Impacts of Expanded Ethanol Production on Southern Agriculture
Susanto, Dwi, Rosson, C. Parr, Hudson, Darren, Journal of Agricultural and Applied Economics
This study analyzes the potential impacts of expanded ethanol production on southern agriculture. Results of regression analysis suggest that acreage planted for field crops (corn, cotton, soybeans, and wheat) is inelastic with respect to relative prices. The results provide statistical evidence of potential significant acreage shifts favoring corn over cotton, soybeans, and wheat. Simulations indicate that higher corn prices will increase corn acreage, but the South continues to be a deficit corn region. U.S. corn production is capable of supplying domestic demand for ethanol, feed for livestock and poultry, and other uses, while maintaining exports at more than 2 billion bushels annually.
Key Words: acreage shifts, corn exports, ethanol production, southern agriculture
JEL Classifications: Q11, Q42
Ethanol production in the United States increased fivefold over the last decade, reaching 4.86 billion gallons in 2006. It is expected that ethanol production will grow more rapidly in the future as industry expansion takes place and the mandatory Renewable Fuel Standards (RFS) through the Energy Independence and security Act (EISA) of 2007 requires fuel producers to use at least 15 billion gallons of ethanol by 2015. The Renewable Fuels Association (RFA) reported that there are currently 141 active plants capable of producing 8 billion gallons of ethanol per year. Most of these existing facilities are located in the Midwest and North Central United States. An additional 59 plants under construction and 7 plants under expansion will add 5.406 billion more gallons of capacity, bringing total biofuels capacity to 13.4 billion gallons.1
The rapid expansion of ethanol production affects virtually every aspect of the field crops sector, ranging from domestic demand and exports to prices and the allocation of acreage among crops (Wescott; Elobeid et al.). For the southern states,2 the impacts have not yet completely manifested themselves but it is likely that the South will face adjustment challenges in the future if requirements of EISA are fully met. First, increased corn demand will initially cause higher corn prices, inducing farmers to increase corn production (Schoonover and Muller). Corn production can be increased by increasing corn acreage or yields. Expansion of corn acreage will likely occur at the expense of other crops such as soybeans, wheat, and cotton or possibly some of the land currently held in the Conservation Reserve Program. This latter outcome is unlikely, however, given the substantial penalties for withdrawing land before the end of the agreed-upon contract period. second, the South has historically been a grain-deficit region. Therefore, an increase in demand for corn for ethanol feedstock will have a significant impact on the livestock and poultry sectors because they compete directly with the ethanol industry for corn supplies.
The main objective of this study is to analyze the potential impacts of expanded ethanol production on southern agriculture, utilizing the RFS set forth in the EISA 2007. The specific objectives are (1) to analyze the impact of ethanol production on corn area planted and competing commodities: cotton, wheat and soybeans, (2) to project future corn supply and utilization, and (3) to describe the impacts of ethanol production on livestock and poultry industries that rely on corn as an important input.
Table 1 shows area planted for the four main crops that were analyzed (corn, cotton, soybeans, and wheat). Grain sorghum was included in the table for discussion purposes, but was not explicitly analyzed in the study. Excluding 2007, area planted for corn had been relatively stable, with slight declines occurring in 2001 and 2006 (Table 1). Soybeans and wheat exhibited a downward trend. Cotton acreage showed a light upward trend over the sample period. Before 2007 it does not appear that higher corn prices had any major impacts on the distribution of crop area. …