Will there be enough corn?
November 19, 2006, DesMoineRegister.comEthanol boom poses environmental, economic challenges for Iowa
It’s hard to believe, but with fuel processors ratcheting up demand, Iowa could one day find itself short of its signature product.
By PHILIP BRASHER
REGISTER WASHINGTON BUREAU
Washington, D.C. – Iowa helps feed the country, and increasingly fuels the country’s cars. The question is how long it can do both.
The state’s farmers already produce about 20 percent of the nation’s corn. But they will have to grow a lot more to keep up with the booming demand for fuel ethanol and maintain affordable supplies of corn for all its traditional uses, from livestock feed to tortillas, breakfast cereal and sweeteners.
Iowa has 25 ethanol plants in operation, some of which are expanding. The state has 11 new plants under construction, plus a couple dozen on the drawing boards.
If all of those are built, Iowa farmers would have to plant an additional 8 million acres of corn – nearly two-thirds more than they harvested this year – to make ethanol and still feed the millions of hogs, chickens and turkeys produced here, according to estimates developed by Iowa State University grain economist Robert Wisner.
Eight million acres is the amount of land in Connecticut and Massachusetts combined.
Eight million acres of corn is the equivalent of Nebraska’s entire harvest in a typical year.
"There is a collision course on the horizon, but when and how severe it is going to be, I don’t know," said Doug Thompson, a corn and soybean grower near Kanawha, in north-central Iowa.
Two years ago, the nearest ethanol plant was 55 miles away from Thompson’s farm. Today, there are four either in operation or under construction within 40 miles of him – and he has invested in one of them.
"This is such uncharted territory we’re in," he said.
More money, more pollution
No one thinks Iowa will really convert 8 million acres of land to corn, and some of those proposed distilleries may never be built, given the recent slide in ethanol prices.
But the price of corn is steadily rising, and farmers are going to have grow more of it.
What does this mean for Iowa?
– More money in the pockets of farmers and landowners.
– Without careful conservation measures, more pollution in the state’s rivers and streams as farmers use more fertilizer.
– Potentially, higher prices for food, primarily meat, as the price of feed goes up.
Tyson Foods Inc., the world’s No. 1 meat processor and poultry producer, warned Tuesday that consumers would have to pay more for beef, pork and chicken next year because of the rising price of corn.
"Quite frankly, the American consumer is making a choice here," said Richard Bond, Tyson’s chief executive. "This is either corn for feed or corn for fuel – that’s what’s causing this."
To keep up with the demand for corn by producers like Tyson, some Iowa farmers are starting to grow corn year after year on the same ground, rather than rotating the fields between corn and soybeans. Farmers who do that increase their use of fertilizers and pesticides to maintain corn yields. Soybean plants add nitrogen to the soil, which reduces the need for synthetic fertilizer when corn is planted the following year.
Some of the nitrogen fertilizer applied by farmers will inevitably run off fields and pollute nearby streams and rivers, including the Des Moines and Raccoon, which supply drinking water to the Des Moines area.
"It’s not an environmentally benign process, the growing of corn," said Rich Leopold, executive director of the Iowa Environmental Council, which issued a report this year urging state policymakers to address the potential ecological impact of the biofuels industry.
"We think ethanol is a good thing," he said. "We just want to make sure we have our eyes wide open as we go into this."
And there are global ramifications to the ethanol boom as well: Poor people in the developing world could face higher prices for food as ethanol demand drives up global grain prices.
"What this is shaping up as at the global level is competition between the 800 million people who own automobiles and the 2 billion low-income people in the world, many of whom are already spending over half their income on food," said Lester Brown, president of the Washington, D.C.-based Earth Policy Institute.
A welcome change: Higher farm income
Iowa farmers have another view. To them, the ethanol boom is the best thing to happen to rural Iowa since the Soviet grain buys of the 1970s.
"That wealth is generating revenues that we haven’t seen in the past," said Craig Lang, a dairy producer who is president of the Iowa Farm Bureau. "It’s generating an opportunity for new homes and new schools and all of those things we’ve been lacking in the last two decades."
Farmers say concerns about the corn supply are overblown. They point to the steady increases in corn yields, due in part to genetically modified varieties that are more resistant to pests and therefore drought. In 2005, the average corn yield reached 173 bushels per acre in Iowa, up 20 percent from 2000 and up more than 40 percent since 1995.
Seed companies such as Pioneer Hi-Bred International are rushing to develop new varieties of corn that will yield still more bushels per acre and more ethanol per bushel of grain.
Using corn for ethanol doesn’t necessarily rob livestock of feed, either. The fermented mash, or distiller’s grain, left over from ethanol production can be fed to beef and dairy cattle in lieu of corn. Hogs and poultry can eat distiller’s grain in relatively small amounts.
Ethanol plants also have increased the amount of ethanol they can distill from a bushel of corn, moving from 2.5 gallons a few years ago to 2.7 gallons today. A leading ethanol producer, Broin Cos., claims to have reached a yield of about 3 gallons to the bushel.
With continued increases in corn yields and distillery efficiency, the National Corn Growers Association estimates that 15 billion gallons of ethanol can be distilled from corn nationwide by 2015 – triple this year’s production – without having a significant impact on food and feed markets.
By that time, according to goals set by the Bush administration, the nation will be well on its way to economically producing ethanol from crop waste, perennial grasses and other sources of biomass that are much more plentiful than corn. The first biomass distillery in Iowa, to be developed by Broin, could be in operation as early as 2009.
Rick Tolman, the NCGA’s chief executive, said the 15 billion-gallon target, based on corn only, is "very reasonable and conservative. We were a little surprised with all the hysteria that’s going on with this issue."
Outlooks differ in livestock industry
Livestock producers have mixed views about the growth in ethanol production. Because cattle can readily eat distiller’s grain, feedlot operators and dairy farms have little to fear from a run-up in grain prices. Pork and egg producers – Iowa ranks first in both commodities – are more sensitive to the price of corn.
"It’s going to put pressure on the livestock industry to fine-tune what they do and be as efficient as we can to make profitability," said Bill Gass, feed manager for Golden Oval Eggs, a farmer-owned cooperative with operations in Minnesota and Iowa. "Will we lose some livestock producers? I think we probably will."
Hens can eat a diet of up to 15 percent distiller’s grain, he said. Most of the feed is still corn.
Eugene Ver Steeg, president of the Iowa Pork Producers Association, said the government should waive the nation’s ethanol mandate if corn supplies become too tight.
The 2005 energy bill allows such waivers if the mandate, which will be 4.7 billion gallons in 2007, would cause economic or environmental harm.
"All in all, I welcome the ethanol industry, and I am looking forward to having our energy come out of Iowa rather than Saudi Arabia or Iran," said Ver Steeg, who raises about 60 percent of the corn he needs for his hogs.
Tyson Foods, which slaughters cattle at Denison, expects the ethanol plants to draw cattle production to the Midwest. That "is positive for us, because that’s where many of our beef processing plants are located," said Tyson’s Bond.
Add acres, cut sales or buy from outside?
Iowa’s existing distilleries can produce 1.6 billion gallons of ethanol per year, according to the Iowa Renewable Fuels Association. The plants now under construction or expansion will add a billion gallons of capacity. Several more are nearing construction, including a 275 million-gallon-a-year plant that Illinois-based Archer Daniels Midland plans in Cedar Rapids.
The estimates of future corn needs developed at Iowa State are based on supplying about 60 ethanol distilleries, which would produce about 5.9 billion gallons.
Monte Shaw, executive director of the Iowa Renewable Fuels Association, says many of those proposed plants will not be built, partly because of soaring construction costs. He expects about a dozen of the proposed plants to materialize in the next two to three years. Together, they could produce up to a billion additional gallons of ethanol.
Still, that would push the state’s ethanol output to more than 3.6 billion gallons a year, which at existing usage rates would consume nearly 1.3 billion bushels of corn, or two of very three bushels that Iowa farmers harvested this year.
So whatever the final number of plants, the state will still need significantly more corn.
Farmers could produce additional corn in Iowa from the 2 million retired acres in the federal Conservation Reserve Program, but how much is not clear. The USDA has estimated that as much as 7 million acres of CRP land throughout the Corn Belt could be brought out of the program.
Iowa could also reduce the amount of corn that is shipped out of the state.
Finally, farmers contend some of the additional corn supplies could be brought into Iowa from other states, an idea disputed by Wisner, the Iowa State economist.
"Where would we get it from?" Wisner asked. "Given the number of new plants in the planning stage, I don’t see where we would find a ready supply of corn in neighboring states."
Bet the farm on it: Prices are going up
Whatever the answer, no one doubts that the price of corn will go up as ethanol plants compete with livestock producers and other buyers for grain.
In Sioux County, livestock farms and feed suppliers already have to bring in corn from South Dakota, Minnesota and neighboring Iowa counties, even though Sioux is the state’s second-largest producer of corn after Kossuth County. Local farmers were getting more than $3.25 a bushel for their corn recently, up from $1.90 a year ago.
Sioux County is home to 2.3 million laying hens, nearly 1 million hogs, more than 200,000 cattle, and an ethanol plant, Siouxland Energy and Livestock in Sioux Center. The plant produces 25 million gallons a year and is being expanded to 35 million gallons. There are two other plants, which together produce more than 100 million gallons annually, nearby in Marcus and Ashton.
Three other ethanol plants have broken ground or are under development in neighboring Plymouth and O’Brien counties.
"It’s really going to put a bite onto it as far as where that corn is going to come from," said Skip Hein, general manager of Midwest Farmers Cooperative, which has an elevator in Sioux Center.
Hein’s co-op still ships up to 12 million bushels of corn out of state by rail, primarily to the Southwest and California. But those shipments may have to stop if the planned ethanol plants in northwest Iowa are built, he said.
John Hansen, grain manager of Farmers Cooperative Society in Sioux Center, used to joke that he would someday have to ship in corn by rail to supply local feed demand. The idea is no longer far-fetched.
"I’ll buy it where ever it takes to get corn," he said. "Does that mean the livestock guy has to pay more money? Yes. Does that mean the ethanol plant has to pay more? Yes."
To keep up with the demand, Sioux County farmers increased their plantings from 230,000 acres in 2001 to 251,000 in 2005. Soybean acreage dropped, from 194,000 in 2001 to 172,000 last year.
But soybean prices are rising, too, and the crop produces so well in the county – yields can reach 70 bushels per acre – that farmers may be reluctant to switch too much of their acreage to corn unless its price keeps increasing, local Extension specialists say.
Mark Rensink, who raises corn, soybeans and hogs near Sioux Center and also has invested in the Siouxland plant, has stuck to a 50-50 rotation of corn and soybeans for now. He isn’t sure what he will do in the future.
"Where is it going to stop? I’m not sure," Rensink said. "Hopefully, we won’t overdo a good thing."
Reporter Philip Brasher can be reached at (202) 906-8138 or pbrasher@dmreg.com
The state’s farmers already produce about 20 percent of the nation’s corn. But they will have to grow a lot more to keep up with the booming demand for fuel ethanol and maintain affordable supplies of corn for all its traditional uses, from livestock feed to tortillas, breakfast cereal and sweeteners.
Iowa has 25 ethanol plants in operation, some of which are expanding. The state has 11 new plants under construction, plus a couple dozen on the drawing boards.
If all of those are built, Iowa farmers would have to plant an additional 8 million acres of corn – nearly two-thirds more than they harvested this year – to make ethanol and still feed the millions of hogs, chickens and turkeys produced here, according to estimates developed by Iowa State University grain economist Robert Wisner.
Eight million acres is the amount of land in Connecticut and Massachusetts combined.
Eight million acres of corn is the equivalent of Nebraska’s entire harvest in a typical year.
"There is a collision course on the horizon, but when and how severe it is going to be, I don’t know," said Doug Thompson, a corn and soybean grower near Kanawha, in north-central Iowa.
Two years ago, the nearest ethanol plant was 55 miles away from Thompson’s farm. Today, there are four either in operation or under construction within 40 miles of him – and he has invested in one of them.
"This is such uncharted territory we’re in," he said.
More money, more pollution
No one thinks Iowa will really convert 8 million acres of land to corn, and some of those proposed distilleries may never be built, given the recent slide in ethanol prices.
But the price of corn is steadily rising, and farmers are going to have grow more of it.
What does this mean for Iowa?
– More money in the pockets of farmers and landowners.
– Without careful conservation measures, more pollution in the state’s rivers and streams as farmers use more fertilizer.
– Potentially, higher prices for food, primarily meat, as the price of feed goes up.
Tyson Foods Inc., the world’s No. 1 meat processor and poultry producer, warned Tuesday that consumers would have to pay more for beef, pork and chicken next year because of the rising price of corn.
"Quite frankly, the American consumer is making a choice here," said Richard Bond, Tyson’s chief executive. "This is either corn for feed or corn for fuel – that’s what’s causing this."
To keep up with the demand for corn by producers like Tyson, some Iowa farmers are starting to grow corn year after year on the same ground, rather than rotating the fields between corn and soybeans. Farmers who do that increase their use of fertilizers and pesticides to maintain corn yields. Soybean plants add nitrogen to the soil, which reduces the need for synthetic fertilizer when corn is planted the following year.
Some of the nitrogen fertilizer applied by farmers will inevitably run off fields and pollute nearby streams and rivers, including the Des Moines and Raccoon, which supply drinking water to the Des Moines area.
"It’s not an environmentally benign process, the growing of corn," said Rich Leopold, executive director of the Iowa Environmental Council, which issued a report this year urging state policymakers to address the potential ecological impact of the biofuels industry.
"We think ethanol is a good thing," he said. "We just want to make sure we have our eyes wide open as we go into this."
And there are global ramifications to the ethanol boom as well: Poor people in the developing world could face higher prices for food as ethanol demand drives up global grain prices.
"What this is shaping up as at the global level is competition between the 800 million people who own automobiles and the 2 billion low-income people in the world, many of whom are already spending over half their income on food," said Lester Brown, president of the Washington, D.C.-based Earth Policy Institute.
A welcome change: Higher farm income
Iowa farmers have another view. To them, the ethanol boom is the best thing to happen to rural Iowa since the Soviet grain buys of the 1970s.
"That wealth is generating revenues that we haven’t seen in the past," said Craig Lang, a dairy producer who is president of the Iowa Farm Bureau. "It’s generating an opportunity for new homes and new schools and all of those things we’ve been lacking in the last two decades."
Farmers say concerns about the corn supply are overblown. They point to the steady increases in corn yields, due in part to genetically modified varieties that are more resistant to pests and therefore drought. In 2005, the average corn yield reached 173 bushels per acre in Iowa, up 20 percent from 2000 and up more than 40 percent since 1995.
Seed companies such as Pioneer Hi-Bred International are rushing to develop new varieties of corn that will yield still more bushels per acre and more ethanol per bushel of grain.
Using corn for ethanol doesn’t necessarily rob livestock of feed, either. The fermented mash, or distiller’s grain, left over from ethanol production can be fed to beef and dairy cattle in lieu of corn. Hogs and poultry can eat distiller’s grain in relatively small amounts.
Ethanol plants also have increased the amount of ethanol they can distill from a bushel of corn, moving from 2.5 gallons a few years ago to 2.7 gallons today. A leading ethanol producer, Broin Cos., claims to have reached a yield of about 3 gallons to the bushel.
With continued increases in corn yields and distillery efficiency, the National Corn Growers Association estimates that 15 billion gallons of ethanol can be distilled from corn nationwide by 2015 – triple this year’s production – without having a significant impact on food and feed markets.
By that time, according to goals set by the Bush administration, the nation will be well on its way to economically producing ethanol from crop waste, perennial grasses and other sources of biomass that are much more plentiful than corn. The first biomass distillery in Iowa, to be developed by Broin, could be in operation as early as 2009.
Rick Tolman, the NCGA’s chief executive, said the 15 billion-gallon target, based on corn only, is "very reasonable and conservative. We were a little surprised with all the hysteria that’s going on with this issue."
Outlooks differ in livestock industry
Livestock producers have mixed views about the growth in ethanol production. Because cattle can readily eat distiller’s grain, feedlot operators and dairy farms have little to fear from a run-up in grain prices. Pork and egg producers – Iowa ranks first in both commodities – are more sensitive to the price of corn.
"It’s going to put pressure on the livestock industry to fine-tune what they do and be as efficient as we can to make profitability," said Bill Gass, feed manager for Golden Oval Eggs, a farmer-owned cooperative with operations in Minnesota and Iowa. "Will we lose some livestock producers? I think we probably will."
Hens can eat a diet of up to 15 percent distiller’s grain, he said. Most of the feed is still corn.
Eugene Ver Steeg, president of the Iowa Pork Producers Association, said the government should waive the nation’s ethanol mandate if corn supplies become too tight.
The 2005 energy bill allows such waivers if the mandate, which will be 4.7 billion gallons in 2007, would cause economic or environmental harm.
"All in all, I welcome the ethanol industry, and I am looking forward to having our energy come out of Iowa rather than Saudi Arabia or Iran," said Ver Steeg, who raises about 60 percent of the corn he needs for his hogs.
Tyson Foods, which slaughters cattle at Denison, expects the ethanol plants to draw cattle production to the Midwest. That "is positive for us, because that’s where many of our beef processing plants are located," said Tyson’s Bond.
Add acres, cut sales or buy from outside?
Iowa’s existing distilleries can produce 1.6 billion gallons of ethanol per year, according to the Iowa Renewable Fuels Association. The plants now under construction or expansion will add a billion gallons of capacity. Several more are nearing construction, including a 275 million-gallon-a-year plant that Illinois-based Archer Daniels Midland plans in Cedar Rapids.
The estimates of future corn needs developed at Iowa State are based on supplying about 60 ethanol distilleries, which would produce about 5.9 billion gallons.
Monte Shaw, executive director of the Iowa Renewable Fuels Association, says many of those proposed plants will not be built, partly because of soaring construction costs. He expects about a dozen of the proposed plants to materialize in the next two to three years. Together, they could produce up to a billion additional gallons of ethanol.
Still, that would push the state’s ethanol output to more than 3.6 billion gallons a year, which at existing usage rates would consume nearly 1.3 billion bushels of corn, or two of very three bushels that Iowa farmers harvested this year.
So whatever the final number of plants, the state will still need significantly more corn.
Farmers could produce additional corn in Iowa from the 2 million retired acres in the federal Conservation Reserve Program, but how much is not clear. The USDA has estimated that as much as 7 million acres of CRP land throughout the Corn Belt could be brought out of the program.
Iowa could also reduce the amount of corn that is shipped out of the state.
Finally, farmers contend some of the additional corn supplies could be brought into Iowa from other states, an idea disputed by Wisner, the Iowa State economist.
"Where would we get it from?" Wisner asked. "Given the number of new plants in the planning stage, I don’t see where we would find a ready supply of corn in neighboring states."
Bet the farm on it: Prices are going up
Whatever the answer, no one doubts that the price of corn will go up as ethanol plants compete with livestock producers and other buyers for grain.
In Sioux County, livestock farms and feed suppliers already have to bring in corn from South Dakota, Minnesota and neighboring Iowa counties, even though Sioux is the state’s second-largest producer of corn after Kossuth County. Local farmers were getting more than $3.25 a bushel for their corn recently, up from $1.90 a year ago.
Sioux County is home to 2.3 million laying hens, nearly 1 million hogs, more than 200,000 cattle, and an ethanol plant, Siouxland Energy and Livestock in Sioux Center. The plant produces 25 million gallons a year and is being expanded to 35 million gallons. There are two other plants, which together produce more than 100 million gallons annually, nearby in Marcus and Ashton.
Three other ethanol plants have broken ground or are under development in neighboring Plymouth and O’Brien counties.
"It’s really going to put a bite onto it as far as where that corn is going to come from," said Skip Hein, general manager of Midwest Farmers Cooperative, which has an elevator in Sioux Center.
Hein’s co-op still ships up to 12 million bushels of corn out of state by rail, primarily to the Southwest and California. But those shipments may have to stop if the planned ethanol plants in northwest Iowa are built, he said.
John Hansen, grain manager of Farmers Cooperative Society in Sioux Center, used to joke that he would someday have to ship in corn by rail to supply local feed demand. The idea is no longer far-fetched.
"I’ll buy it where ever it takes to get corn," he said. "Does that mean the livestock guy has to pay more money? Yes. Does that mean the ethanol plant has to pay more? Yes."
To keep up with the demand, Sioux County farmers increased their plantings from 230,000 acres in 2001 to 251,000 in 2005. Soybean acreage dropped, from 194,000 in 2001 to 172,000 last year.
But soybean prices are rising, too, and the crop produces so well in the county – yields can reach 70 bushels per acre – that farmers may be reluctant to switch too much of their acreage to corn unless its price keeps increasing, local Extension specialists say.
Mark Rensink, who raises corn, soybeans and hogs near Sioux Center and also has invested in the Siouxland plant, has stuck to a 50-50 rotation of corn and soybeans for now. He isn’t sure what he will do in the future.
"Where is it going to stop? I’m not sure," Rensink said. "Hopefully, we won’t overdo a good thing."
Reporter Philip Brasher can be reached at (202) 906-8138 or pbrasher@dmreg.com