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Corn Farmers Prosper, Others Lose Out with Ethanol Use

May 15, 2008 at 6:45 PM EDT
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As corn prices have risen with demand for ethanol in recent years, corn farmers are prospering. But others -- such as hog farmers who rely on corn feed -- are facing tough times, and some critics blame ethanol demand for rising food prices worldwide.

ELIZABETH BRACKETT, NewsHour correspondent: Illinois farmer Steve Ruh has been anxiously awaiting warmer, drier weather so he can get his corn planted and take advantage of the highest corn prices in years.

STEVE RUH, Ruh Farms: We always have Mother Nature to deal with. And that, of course, is the trump card over all. But when you can market your crops in a manner that we can today, it certainly gives you a positive feeling going into the growing season.

ELIZABETH BRACKETT: Those high prices are due in part to the increasing demand for ethanol, says Ruh. Last year, 23 percent of U.S. corn went into ethanol production, and next year almost 30 percent of the crop will go into biofuel.

Ruh farms 2,000 acres and used to plant about half-corn and half-soybeans, along with some wheat and alfalfa. Now, corn prices are so good, Ruh will put 70 percent of his land into corn.

STEVE RUH: Corn prices have gone up certainly because of the demand for ethanol and America’s passion for green fuel and going green. That has certainly helped. The weak dollar certainly helps. So we have record exports right now. And that along with ethanol has really driven the price high.

ELIZABETH BRACKETT: But in a world where corn-growers can be seen as the winners, others are not doing so well.

The biggest losers in the push for more ethanol have been livestock producers, particularly hog farmers. Every time the price of corn goes up by a dollar a bushel, it costs $10 more to get a hog to market.

Those high costs have John Kellogg wondering if he will be able to keep the hog farm that his great-great-grandfather began in northeastern Illinois in 1846.

Kellogg’s breeding sows produce 32,000 pigs per year. Unlike cows and chickens, a pig’s diet is almost solely corn-based. When the price of corn doubled last year, Kellogg began losing $32 a pig.

He puts much of the blame squarely on the demand for ethanol.

JOHN KELLOGG, Kellogg Farms: I think the increased demand for corn due to ethanol has significantly impacted the cost of corn for me. We moved a hog operation, the finishing portion of it, to Iowa several years ago because corn was cheaper in Iowa than it was in Illinois.

It just happened there’s an ethanol plant about 10 miles down the road from our hog operations. And all of a sudden, corn is not cheaper in Iowa. So it’s had a direct impact on us.

Ethanol boom apexes, squeeze is on

ELIZABETH BRACKETT: More ethanol plants are coming online every day in the push to meet federally mandated renewable fuel standards of 15 billion gallons of ethanol capacity by 2015. It is that steady demand that has helped moved the market up.

Economist Dave Lehman directs commodities research at the Chicago Mercantile Group.

DAVE LEHMAN, Chicago Mercantile Exchange Group: It is a new demand factor in the corn market. That's without question. It's doubled, in terms of its percentage of our corn use in the last two years.

However, corn production is increasing very rapidly, as well. We're using biotechnology, adapting that to increase yields. Acreage of corn increased the past year.

Our corn production in the U.S. last year was over 13 billion bushels, and that was up from about 11 billion the year before, so a significant increase in production.

ELIZABETH BRACKETT: But the increased production has not made a dent in the price hog-growers are paying for corn, and Kellogg says many are ready to give up.

JOHN KELLOGG: What I see happening in this state is many producers that have a certain age, that are at the point, they say, you know, why struggle with this anymore? So they just quit.

Other people I think are struggling to find a banker that will stick with them until we see the increase in price of pork relative to the input cost. So it's a very sensitive time in the pork industry.

ELIZABETH BRACKETT: Livestock producers are not the only ones complaining. Rising corn prices have been linked to higher food prices around the globe.

The cost of food has soared as more and more corn is being produced for fuel, not food. U.S. Department of Labor numbers show that the staples are up dramatically: eggs, almost 30 percent; milk, just over 13 percent.

GRIFFIN CAHILL: The food prices have escalated so much and noticing it every week in our food bill. The price of eggs, remember when they were 69 cents, and now they're a $1.79? And orange juice and everything that are the basics that we eat, including apples. I mean, apples, $1.29 a pound! They used to be 39 cents a pound.

LAVITA MITCHELL: They're high, very high, and it's ridiculous. You've got to decide if you're going to buy food, pay rent, or go to the doctor, and that's the honest-to-God truth.

Ethanol perhaps one of many causes

ELIZABETH BRACKETT: But is it the growing demand for ethanol that has spiked the cost of food? Vic Lespinasse has traded grains on the Chicago Board of Trade for 25 years. He says ethanol is only part of the problem.

VIC LESPINASSE, broker and grain analyst: It's a contributing factor, although I don't think it's nearly as influential as the weather. That is the driving force in determining grain prices, much more so than any other influence.

But still ethanol demand has increased the price of corn, which has increased prices at the grocery stores, but it's a relatively minor influence compared with the weather and other factors, growing living standards, for example, in places like China and India.

People want to eat better. To eat better, that means they want more meat. More meat means more feed for livestock, and that's helped push prices up, also.

ELIZABETH BRACKETT: Rising petroleum prices are also a big part of the equation, since they affect the cost of transportation, fertilizer and packaging.

But it is the government's mandate for ethanol that has doubled the demand for corn and sent prices soaring. To try and offset those high prices, the Bush administration has touted byproducts of ethanol production as an alternative food source for livestock.

Roger Conway, the director of energy policy for the U.S. Department of Agriculture, also says making ethanol out of something other than corn eventually will help.

ROGER CONWAY, U.S. Department of Agriculture: We don't believe that we should have 100 percent of corn should be devoted to ethanol. That's why the administration is focusing over the longer term at looking at cellulosic material, like ag residues, forestry residues, municipal solid waste, and energy crops, as an opportunity for developing new types of fuels.

ELIZABETH BRACKETT: But no large-scale cellulosic ethanol plant is scheduled to come online before 2010. That leaves corn producers a few more years to enjoy their high corn prices, while their neighbors down the road continue to struggle.