A recent study from the Center for Agricultural and Rural Development at Iowa State University found that the growth in ethanol production in the United Stated reduced wholesale gasoline prices by $1.09 a gallon last year. That is a significant amount, especially if that amount were added to our gasoline prices. Another $1.09 a gallon would have hurt all of us.
Two economists, professors Dermont J. Hayes at Iowa State and Xiaodong Du at the University of Wisconsin-Madison, examined the impact of increased ethanol production going back to 2000. From January 2000 to December 2011, this ethanol reduced wholesale gasoline prices by 29 cents a gallon across all of the U.S.
By regions, the Midwest had the biggest reduction of 45 cents, while the east and west coasts had a reduction of about 20 cents a gallon. In 2011 the impact on gasoline prices was found to be substantially higher because of more ethanol produced and higher crude oil prices. The average reduction was $1.09 across all regions and ranged from 73 cents a gallon in the Gulf Coast to $1.69 in the Midwest.
According to the study, average crude oil price went from about $80 a barrel to $95 in 2011. Average wholesale gasoline prices increased 30 percent. This wider than normal price difference between ethanol and gasoline provided further economic incentive for more ethanol production.
This study suggests to us that ethanol production benefits our economy in several ways. The impact of lower gasoline prices is a huge one.
An improved market for corn, helping farmer incomes, is another benefit. Higher corn prices have helped farmers pay down debt, buy new equipment and generally improve their lives.
Every gallon of ethanol we produce and use as fuel in our cars, trucks and other equipment is one less gallon of fuel we have to import from foreign sources. It helps us become energy self-sufficient.
Also, the production of ethanol takes about one-third of the corn. Another portion is fed to livestock as distillers grain, either wet or dried. So very little of the grain is lost but used in by-products.
Some groups are rightfully concerned that, with the hunger in the world, we should be feeding the corn to people rather than using it for fuel. We can and do produce enough corn for both. The problem we have in the world is getting the food to where it is badly needed. Some governments are not willing to let outside food supplies enter their country.
As we look around our area this spring, we see field after field planted to corn and soybeans. Dan Keep, agronomist for Western Reserve Farm Cooperative, says that more corn than usual has been planted, and "more of everything has been planted because it has been great planting weather."
Drive around the area and see the large fields that have been planted. Earlier in the year you would have seen some good-sized equipment tilling the ground and planting the crops. But at this writing, we are really needing a good rain. A nice, gentle, soaking rain with warm weather and farmers could sit on their back porch and watch the crops grow. Maybe that's too much to expect. And, unfortunately the weeds would grow too!
Parker is an independent agricultural writer.