested by the Environmental Protection Agency, Department of Energy, and numerous other public and private research entities through physical testing rather than modeling.
The results of these tests have clearly indicated ethanol has a superior emissions profile and health record when compared to gasoline. 
The study’s claim that formaldehyde emissions increase with E85 is also contradicted by a California Environmental Policy Council (CEPC) study from 1999. CEPC concluded that while ethanol may slightly increase levels of acetaldehyde and PAN, “these compounds are more than offset by reductions in formaldehyde.”
How is ethanol subsidized? 
Blenders of ethanol receive an incentive of 51 cents per gallon of ethanol blended or 5.1 cents on the typical 10-percent ethanol blend (E10) now used almost entirely throughout Maryland. 
According to agricultural economist John Urbanchuk, the United States spent $2.5 billion in the form of tax credits available to gasoline refiners who choose to blend ethanol. The growth in the ethanol industry as a result of the increased demand for ethanol returned some $2.7 billion back to the federal government in the form of tax revenue. 
Recently, USDA Chief Economist Keith Collins told the Senate Agriculture Committee that farm program payments were expected to be reduced by some $6 billion due to the higher value of a bushel of corn.
Taken to ether, the $2.5 billion investment by the federal government has yielded nearly $9 billion in new tax revenue and budget savings. Including the estimated $2.3 billion in state and local tax revenues, the new revenue and budget savings greatly exceed $10 billion.
The 51-cent incentive is provided to a blender regardless of where the ethanol is produced. To offset this incentive for ethanol that is imported, there is an import tariff of 54 cents per gallon. In effect, the ethanol imported from Brazil has a three-cent disadvantage over domestically produced ethanol. 
Will the Chesapeake Bay
suffer from ethanol production? 
I recently attended the “Biofuels and Water Quality” workshop at the Beltsville Agricultural Research Center organized by Tom Simpson from the University of Maryland.
The tone was definitely assuming that there will be “unintended consequences” from ethanol production. Statements were made about losing an extra 21 pounds of soil per acre, up to 30 pounds of nitrogen per acre, and causing conservation practices to be thrown out the window. In addition, feeding more DDGS will increase phosphorus levels in animal waste as the phosphorus is highly digestible. 
I was pleased to have the opportunity to speak on the final panel and express my concern that while there is the potential for water quality to deteriorate, this assumes that the strong environmental ethic of the Chesapeake Bay region farmers will not be maintained.
Maryland has a mandatory nutrient management law to manage the use of both nitrogen and phosphorus, phytase is added to poultry rations to improve phosphorus utilization, we lead the nation in the use of no-till crop production and our farmers have demonstrated time and again that they are stewards of the land and are concerned about the environment and the Bay.
* * *
MGPUB has spent considerable time, energy and funding to support the use of hulless barley for ethanol. It will provide a growing winter crop to take up nutrients left from the previous crop, provide a new crop that does not compete with the poultry industry for feed supply and provide farmers with a new market for an underutilized crop. 
We have received a USDA Conservation Innovation Grant to supplement Maryland Department of Agriculture’s harvestable cover crop program to encourage farmers to try growing hulless barley and in 2005 helped get a state incentive passed of 20 cents per gallon for ethanol produced from small grains if farmers are major investors in the ethanol project.
We believe that when hulless barley is used for ethanol and grown in a two-year rotation with double crop soybean and corn, farmers will be able to make similar returns per acre in either year, which will reduce the desire to grow continuous corn. 
Efforts continue to build a mixed grain ethanol plant with the potential for farmer investors, with corn supply becoming tighter, the desire to expand the hulless barley side of the mix becomes more encouraging. 
What is important to note is that within a year, 50 percent of the plants will be less than three years old. The significance of this is that the newer plants are more efficient using less water, corn and energy per gallon of ethanol produced. As the industry grows more and expands into cellulostic ethanol, more and more research and development dollars are being invested to improve production and make sure that we minimize any unintended consequences as we reduce our dependence on foreign oil, improve air quality and improve the viability of Maryland agriculture so farms remain farms and not future development. 
As we hear more and more often, a well managed farm is a preferred land use for that Bay. Maryland farmers take their responsibilities for the environment very seriously and, I for one support the role of ethanol to keep Maryland farmers on the farm.