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Siphoning Off Corn to Fuel Our Cars
No place demonstrates the competing demands on corn better than Iowa, one of the two biggest corn-exporting states. Iowa is home to 28 ethanol plants, which consume more than a quarter of its corn crop; two dozen others are under construction or in planning stages.
Two leading oil pipeline companies are exploring the feasibility of building a $3 billion ethanol pipeline, the first of its kind, to link Iowa and other parts of the Midwest with motor-fuel markets in the East. It would carry 3.65 billion gallons a year and give another industry a vested interest in maintaining high ethanol output. Because of this domestic demand, Iowa's exports of corn are expected to shrink to less than half of current levels in the next couple of years. Nationwide, corn stockpiles are dwindling.
All that could make this cycle of corn prices different from previous ones, when prices eventually fell back. "As long as you keep that ethanol industry running, grain prices will be high," says Bruce Babcock, professor of economics and the director of the Center for Agricultural and Rural Development at Iowa State University. "If you didn't have this large growth in ethanol corn, prices would be nowhere near where they are today."
Corn as Fuel
As consumer prices climb, more and more people are pointing fingers at ethanol plants, like the one VeraSun Energy built here just outside Charles City. VeraSun is riding the crest of the ethanol boom. Thanks to internal expansion and the purchase of a rival, VeraSun will become the nation's biggest producer of ethanol by the end of the year, with about four times as much capacity as it had in 2005.
The plant is hard to miss. Its two massive concrete silos reach 150 feet into the air; each one holds half a million bushels of corn, delivered by an average of 110 brimming trucks every day. The silos are connected to a distillery with giant shiny steel vats for milling the corn, then fermenting and distilling it into 200-proof, fuel-grade ethanol. The ethanol is shipped out by train, 84 black tanker cars at a time.
The VeraSun facility is buying up almost all the corn produced in Floyd County and much of the corn produced in the four surrounding counties. While that might seem anathema to East Coast grocery shoppers, around here it makes VeraSun pretty popular.
"From Washington where Lester Brown is sitting, agriculture can't do enough to satisfy the nation's energy needs and meet all the demands put on it for food and feed," says Matt Liebman, an agronomist at Iowa State University. "But from agriculture's point of view, [ethanol] enhances market opportunities. So it really depends on your perspective."
Some folks around here get defensive when talking about corn prices. Johnson, the corn farmer, points out that the share of household income that goes to buying food has dropped steadily over the past 50 years; U.S. government statistics say that the portion is half of what it was in the 1950s. And of that portion, farmers get about a fifth; the rest goes to middlemen, food manufacturers, transportation, packaging and advertising. Indeed, farm groups say that energy costs in transportation and packaging have boosted food prices more than the price of corn has.
"There's no doubt that food prices are going to increase, but I suggest to you that food is still reasonable," Johnson says.
Don Endres, the chief executive of VeraSun and owner of 20 percent of its shares, grew up on a farm in Watertown, S.D., where his father and grandfather raised corn. His brothers are still farmers.
Endres says ethanol plants aren't to blame for high corn or food prices. He notes that the corn used to make ethanol isn't the kind that people eat anyway. Moreover, he says, ethanol plants like VeraSun's extract the starch in corn for fermentation while producing a dry feed that contains protein and nutrients. Piles of it are collected from industrial dryers at the plant. VeraSun then sells that feed, known as dried distillers grain, back to farmers who raise animals. Much of it goes to Texas, Mexico and China; it accounts for about 15 percent of VeraSun's revenue. When the grain is mixed with inexpensive starch, such as alfalfa, farmers can save money, Endres says.
Finally, he says, yields on corn will continue to increase so that the current acreage will be able to meet both food and fuel demands. His grandfather got 40 bushels to an acre, his father got 80, and his brothers get 160. Someday, Endres says, farms will get 300 bushels an acre.