Increased ethanol demand from the Energy Policy Act of 2005 will boost corn prices by an average of 12.5¢/bu., according to a study by the University of Missouri Food and Agricultural Policy Research Institute (FAPRI).
The energy bill mandates use of 7.5 billion gallons of renewable fuels by 2012. The FAPRI economists based their study on 7 billion gallons of that being U.S. ethanol produced from corn.
Overall, net farm income is estimated to increase by an average of $298 million/year during 2011-2015. Corn production is expected to increase to meet ethanol demand while corn exports and carryover stocks decline. Growers of other grains should also benefit from increased demand.
Livestock and poultry sectors face relatively small changes in prices, according to the report prepared under a USDA grant. Livestock feeders who feared increased competition for feed grains from ethanol plants can benefit from lower by-product feed costs.
The increase in net farm income was smaller than expected, says Pat Westhoff, FAPRI policy analyst. However, computer models of the ag economy show that lower government payments offset higher corn prices.
Savings to taxpayers from reduced federal payments could amount to $1 billion per year from 2011 to 2015.
Westhoff says ethanol production has more than doubled in the past four years, with 75 plants online. Capacity is expected to double again by 2012.
The 58-page report is available on the Internet at www.fapri.missouri.edu/.