January 16, 2008

Is ethanol taking food out of peoples mouths?

Updates March 4, 2008

A quote from a recent article caught my attention.

No kidding: oil’s $100 a barrel, hydrogen’s just a gas emitted by politicians, and ethanol threatens the food supply.

So let's look at what effect ethanol is having on the availability of food.

The average price for a bushel of corn for the 2005 crop year was $2.00. At that price corn farming wasn't very profitable so in 2006 less acres of corn were planted.

As we know now, several states bans of the use MTBE in gasoline went into effect in 2006. This caused ethanol demand to grow and corn prices went up as a result. But at the point that corn prices started to rise in reaction to the increased demand it was too late to change planting patterns. So for that reason all of the changes in planting patterns occurred in 2007.

Since the price of corn in 2005 was at a low point a person can assume that it was at a point where supply was greater than demand. That is why I didn't see a need to go back any further than 2005 with my numbers.

So let's look at how corn production since 2005 compares.

Corn Production

2007 - 13,167,741,000 bushels
2006 - 10,534,868,000 bushels
2005 - 11,112,072,000 bushels

Amount of corn used to make ethanol.

According to the April 2006 edition of Amber Waves the amount of ethanol produced by a bushel of corn is 2.7 gallons. So to get the number of bushels used in ethanol production I took the years total number of gallons of ethanol produced and divided it by 2.7. This is just a close estimate but it lines up fairly well with this graph from the Iowa Corn Growers Association.

2007 - 6,500,000,000 gallons / 2.7 = 2,407,407,407 bushels
2006 - 4,855,000,000 gallons / 2.7 = 1,798,148,148 bushels
2005 - 3,904,000,000 gallons / 2.7 = 1,445,925,926 bushels

Amount of corn left out of each years harvest after the amount used for ethanol has been subtracted.

2007 - 13,167,741,000 bushels - 2,407,407,407 bushels = 10,760,333,593 bushels
2006 - 10,534,868,000 bushels - 1,798,148,148 bushels = 8,736,719,852 bushels
2005 - 11,112,072,000 bushels - 1,445,925,926 bushels = 9,666,146,074 bushels

As you can see the amount of corn left over for other uses has actually gone up since 2005. So at least as far as corn is concerned ethanol isn't limiting the amount of food on the market.

As we now know, the increased acres devoted to corn came at the expense of other crops. The two crops that lost the most acres between 2006 and 2007 to corn were soybeans and cotton. Since cotton isn't a food item we won't look into that.

Soybeans are grown for their protein content. Soybeans are about 80% protein and 20% oil. Most soy protein is used as animal feed. So corn production did take some soy protein out of the overall food supply. But ethanol production only uses the starch portion of the corn kernel. The remaining material is known as distiller grains and is high in protein and is used in place of soy meal in animal rations. So the production of ethanol actually limits the amount of soybeans that needs to be grown.

So let's look at how soybean production and ethanol relate.

Soybean Production

Each bushel of soybeans produces 11 pounds of oil and 48 pounds of soy meal (SM).

2007 - 2,594,275,000 bushels x 48 = 124,525,200,000 lbs SM
2006 - 3,188,247,000 bushels x 48 = 153,035,856,000 lbs SM
2005 - 3,063,237,000 bushels x 48 = 147,035,376,000 lbs SM

Now let's see how much distillers grains contributed. Each bushel of corn made into ethanol produced 17 pounds of distillers grains. First I will multiply the number of bushels of corn that went to ethanol production times 17 to get the number of pounds of distillers grains produced.

2007 - 2,407,407,407 bushels x 17 = 40,925,925,919 lbs
2006 - 1,798,148,148 bushels x 17 = 30,568,518,516 lbs
2005 - 1,445,925,926 bushels x 17 = 24,580,740,912 lbs

But since the nutritional value of one pound distillers grains is considered to be equal to .4 pounds of soy meal, I will next multiply the number of pounds of distillers grains times .4 to get the amount of soy meal equivalent (SME).

2007 - 40,925,925,919 lbs x .4 = 16,370,370,368 lbs SME
2006 - 30,568,518,516 lbs x .4 = 12,227,407,406 lbs SME
2005 - 24,580,740,912 lbs x .4 = 9,832,296,365 lbs SME

Now to add the soy meal with the soy meal equivalent.

2007 - 124,525,200,000 lbs SM + 16,370,370,368 lbs SME = 140,895,570,368 lbs
2006 - 153,035,856,000 lbs SM + 12,227,407,406 lbs SME = 165,263,263,406 lbs
2005 - 147,035,376,000 lbs SM + 9,832,296,365 lbs SME = 156,867,672,365 lbs

As you can see the amount of total soy meal equivalent has gone down since 2005 but only by about 10%.

As I mentioned earlier the big shift in planting in response to the increased demand that ethanol production put on corn occurred with the 2007 planting. If you look through the December 2007 crop report you see that a lot of the feed crops increased from the 2006 season to 2007. Barley, which is used to make beer but also is used as animal feed, increased acres planted by over half a million acres. Wheat which is sometimes used as animal feed but mostly human consumption increased it's acres planted by over 3 million acres. Sorghum which is mostly used as an animal feed increased it's acres by over 1 million acres. Even the acres of hay harvested saw an increase of over 1 million acres in 2007.

So even though the amount of soybeans have gone down some, there is quiet a bit more corn left after ethanol now and the other feed grains, wheat, barley and sorghum have all increased. As far I can tell ethanol production isn't causing a shortage of food. If anything it seems as though there is more food being produced now than just a couple of years ago.


Ethanol Production Statistics
December 2007 Crop Report
December 2006 Crop Report
USDA: Crops and Plants
Soybean Facts
Utilizing the Growing Local Supply of Distillers Grains (PDF)


Dave said...

Great article. Living in Iowa we hear a lot from the front lines of the fight for more acreage in terms of corn and soybeans. From what it sounds like, your assessment is right on and the reason prices for the grains are going up might have more to do with a record export of these grains to places like China that can now afford to pay for them. Let's just pray that the midwest can avoid a predicted drought this summer and provide enough grain again for fuel and feed.

Michael A. Gregory said...

I agree. The weak dollar coupled with the economic growth of China and India are pushing exports and driving up prices of not just grains but also dairy products and meats.

I didn't know they were predicting a drought in the midwest this summer. I hope it doesn't happen.

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