U.S. Has "Foot On The Gas" On Ethanol: Vilsack; Analysis
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U.S. Has "Foot On The Gas" On Ethanol: VilsackDate: 28-Feb-112. http://planetark.com/enviro-news/item/61329
Author: Charles Abbott
A truckload of corn is dumped into a chute at the Lincolnway Energy plant in the town of Nevada, Iowa, December 6, 2007.
Photo: Jason Reed
"There is no reason for us to take the foot off the gas," said Vilsack, referring to biofuels at a two-day Agriculture Department conference on the outlook for this year's crops. "We can do it all."
A record 5 billion bushels of corn will be used to make ethanol in the marketing year opening on Sept 1, up slightly from this year, said USDA. It also forecast food prices will rise 3.5 percent this year -- double the U.S. inflation rate.
Former president Bill Clinton, who spoke shortly after Vilsack, said there were stark trade-offs in using crops to make fuel. They affect the food supply in other nations as well as decisions around the world on where to grow crops.
"I think the best thing to say is we have to become energy independent but we don't want to do it at the cost of food riots," said Clinton. "The more biofuels we grow here, the less crops we have to put on the international market."
Vilsack said biofuels are an important component to U.S. energy security that also boost rural employment and income. A 2007 law guarantees a rising share of the motor fuel market to ethanol, peaking at 15 billion gallons from 2015. Production is running at 13.5 billion gallons a year now.
U.S. farmers are capable of growing enough corn to meet rising demand for food, fuel, livestock feed and exports, he said. This year's corn crop is projected for a record 13.73 billion bushels, up 10 percent from last year. Corn supplies are expected to be tight for one or two more years, however.
Clinton suggested annual reviews of supplies to assure there will be "good food at affordable prices," to maximize energy independence and to prevent climate change but did not say who should carry out the reviews.
Analyst Gary Blumenthal of consultants World Perspectives said biofuel use reduces U.S. grain exports and "certainly is incentivizing production elsewhere."
"The inequity in the situation is biofuel is a mandated market," Blumenthal said. "You're not allowing food to compete fairly with fuel" in buying supplies.
Dan Glickman, agriculture secretary during the Clinton era, said "by and large, it (ethanol) has a positive impact" on the economy and was only a small factor in food prices. Glickman said Clinton did not suggest government rationing or grain.
Some 4.95 billion bushels of corn are forecast to be turned into ethanol in the year ending Aug 31. Joe Glauber, USDA chief economist, said usage would rise marginally in the new year because ethanol is saturating the market at the 10 percent blend that is standard.
The Environmental Protection Agency has approved a 15 percent ethanol blend for cars and light trucks made since 2000, about 60 percent of the fleet. The U.S. House (of Representatives) voted last weekend to block EPA from implementing E15 and to bar use of federal funds to install "blender" pumps that dispense up to 85 percent ethanol in fuel, but the Senate has yet to act on such legislation.
Corn grower and ethanol trade groups said Clinton was wrong. There is plenty of fallow farmland that could be used for biofuels without harming the environment and that petroleum is a bigger factor in food prices, they said.
Oil prices rocketed above $100 a barrel on Thursday due to unrest in the Middle East but retreated slightly. U.S. crude oil settled at $97.28 a barrel after hitting its highest price since September 2008.
( Editing by David Gregorio)
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Analysis: Forget Fuel Costs, U.S. Farmers Cheer Oil SurgeDate: 28-Feb-11
Author: Carey Gillam and Rod Nickel
Not too long ago, a surge in oil prices such as this week's would have caused a groan of misery from the U.S. farm belt, forced to pay higher prices for tractor fuel and fertilizer. Today, farmers are far more likely to cheer.
The farm sector's response to a surge in fuel costs has inverted for two important reasons: the rise of biofuels now means more corn and soybeans are likely to be drawn into the fuel pool; and the disconnect between natural gas and crude prices means fertilizer costs are not being dragged higher.
While neither trend is new, it's been put in sharp relief this week as U.S. oil prices surged to $100 for the first time since 2008 amid Middle East unrest. U.S. crude futures rose toward $100 per barrel again on Friday before easing.
On balance, the surge is far more likely to lend support for a near-record corn sowing season than it is to crimp farm income through higher costs for crop chemicals and transportation charges, analysts say.
"All indications are that the only thing that will keep a farmer from planting this year is if he drops dead walking out the door ... and then somebody else will grab his tractor and plant for him," said Missouri corn farmer Richard Oswald.
"There is every incentive in the world to plant. High oil prices are just one more incentive."
In addition, the surge has come long after most farmers have tilled their fields and locked in fertilizer purchases, leaving them better prepared than in 2007-2008, according to National Corn Growers Association CEO Rick Tolman.
"When we saw this (run-up) a couple years ago, it really raised input prices and squeezed the margin," said Tolman.
This year, input costs may pinch, but they won't puncture the upbeat mood. Grain futures have fallen sharply this week as risk-averse speculators flee the market, but most remain within sight of their records struck in 2008.
Profits this year look to be strong. The U.S. Department of Agriculture has forecast farm income to be $94.7 billion in 2011, up 19.8 percent from the 2010 forecast and the second-highest inflation-adjusted value in the past 35 years.
To be sure, higher oil prices raise transportation costs for farmers just like everyone else.
However, fuel to run farm machinery, trucks and other equipment accounts for only a tiny portion of overall inputs -- about 3 percent of the total cost of growing corn on an acre of land in central Illinois this year, said Gary Schnitkey, professor of farm management at University of Illinois.
That's more than offset by the bullish impact on grain prices.
"I think crude oil probably causes (crop) commodity prices to go up more than costs," Schnitkey said.
Another important factor is natural gas, used to make urea, a source for nitrogen fertilizer used on corn. Fertilizer generally accounts for more than 40 percent of the total operating costs for corn, versus 16 percent for soybeans, according to USDA data.
Until the past few years, a rise in oil prices would almost certainly have dragged natural gas higher; however the discovery of decades' worth of cheap domestic shale gas has put a semi-permanent damper on the market, keeping prices at unseasonally low levels even as oil surges.
Partly as a result of the benign natural gas cost, fertilizer prices look to hold steady through the U.S. spring planting season and then soften, said David Asbridge, president of NPK Fertilizer Advisory Services in St. Louis, Missouri.
"At the world level, we've got plenty of nitrogen fertilizer," he said. "We've got a lot of imports coming into the U.S. and there's really no reason for prices to stay as high as they are."
Oil prices have risen to a record premium over natural gas on an energy-equivalent basis. Natural gas futures traded below $4 per million British thermal units (mmBtu) on Friday, near a three-month low.
Political unrest in Libya, which pumps nearly 2 percent of world oil output sent Brent crude prices near $120 a barrel to a 2-1/2 year high on Thursday, before easing off its top on Friday.
All that means the mood in the countryside remains fairly ebullient as corn futures prices hold around $7 a bushel and government agricultural officials look for American farmers to plant 92 million acres to corn this spring, up from 88.2 million acres in 2010/11.
Ethanol makers are expected to consume a record 5 billion bushels of corn this year, or about 36 percent of the harvest, the USDA said.
And with strong global food demand for a growing population, food prices are forecast to rise 3.5 percent this year, nearly double the overall inflation rate.
This year, with natural gas costs staying low, and global demand for short supplies of corn strong, farmers won't be deterred from planting corn.
"This year, with the price of corn where it is, and the yield advantage of corn over soybeans and the fact that it's good to rotate, all of those are in favor of corn holding its acreage," said North Dakota State University agronomist Joel Ransom.
(Additional reporting by Jeanine Prezioso in New York; Editing by Clarence Fernandez and Lisa Shumaker)
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